Reading through the budget papers is an exercise in cognitive dissonance

Jim Chalmers’ budget is a carefully calibrated exercise in expectation management, with just a tiny bit of fiscal policy thrown in. 

Labor has clearly spent a lot of time workshopping the political consequences of various decisions. As economics editor of The Sydney Morning Herald Ross Gittins points out, there’s a little of something for nearly everyone in the document, for GPs and small businesses, struggling households and low-income earners, more money for AUKUS, and a surprisingly generous investment in culture. 

The developing political angle on the budget seems to be: “Is it inflationary?” This is an arid debate, made worse by the economic innumeracy of most of the media pursuing it. 

But the inflation narrative probably won’t hurt Labor in the short term. Yes, Chalmers could have been much stronger in tackling inflation. He could have raised taxes, especially on high-income earners and high-profit corporations, or cut spending. He did a little bit of both, but in the main, this budget is fiscally neutral. It probably won’t spur inflation, which is already trending down. If you think the economy is slowing quickly — which Treasury does, forecasting nominal GDP growth of just 1.25% next year — then perhaps steady-state fiscal settings are a good thing.

It probably won’t play out like this in the business media, of course, where neoclassical economists and business shills are lining up to attack Chalmers for not going harder on spending cuts. But ordinary voters hate spending cuts, and are unlikely to care enough about the nuances of fiscal policy for it to make a big difference electorally.

When it comes to the electoral calculations, Labor’s intentions are clear. The more vocal parts of the ALP base have been placated with surprise top-ups to Medicare and welfare, while big business has been handled with kid gloves (even the gas lobby is OK with the tiny tax increase in petroleum royalties). 

Those troublesome stage three tax cuts weren’t even mentioned. Some have read the omission as a coded signal of Labor’s intentions to get rid of them, but a simpler explanation is that Chalmers wants some wriggle room to trim them at the top end in coming years. Adjusting the top bracket of the tax cuts next could deliver easy billions, which might just help Labor bring in another surplus.

Ah, the surplus. You knew we’d end up talking about it, didn’t you?

Chalmers worked with Wayne Swan in the dog days of the Gillard government, when Labor bravely kept promising surpluses and repeatedly failed to deliver. Surplus/deficit politics are among the dumbest of Canberra obsessions, but the sad reality is that many voters do equate surpluses with sound economic management. Last night’s surplus, a slim $4 billion, is tiny in the broader sweep of a $680 billion government budget. But it’s politically priceless for a Labor that has a bad case of PTSD on “debt and deficit disaster” beat-ups.

Reading through the budget papers carefully is an exercise in cognitive dissonance. On the one hand, full employment and high commodity prices are showering the Treasury with extra revenue, so much extra that Chalmers clearly decided to spend some extra dollars in the run-in to Tuesday night’s speech.

But look at the economic forecasts, and there are tough times ahead. Nominal GDP growth will be just 1.25%, unemployment will rise and household consumption will fall. Throw in Australia’s omnipresent housing crisis and all this may start to feel very much like a recession. 

And that’s the real missed opportunity of this budget. It is cautious, steady and politically canny. In that respect, it’s quite conservative. But the challenges facing Australia’s society and economy are deep and complex. Australia’s economy has low growth, low productivity, high profits and falling real wages. Corporate power is so concentrated in key industries that it is distorting the broader economy. We also have a very dirty economy that needs to decarbonise quickly. 

Chalmers’ budget dodges many of these questions. Housing is the paradigm example. We’re not building enough dwellings for our growing population. Worse, the budget papers forecast a collapse in housing investment. Labor’s plans for addressing crippling housing insecurity are modest: a top-up for Commonwealth rent assistance, $67 million to extend the housing and homelessness agreement for a single year, plus a thought bubble about “build to rent” developments. The cost of $2.7 billion for very marginal improvements to the rate of rent assistance simply shows the scale of the affordability crisis. 

Similar criticisms could be made about Labor’s approach to inequality. As the housing market so graphically illustrates, Australia’s income and wealth inequality continues to widen. Even though real wages are forecast to grow again next year, the fall in living standards for poorer Australians has been precipitate. The stage three tax cuts will be a disaster for income inequality, and a few extra dollars a fortnight for jobseekers aren’t going to redress this. 

As former treasurer Josh Frydenberg discovered, the “budget bounce” in electoral fortunes from a successful economic statement is mostly a myth. That’s not to say budgets don’t affect voting intentions. Budgets can be disastrous — Joe Hockey’s spectacular implosion in 2014 completely derailed the first-term Abbott government. 

This budget is unlikely to do the same for Anthony Albanese. But it postpones, rather than prevents, political peril. A centrist document, it stores up trouble for Labor on both the left and right. Chalmers will find the highwire act more difficult in coming years.