The budget that wasn’t meant to happen
It was the budget no one thought would be delivered. Labor strategists were gearing up for a 12 April election, which would have avoided the need to have an early budget.
The Prime Minister’s decision to delay the election due to Cyclone Alfred assured that Treasurer Jim Chalmers would deliver his fourth budget, ahead of a likely May 3 or 10 poll.
Many of the commitments had been announced in recent weeks, with only two notable surprises on the night: a further expansion to income tax cuts, and the abolition of most non-compete clauses.
Consistent headwinds, but an economic stabilisation
Chalmers’ fourth budget confirmed a return to deficit while describing a number of economic headwinds.
Global uncertainty over trade is mounting. Growth is sluggish, though forecast to modestly improve, as is productivity.
But there was welcome news. Australia’s labour market remains historically strong: as our recent analysis had shown, the Albanese Government is completing its first term having overseen the lowest unemployment rates since the Whitlam era. This was forecast to largely remain in place over the forward estimates.
Real wage rises are assumed to be sustained, and inflation, despite a modest projected uptick, is expected to normalise, having already fallen well within the RBA’s target range.
Compared to where we were just a few years ago, this is a strong foundation for a more expansive and structural reform agenda in a second Labor term.
What we liked
Abolition of most non compete clauses
For several years, McKell Institute has been calling for changes to non-competes. Our Easing the Burden paper ahead of the last budget described why action was needed. The reform is an important correction to the labour market which will make moving jobs to chase higher wages much easier for more people.
Responsible Cost of Living measures
The Government’s renewal of energy subsidies was predicted, and reflects the unfinished job on cost of living. Some economists decry these cost of living measures, but they reflect a real-world expectation from voters, while balancing the risk of increasing inflation.
Practical health investments
The commitments to reducing out-of-pocket costs for Australians buying medicines, the expansion of GP consultations under Medicare, and investments in reproductive health are significant new measures that will make a practical difference from the moment they’re rolled out later in 2025.
Fully funded schools
The budget included funding commitments to realise the long held aspirations to full fund Australian schools, formalising deals struck with the states throughout this term. This has been a quieter achievement of this term, but will emerge in time as one of the more impactful efforts of this government.
Whyalla rescue package
In February, McKell’s SA/NT branch detailed the case for government intervention in the Whyalla steelworks, which was committed to ahead of the budget and locked in on Tuesday night.
Reduction in consultant spending
The government foreshadowed a $2.1 billion saving ahead of the budget on Tuesday. One of the major drivers of this saving was $700m in reduced public spending on for-profit consultants. McKell has been vocal in advocating for this kind of reform.
Incentives to drive productivity
The budget described plans to harmonise trade licenses and incentivise states to lower barriers to productivity in each state. These are modest but welcome measures.
What we think needs more work
Structural, long term reform to the tax system
This budget was very much an articulation of the policy achievements of the Labor first term. Accordingly, it has left certain structural reforms under examined, especially to tax. Voters will welcome a modest additional income tax cut. But this is not structural reform. A more substantive tax reform agenda that shifts more of the tax take towards unearned capital, rather than earned labour income, should be more actively explored in future budgets.
A broader productivity agenda
The reform to non-competes eliminates one employer-driven barrier to productivity. But there is more to do to shape our economy in a way that drives greater prosperity in the long term for working people. If Labor is re-elected, it will need to embark on an ambitious productivity agenda that explores other barriers to innovation, labour mobility and broad-based economic growth, or risk seeing living standards slip as they have in comparable economies like the UK.
Tackling low hanging fruit on renting
The government has made significant inroads in housing. But there’s more on the table with regards to renters. In January, McKell published Rewarding Renters, a 4-point plan that talked about restructuring rental assistance to help more people, while making shifting between rentals easier and cheaper for more people by making bonds portable. Though rental reform is primarily in the state domain, there are ways the Commonwealth can facilitate a fairer rental market for every Australian.
Better trade protections to prohibit illegal dumping
Trade uncertainty has made it more likely that Australia could become a soft target for illegal dumping of cheap, imported goods. McKell supports the ACTU’s aspiration that anti-dumping measures should be strengthened to ensure this is less likely.
Interest-free loans for low income Aussies
Before the budget, the Government pledged $50m to a scheme administered by a major bank and charity to facilitate low-interest loans to Australians, providing an alternative to predatory pay-day lenders. While the focus on putting dodgy pay day lenders out of business is appropriate, a better approach would have been to establish a similar product through MyGov — not through a bank. McKell’s Social Emergency Savings proposal outlines how this could be achieved, in a way that is cheaper for government, and easier for loan recipients..
Help to buy is yet to kick in
The Help to Buy shared equity scheme was announced as a Labor pre-election promise almost three years ago. This budget included $800 million to expand the scheme, raising income caps for eligible buyers and increasing the value of homes able to be purchased.
The biggest issue for Australians- and therefore, the biggest facing the Albanese Government – has been cost of living pressures and rising housing costs.
Given the rise in house prices since the scheme was first announced three years ago, perhaps the extra $800 million needed for the scheme’s expansion should have been included in the “unavoidable policy decisions” pool.
Also worth noting
While there wasn’t a lot of new spending, there were two new aspects of this year’s budget worth noting: influencers in the lock-up, and a new “extra money we’ve been forced to find” fund.
In 2025, Gen Z and Millennials are the largest voting blocs. Just as Howard and Costello budgets once targeted boomers, Albanese and Chalmers are pitching to younger voters with free TAFE, HECS cuts, and help for first homebuyers. The Gen Zs and Millennials get their news from social media, so the government is trying to meet them there. Bringing influencers into the lock-up makes sense.
Budget Paper 3 included an interesting pool of funds, $3.5 billion to meet a hodgepodge of commitments, grouped collectively as “unavoidable policy decisions”. This included funds for government services such as modernising My Health Record, , increasing wages for aged care nurses, changes to the Pharmaceutical Benefits Scheme and to fight illegal tobacco.
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