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Opinion

Jim Chalmers says no to any more self-licking ice creams

If the Albanese government is going to hit us hard to cover the structural deficit, it is equally important for it not to waste our money.

Phillip CooreyPolitical editor
Updated

In the lead-up to the federal election, Jim Chalmers gave several speeches in which he made it clear Labor would not be cowed by a traditional Coalition debt and deficit scare campaign.

With the budget in ruins thanks to the profligacy demanded by the COVID-19 pandemic, Labor figured, correctly, that the polity was no longer as fiscally disciplined as it once was.

The regard for surpluses and low debt – embedded into the national mindset, especially during the Howard years – had been supplanted by the law of the jungle. Numbers once regarded as eye-watering became eye-glazing as billions upon billions were shovelled out the door during the pandemic.

In that context, Labor saw no risk in going to an election not only promising a slightly worse budget bottom line – $8.4 billion over the forward estimates – but actually making a virtue of it. It called it “better debt”.

It wasn’t the quantity of the spending that mattered, argued Chalmers, but the quality.

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“The days of being lectured on fiscal responsibility by our political opponents are well and truly over,“ he told a business audience in March. “We ask to be judged on the quality of our investments, not just the quantity of the spending.”

Chalmers’ argument was that so long as money was spent on initiatives that drove productivity – childcare being foremost among them – then they would essentially pay for themselves over time with the extra economic activity generated.

Such arguments are not without merit if applied judiciously, but in making it, Labor created a rod for its own back.

Every log roller and tin rattler who subsequently came to Canberra, demanding all sorts of free stuff and already used to the largesse of the pandemic, didn’t bother with proposals as to how to fund their demands.

Instead, they came armed with modelling extolling the broader economic benefits of whatever was being proposed, be it universal free childcare, six months of paid parental leave at full salary, or a massive increase in welfare spending.

The era of the self-licking ice cream had arrived.

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Chalmers, however, now on the Treasury benches and staring at a sea of red ink, changed his tone – most notably late last month when he faced a barrage of calls to bring forward the government’s $5.4 billion childcare boost from the scheduled start date of July 1 next year, to January 1.

Calling a halt to new discretionary spending

The cost of the early start would be about $900 million and, economic dividend or not, Chalmers was having none of it.

“The budget rules see that differently,” he said. “Yes, there is a massive multiplier effect investing in childcare. But the way that the budget rules are set up mean that we account for the cost, but not for the benefit.”

And in doing so, he pretty much drew a line under any new discretionary spending. Not that everyone got the message.

This week, when Chalmers said that despite a “temporary” boost of $50 billion to last year’s budget bottom line, deficits would continue to worsen over future years, the Greens carried on as if the money was guaranteed every year.

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They demanded the full $50 billion be spent on childcare, a move that would dramatically worsen the structural deficit. And put aside the irony that a significant element of the windfall was generated by coal and gas exports, which the Greens want to wipe out.

Worsening structural deficit

The point of this week’s exercise in downplaying the $50 billion windfall was to try to impress upon people that the shape of the budget has changed.

That is, even though revenues are improving and payments are falling, the structural deficit is worsening, thanks to the growing costs of five key items Chalmers calls the “desirable and unavoidable” – defence, health, aged care, interest payments on debt, and the National Disability Insurance Scheme.

It was less than a month after the election that Chalmers, in an interview with this publication, first outlined a two-step strategy that involves building public support for a series of unpalatable measures – tax increases and spending cuts – which he believes will be necessary to address the structural costs in the budget, and for which Labor will seek a mandate at the next election.

“Something has to change about the way that the nation looks at its economic and fiscal challenges, and my contribution to that is to institutionalise some of this thinking,” he said in June.

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This week he expressed it in terms of needing to start a national conversation.

Softening-up exercise in early 2023

While next month’s budget will be little more than an exercise in reconciling the state of the budget, funding Labor’s election promises, and cutting some low-hanging fruit inherited from the Coalition, the softening-up exercise for the policy agenda for the next election begins early next year.

This will involve the release in February of the five-yearly Productivity Commission review into productivity, a budget in May, an intergenerational report three years earlier than due to scare us with budget pressures over the next 40 years, and a “renovated” Treasury tax expenditure statement which highlights the costs of tax concessions across the economy in areas such as superannuation and housing.

“So you can imagine a public conversation by the second half of next year when, I think, the nation will turn its mind to some of these other issues around fiscal sustainability,” he said.

Labor says it is too early to start speculating on what measures it might take to the election, be it dredging up its 2019 agenda of taxing trusts and clamping down on franking credits and negative gearing, or going after super tax concessions and business taxes.

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For now, it is standing by the stage three tax cuts.

When Anthony Albanese used a major address to put a sword through the franking credits policy, he said these were not the type of changes that should be attempted from opposition.

One suspects Labor won’t go after franking credits again, because that has become its version of WorkChoices. Beyond that, all other options are plausible – except death taxes, according to one source.

What we should demand, however, is that if Chalmers is going to hit us to pay for the big five structural costs, it is equally incumbent on him not to waste our money.

He would do well to win support for whatever he has in mind – to stop, for example, the NDIS blowing out to a forecast $60 billion a year by 2030, when we were sold that policy by the previous Labor government on the basis it would cap out at $25 billion.

Phillip Coorey is the political editor based in Canberra. He is a two-time winner of the Paul Lyneham award for press gallery excellence. Connect with Phillip on Facebook and Twitter. Email Phillip at [email protected]

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  • Canberra Observed
  • Greens
  • Jim Chalmers
  • Anthony Albanese
  • Federal budget
  • Opinion
  • Australian economy

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