Key Takeaways
- The healthcare sector will experience significant changes, including a tripling of the Medicare incentive for bulk billing, which will benefit GPs and alleviate pressure on public hospitals.
- Aged care services will undergo a major transformation, with increased funding and higher minimum wages for workers.
- The budget allocates substantial subsidies to promote the development of a green hydrogen industry, emphasizing the government's commitment to renewable energy and sustainability.
The Budget - What is it?
A Brief History
Each May, the release of the Australian federal budget sets the stage for the government’s economic and historical legacy. The Australian Labor Party’s 2023 budget marks the third federal government change since the turn of the century, meaning there have only been two other changes to the budget in the 21st century.
The previous budget under a new government was presented in 2014 by then Treasurer Joe Hockey and Prime Minister Tony Abbott for the Coalition. This budget, known as the Lifters and Leaners budget, declared the end of the "age of entitlement" through extensive reforms in healthcare funding, welfare, and pensions. However, it faced considerable opposition, and the budget’s deep unpopularity resulted in its failure to pass the Senate. Subsequently, the proposed reforms were abandoned and Abbott and Hockey later lost office as PM and Treasurer due to party divisions.
Similarly, in 2008, the last time Australia saw an ALP government, Prime Minister Kevin Rudd presented Labor’s first budget, focusing on curbing inflation and managing cost-of-living pressures – not unfamiliar to what Australia faces today. However, the global financial crisis soon disrupted these plans, leading to some of Australia’s most significant fiscal stimulus measures.
Australian Debt: A Global Picture
The actions taken by the federal government greatly impact the national economy. While Australia's debt has been rising since 2007, it still remains comparatively lower than most other major developed economies. The forecast indicates a temporary decrease in gross debt as a percentage of GDP in 2022-23, followed by a projected increase to 36.5% by 2026-27.
Macro Summation and Outlook
What to make of this budget?
If the budget eventuates as forecast, it will mark the first budget surplus in 15 years, which would be a massive win for Treasurer Jim Chalmers and the ALP. However, this surplus is modest, amounting to $4.2 billion or 0.2% of GDP.
The Australian government has actually managed to under-promise in their October budget and over-deliver in this year’s budget. However, the budget continues to exhibit a structural deficit, particularly due to future bipartisan tax cuts scheduled for 2024-25.
Where did all the money come from?
The unexpected surplus in the budget can be attributed to higher-than-anticipated tax receipts, primarily fueled by low unemployment rates and substantial profits, particularly in the mining sector. However, high inflation remains a central concern for the government and Australians alike, with marginalized communities particularly feeling the pinch of rising inflation. Balancing the need to keep prices in check with the risk of societal challenges, the government is cautious about injecting additional funds into the economy.
What's in this budget?
The government has labeled its spending measures as "reasonable and targeted cost-of-living relief." These measures include small increases in Jobseeker, Commonwealth Rent Assistance, and energy bill relief. While the government argues that these measures will ease inflationary pressures, critics contend that they may further increase aggregate demand and keep prices high.
In the scheme of the overall budget, these cost-of-living spending measures are pretty modest – at $21 billion over four years or less than 0.2% of GDP. This amounts to about $4 dollars a week per Australian.
Industry Level Insights
Health
The budget allocated $5.7 billion over the next five years to triple the bulk billing incentive for consultations for Commonwealth concession card holders and patients under 16. These reforms aim to reduce the burden on hospitals by encouraging patients to seek care from general practitioners instead of public hospital, and encourage private practices to offer bulk billing consultations.
The aged care sector is set for a major shake-up, with direct fiscal assistance for wage rises to support the increasingly important feature of Australia’s economic future, speaking to the significance of fiscal resources being directly deployed to deliberately lift wages.
Care work is a female-dominated sector, and increased wages will directly contribute to gender pay equity. With higher wages and government action to highlight the value of care work, chronic issues of high labour turnover and overworked staff begin to be sustainably reversed.
Energy and Fuel
Following global trends of government intervention, the budget has set aside $2 billion in subsidies to foster the development of a green hydrogen industry, increasing Australia’s renewable energy capacity. However, this funding is locked and contingent on the project being proved as viable. Additionally, the Capacity Investment Scheme is expected to unlock $10 billion of investment in renewable energy projects along the East Coast. Both projects aim to expand the renewable energy industry and encourage investment.
The establishment of the National Net Zero Authority, a new federal energy department, reflects a commitment to transitioning emission-intensive regions to more sustainable industries. This shows the government is serious about engaging in a "just transition" of workers and working towards an environmentally sustainable future.
Housing
The government adopted a novel approach by leveraging the balance sheet to fund social and affordable housing. Investment funds will be created, and the returns generated will contribute to the construction of 30,000 homes and address acute housing needs.
This approach mirrors the Clean Energy Finance Corporation brought in under the Gillard government. It seeks to direct investment into areas of need, with a view that this will draw further private investment, into affordable housing.
Final Word
The current budget presents a temporary surplus, driven by high commodity prices and low unemployment, although the underlying structural deficit remains.
Australia's debt, while rising since 2007, still lags behind other major developed economies. The budget reflects the ongoing challenge of high inflation, with the government cautious about money injections into the economy as well as the impact on cost-of-living pressures.
Overall, the budget reflects a delicate balance between stimulating economic growth, managing inflationary pressures, and addressing societal needs across various industries and sectors.
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