The government will bring the axe down on billions in Coalition grants as part of a broader $21 billion spending drive and a “sensible” budget shaped by rising inflation and lowered expectations for economic growth.
Before the government’s first budget on Tuesday, Treasurer Jim Chalmers said persistently high inflation meant the government would avoid increasing spending and stimulating the economy when the Reserve Bank has been trying to achieve the opposite with interest rate hikes.
Official forecasts to be published in Tuesday’s budget suggest that the effects of inflation, seen already in high prices, are still unfolding across the economy.
Treasury now predicts that weaker household consumption, driven by higher rates and inflation, will drop economic growth to 1.5 per cent next year.
That’s a growth slowdown of one percentage point on its estimate in the last budget or half-a-point on post-election estimates made only three months ago and is equivalent to about $10 billion in decreased economic activity.
“This budget will be solid, sensible and suited to the times we are in,” Dr Chalmers said.
“This budget is the government’s first opportunity to deliver on our commitments to the Australian community and to begin to clean up the mess left behind by the former Coalition government.”
The budget will also show that $21 billion in programs planned by the previous government will be axed entirely or redirected.
Finance Minister Katy Gallagher said the government was wary of public finances resting on a structural deficit with the gap between its revenue and responsibilities slowly and persistently widening.
She said the government viewed its first budget as a chance to “clean up the mess”.
“We have responsibly gone through the budget line by line and identified savings or reprioritisations,” she said.
“The former government used taxpayers’ money to cynically buy votes before elections by politicising grants funds and used the budget to land political deals with the Nationals in the Coalition party room – that approach to spending ends in Labor’s first budget.
A total of $6.5 billion in infrastructure programs will get the chop or rather be reallocated as part of a “reprofiling of infrastructure projects to better align the investment with construction market conditions”.
The government did not specify which grants will be affected but the Opposition has been signalling a fight over cuts to the $1.38 billion Building Better Regions Fund and the $660 million Urban Congestion Fund for building suburban car parks.
In July a report by the Australian National Audit Office into the Building Better Regions fund found electorates held by the Nationals were heavily favoured by the scheme and two-thirds of its grants did not go to the most deserving applicants.
An earlier report found car park grants had also been politicised and announced without consulting with local communities or planning authorities.
Ms Gallagher’s office says that $2 billion worth of grants separate to these programs across the government will also be cut.
On Sunday Dr Chalmers said that the government was looking to find extra sources of funding as he revealed that an additional $33 billion, mostly in welfare costs, would be added to the budget over the four-year forward estimates period.
The Treasurer said about a third of the additional $33 billion would go to the aged pension and another third to JobSeeker payments.
Though direct cost-of-living assistance is off the table, the government has promised to boost childcare subsidies for most families.
