The Albanese government’s first budget contains little to inspire Labor voters. The much-touted “cash splash” of $21 billion over four years amounts to about $4 a week for every Australian, not even enough for a cup of coffee at the prices we are paying now. The health and education sectors are going backward, while football stadiums and submarines get top billing.
Dismal though this picture is, a closer look at the budget papers makes things look even worse. Assuming the budget projections are realised, Labor’s first term will end with workers having gone backward on every front.
Real wages will be lower than when the government was elected. Although the budget projects an increase of about 1%, this will not be enough to offset the decline experienced in 2022-23. With profits growing strongly, the wage share of national income is likely to be at an all-time low.
Unemployment will be higher than when the government was elected and above the level considered by the Reserve Bank and Treasury as sustainable in the long run (the non-accelerating inflation rate of unemployment, or NAIRU). Recent estimates have this rate at 4.25%, while the government is projecting 4.5%. Moreover, the NAIRU is consistently higher than a measure that actually represents full employment, where there are as many jobs vacant as workers looking for them. The recent period with unemployment below 4% represents the first time we have approached this rate in nearly 50 years.
The Albanese government was elected promising a commitment to full employment, including a new white paper on full employment modelled on the 1945 paper produced by the Curtin-Chifley government. But the word “full” vanished somewhere along the way. And in his budget speech, Treasurer Jim Chalmers appeared content with the claim that unemployment would remain below the (unacceptably high) average of recent decades.
Middle-income earners will be paying more tax, and high-income earners much less than when the government was elected. Labor’s decision to phase out the $1500 low and middle income tax offset (LMITO) on the (repeatedly delayed) schedule of the previous government, and to offer no offsetting change, will amplify the effects of bracket creep. Meanwhile the stage three tax cuts will give those at the top of the income distribution an extra $9000 a year. This is massively more than the trivial amounts being offered to the rest of the population as “cost-of-living relief”.
Faced with unpleasant facts like this, Labor loyalists are mostly unwilling to defend the government directly. Rather, they make the claim that “things would have been even worse if the other side had won”. Given the general awfulness of the Coalition government, this claim seems plausible on its face. However, it could benefit from more careful consideration.
Had Labor not won a majority in the 2022 election, there are three other possibilities. First, we could have seen a Labor minority government, relying on the support of Greens and centre-left independents. Alternatively, an LNP minority government could have been formed with the support of more conservative independents (the regular protestations from the major parties that they would never “do deals” in such circumstances can safely be disregarded). The final, least likely possibility is that of a reelected LNP majority.
From a left or centre-left viewpoint, there can be little doubt that a minority Labor government would have been preferable to the actual outcome. Labor would have had little option but to address real problems in the health and education sectors, to go beyond token action on climate change, and to raise JobSeeker substantially. The cost would have been a modest budget deficit rather than a surplus and a decision to scrap or restructure the stage three tax cuts.
What about a minority LNP government, presumably with Josh Frydenberg reelected in Kooyong and reappointed as treasurer? Like Jim Chalmers, Frydenberg would have been under intense pressure to do something about the cost of living, and would probably have offered similar small-scale measures. Given that nearly all the independents saw the Morrison government’s $50-a-fortnight increase in JobSeeker as inadequate, some further increase would probably have been in Frydenberg’s budget.
Burnt by past experience, Frydenberg might have avoided making too much of the projected surplus. Nevertheless, with a surplus in prospect, the government would probably have held the line on phasing out LMITO while delivering the stage three tax cuts, the jewel in Scott Morrison’s crown. Overall then, an LNP minority would probably have delivered a budget very similar to that brought down on Tuesday.
It is only in the event of an outright LNP majority that the budget would have been notably worse than the one we received, and even then only in relatively marginal details. Unlike Labor, the government would not have been shamed into another increase in JobSeeker. And we could expect plenty of smaller shifts in emphasis, rewarding friends and punishing enemies.
In general though, the Albanese government has not only adopted the tax and expenditure policies of the Morrison government as a matter of expediency. It has accepted the world view underlying those policies, one in which inflation matters more than unemployment, budget surpluses are an infallible sign of good economic management, and incentives for “aspirational” high-income earners matter more than electorally unpopular moves to help the unemployed.
In the end, the Labor “rustadons” are right: a reelected majority LNP government would have been worse. But it’s a sad comparison to make.
Do you think we’d have been better off under a minority Labor government? Let us know by writing to letters@crikey.com.au. Please include your full name to be considered for publication. We reserve the right to edit for length and clarity.
