Big cuts in next week’s Budget will help reduce demand in the economy as inflation runs hot again, Jim Chalmers says as he pledges to deliver a net saving in the bottom line.
The Treasurer has also revealed that savings will have more of an impact in dollar terms than proposed tax changes, and again hosed down expectations of large windfall revenues on the back of the war in Iran.
Some years will see more revenue than previously thought — which he’s promised to bank — but others will have falls, Dr Chalmers revealed.
And he’s making no apologies for taking aim at tax breaks for property investors, despite not having an electoral mandate for changes.
Inflation jumped almost a whole percentage point in March, up to 4.7 per cent, on the back of soaring fuel prices after the US-Israel-Iran war started and the Strait of Hormuz closed.
But it was already starting to tick upwards late last year as private activity rebounded.
Dr Chalmers acknowledged that government spending “is obviously part of aggregate demand” and said that was part of the thinking behind pursuing a net saving this year.
“Where we can play a helpful role, rather than a harmful role, in the amount of aggregate demand in the economy, obviously, we look for ways to do that,” he said.
“What you will see in the Budget is, in gross terms, there will be more dollars in savings than dollars in revenue upgrades. There will also be more dollars in savings than dollars in tax reform.”
The Budget is widely expected to cut capital gains tax discounts and negative gearing, used in combination by property investors, with a variety of possible changes floated.
There has also been speculation about raising taxes on trusts in line with company tax rates.
Dr Chalmers said he welcomed debate about tax reforms but cautioned that no one should assume everything speculated about would be in the Budget.
“The election began a year of delivery, and the budget will begin a year of more ambitious reform,” he said.
“Delivering those commitments is the foundation of what we want to achieve, not the destination of what we want to achieve.”
Intergenerational fairness has become the shorthand for the budget strategy, in particular, the housing measures that will be at its centre.
Shadow treasurer Tim Wilson used a speech to business leaders on Monday to accuse the Government of seeking to pit family members against each other and undermining national resilience with its plans.
“Menzies warned 80 years ago that any war — a class war, a culture war, a rhetorical war — that sets Australian against Australian is a false war,” he said.
“The day is coming when those groups will unite — against a government presiding over a weakening economy and a loss of confidence.”
Dr Chalmers said the Government never intended to set one group of Australians against another.
He believed everyone was concerned about the housing situation.
“We recognise and respect the really big contribution that older Australians have made and continue to make to our country and to our economy,” he said.
“But a lot of Australians, and particularly younger Australians, are finding it really difficult to get into the housing market.
“That’s not the fault of older Australians. It’s the fault of successive Coalition governments who didn’t take housing seriously enough.”
The Government has so far identified $40.7 billion in cuts to the NDIS, health insurance rebates, and further public service cutbacks in spending on consultants, travel and hospitality.
Finance Minister Katy Gallagher said unspent money in departmental budgets would also be returned to the bottom line.
“There will be savings across every portfolio. We’ve looked everywhere for savings,” she said.
But it has also laid out at least $65 billion in new spending, including on hospitals, Defence, inflation-driven increases in welfare payments and the age pension, the cut to the fuel excise, and natural disaster support.
Dr Chalmers has promised to keep spending below 27 per cent of GDP.
Last year’s Budget forecast payments at 27 per cent of GDP in the current financial year — a 40-year high outside of the pandemic years — and showed them dropping to 26.4 per cent over coming years.
The mid-year update in December had payments slightly lower, at 26.9 per cent, for the current year but only dropping to 26.5 per cent.
Dr Chalmers also confirmed that motorists looking for extended relief at the bowser will have to wait until June to see what the Government decides to do.
