Budget fails long-term national interest

The 2024-25 federal budget does not meet essential tests, potentially jeopardizing Australia's long-term economic and social well-being. They point out it:?

• Does not effectively address inflation or the cost of living crisis.
• Lacks a credible strategy to stabilize and strengthen federal finances.
• Neglects the need for sustained productivity growth.
• Offers inadequate solutions to pressing national security and social issues, particularly the housing crisis.

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Test 1 — Inflation Control: The budget's $300 electricity bill rebate aims to manipulate the Consumer Price Index (CPI) by reducing consumer electricity costs. However, this measure fails to address underlying inflationary pressures and contradicts the government's greenhouse gas emission goals. Overall, the budget's large-scale spending is likely to exacerbate inflation rather than curb it.?

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Test 2 — Strengthening Federal Finances: Following recent surpluses, the government projects a 1% of GDP deficit in 2024-25. Federal debt has surged from $542 billion pre-pandemic to an estimated $900 billion, expected to exceed $1,000 billion by 2025-26. The budget lacks a credible plan to curb spending and stabilize the government's financial position.?

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Test 3 — Boosting Productivity: While the budget includes measures to promote productivity, it primarily focuses on an activist industrial policy, reminiscent of post-war interventionist approaches. This strategy diverges from the market-oriented reforms of the Hawke-Keating era, which historically boosted Australia's economic performance. The current approach risks misallocating resources and may hinder long-term productivity growth.?

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Test 4 — Addressing National Security and Social Issues: ?The budget's commitment to national security includes a backloaded 14.8% increase in defence spending by 2027-28. On social issues, particularly housing affordability, the budget falls short. The Housing Australia Future Fund and Help to Buy scheme provide minimal contributions towards the ambitious target of 1.2 million new homes, leaving much of the responsibility to the states.?

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“In summary, the budget prioritizes short-term electoral gains over the long-term interests of Australians, risking significant future consequences,” Carling and Tunny say.?

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Robert Carling is a Senior Fellow at the Centre for Independent Studies and a former IMF, World Bank and state and federal treasury economist. Gene Tunny is an Adjunct Fellow at the Centre for Independent Studies and the Founder and Director of Adept Economics.?