Something to get excited about: A “Top 5” Federal Budget countdown
BDO EconSearch Partner Anders Magnusson digs into the detail and offers his top five takeaways from last week’s Federal Budget, including a move to measure more of what really matters.
Some Federal Budgets make significant structural changes with a big impact – but Labor’s first in almost a decade wasn’t one of them.
Rather, Treasurer Jim Chalmers framed it as the first in a series of budgets over which the government will deliver its vision.
There were, however, some notable and even exciting inclusions and hints at structural change that I hope will come from this series of budgets.
Saving the best for last, the following is a countdown of my top five takeaways from this budget.
5. The global economic outlook is worsening, but Australia will battle through
For some time, the Treasurer has described the global economy using fairly gloomy terms – including perilous, downside risk, recession and slowdown. Accordingly, global growth forecasts for the next couple of years were revised down in this budget.
For Australia, the growth forecast has been revised down from that expected in the previous budget – with GDP growth next financial year now forecasted to be 1.5 per cent, down from the 2.5 per cent forecast in the previous budget.
This is due to both the global slowdown and domestic inflation. The latter is the reason we saw no inflationary cash handouts to support people facing cost of living pressures.
4. The government is rebuilding the public service – but squeezing them first
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With government estimates of consulting and contracting costs sitting around AUD $5 billion, they’re looking to bring more work in-house. There is a review underway that will report early next year, but the government has already included reduced spending targets for next financial year in this budget. Departments will be expected to wind back over ten per cent of spending on external contractors.
The current budget allocates AUD $500 million over four years to rebuilding the public service to replace this capacity, but this won’t have had much of an effect by the time the first annual savings are required next financial year – squeezing public service capacity in the short term.
3. Canberra, we have a revenue problem
Australia is doing well out of current high commodity prices, a cheaper Australian dollar and $20 billion unspent from the previous budget, but we can expect that revenue to decrease as a global economic slowdown kicks in, which we are already seeing in the US and Chinese economies. This will push up our budget deficit, with a need to raise more revenue or spend less if we choose to reduce that deficit. Spending is likely to increase.
Compared to the OECD[1] average, Australia’s tax revenue as a proportion of GDP is low. While it’s true that Australia collects above average personal income, company, property and payroll taxes, we sit well below average on one key measure – goods and services tax (GST). I would like to see GST reform back “on the table”.
Stage three tax cuts have been covered thoroughly elsewhere, so I won’t comment here except to say the government has not touched them at all this time around. Many, including myself, expect them to be watered down at some stage, perhaps in the next budget.
I’m no tax expert, but many who are – including my colleagues at BDO – argue that comprehensive tax reform is needed to shore up revenue. This reform was neither expected nor delivered in this budget, but there was one interesting tweak.
The government committed to closing a loophole that allows multinationals to dodge some tax. They expect this measure to raise AUD $250 million over four years – which is a tiny amount in the context of the budget situation.
The government claims to have increased tax receipts by over AUD $13.1 billion over four years through this and other budget measures. Those “others”, such as funding for ATO compliance programs and increasing skilled migration intake, are really continuations or side-effects of other policies, so it would be generous to call them tax reform.
2. Support for new parents is moving in the right direction
The government has made a couple of changes here, boosting the Paid Parental Leave Scheme and increasing the maximum Child Care Subsidy rate.
The new Paid Parental Leave Scheme will allow either parent to claim the payment concurrently on a “use it or lose it” basis, expands the definition of parental leave, increases flexibility and extends the length of leave by two weeks per financial year – from 20 in FY23 to 26 weeks from 1 July 2026.
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This is a step in the right direction for closing the gender gap, especially for young women who might one day be future leaders.
The “use it or lose it” factor makes it more likely that dads or partners will take leave, just as primary carers (mostly women) do. In the past, only half of dads or partners actually took the two-week parental leave they were entitled to, and those that did only missed two weeks of work – not a huge disruption to their careers or workplace.
By contrast, employed new mothers typically take at least a couple of months.
I would like to see the government take a step further, and allocate a third of leave to each parent on a “use it or lose it” basis – with the other third to be taken by either or both parents.
I’m also completely on board with the announced significant increase to the Child Care Subsidy. The Treasurer’s mantra about cheaper child care being a “cost of living measure with an economic dividend” rings true. In my view, it’s just what we need in an inflationary environment with cost of living pressure, labour shortages, and an aim to close the gender gap.
1. A move towards using a wellbeing framework in the budget
I’ve given top billing to a measure that wasn’t mentioned once on TV on budget night, which validated my decision to turn it off and read the budget papers instead.
As the saying goes: what gets measured, gets done.
Traditional measures used in the budget and to justify policy decisions, such as GDP, unemployment, inflation and so on, are important. However, the same weight isn’t given to other measures that also really matter, relating to health, education, environment, society and future generations.
There is no shortage of experts in Australia who measure these and design policy based on them, and our budgets do tend to discuss them. However, if you look at the charts in each budget, you would think that the only things we really care about improving over time are GDP, debt and the budget balance.
New Zealand already uses a wellbeing framework in its budget – which all proposed investments must be evaluated against – and is the only country to formally evaluate all policy proposals in this way.
Good news: In Budget Paper 1, there’s a chapter titled “Measuring What Matters”, which includes an international review of wellbeing approaches and provides the vague beginnings of an Australian framework. It also promises a stand-alone “Measuring What Matters Statement” from the Treasury next year and launches the associated consultation process – I encourage you to have your say.
The Treasurer indicated that this is supposed to be the start of a conversation about wellbeing. At this stage, I would deem it just a polite opening remark that I hope leads to action.
The chapter resonates government’s future intention to develop a consistent national framework encompassing and incorporating existing Australian frameworks, appreciating the diversity of cohorts in our multicultural nation and giving strong regard to our unique natural environment. Unfortunately, the chapter makes no commitment to apply the framework for policy evaluation – let’s hope that happens in the near future.
Reach BDO EconSearch Partner Anders Magnusson here.
