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Budget 2023

Economists award Chalmers top marks for budget, but less for fighting inflation





Wes Mountain/The Conversation, CC BY-ND

Peter Martin, Crawford School of Public Policy, Australian National University

Asked to grade Jim Chalmers’ second budget on his own criteria of delivering “relief, repair and restraint”, most of the 57 leading economists surveyed by the Economic Society of Australia and The Conversation give it top marks.

On a grading scale of A to F, 37 of the 57 economists – almost two-thirds – gave the budget an A or a B.

The proportion giving the budget top marks is far higher than for the COVID-era budgets of his Liberal predecessor, Josh Frydenberg, which attracted top marks from 41% and 37% of the experts surveyed.

The economists chosen to take part in the survey have been recognised by their peers as Australia’s leaders in fields including macroeconomics, economic modelling, housing and budget policy.

Among those surveyed are a former head of the Department of Finance, a former member of the Reserve Bank board, and former Treasury, International Monetary Fund and Organisation for Economic Cooperation and Development officials.

Only one of the 57 surveyed gave the budget the lowest possible mark of F, and only three awarded it an E.

Ten of the experts qualified their approval by saying the budget should have done more to help vulnerable Australians suffering from higher rents and energy prices, including – but not limited to – Australians on JobSeeker.

Melinda Cilento, chief executive of the Committee for Economic Development of Australia, said while the increases in payments and support were “a good start”, they didn’t go far enough.

Consultant Nicki Hutley said even the promise of a staged increase in JobSeeker would have been better than “the miserly increase given”.






Few of those surveyed said they would have preferred a tougher budget. Some, including economist Saul Eslake, warned the economic growth forecasts were so weak (1.5% for 2023-24) that a budget that took money out of the economy might have increased the risk of a recession.

The budget saved 82% of the revenue upgrades that had come from better-than-expected jobs and commodity price growth. Economist Rana Roy said if the budget had tried to save 100% of the revisions or more, it could well have triggered a recession or the first signs of it, and a reversal of the measures.

“A tough policy that is unsustainable is not actually tough,” he said, referring to the fate of the measures introduced by Treasurer Joe Hockey in the Abbott government’s first budget in 2014, many of which were abandoned or modified.

 

Other criticisms of the budget were that it failed to wind back the high-end Stage 3 tax cuts due mid next year (seven panellists’ criticised); that it was less generous to wage earners than those on benefits (two panellists) and that it offered little to address climate change (four panellists).

Former Paris-based OECD director Adrian Blundell-Wignall said the budget was “short on policies to prevent climate change and long on policies to help people deal with it”. Some of the profits that had made the budget strong came from exporting fossil fuels, the emissions of which are not counted in Australia’s totals.

Ken Clements of the University of Western Australia said the entire budget process needed to change. Decisions about defence, aged care, resource taxation and hundreds of other issues were all announced at once. A staggered approach might lead to better decisions and a better-performing economy.

Disagreement on inflation

The economists were less generous in their assessment of the budget as a tool to fight inflation, with fewer than half (46%) awarding the budget an A or a B on its ability to keep inflationary pressures in check.

More than 10% gave the budget the lowest possible marks of an E or F.

Four of the economists flatly rejected the treasurer’s assertion that greater subsidies for rents, energy, prescriptions and doctors visits would dent inflation.






Blundell-Wignal said putting cash into the hands of households had been the main cause of the surge in inflation worldwide.

James Morley of The University of Sydney said while spending to reduce power bills might make one or two quarters of the consumer price index look better, it would give consumers more money to spend spend and push up other prices.

Richard Holden said anyone who didn’t think growth in spending of 0.9% of GDP was inflationary was “off their rocker”. It was enough to make the Reserve Bank push up interest rates by 0.25 percentage points more than it would have.

The Grattan Institute’s Danielle Wood countered that the spending was likely to boost inflation by just 0.1%.

The budget has inflation falling from 7% to 6% by the middle of this year, and to 3.25% by the middle of next year.

 

Leonora Risse and Flavio Menezes said debate about whether the cost of living relief would slow the decline in inflation was misguided.

“Electricity rebates and JobSeeker increases are inflationary in the same way as wage increases,” Menezes said. “Yet no one suggests that we should not increase wages at all to alleviate inflation.”

Risse said rent still had to be paid and basics still had to be bought. If people couldn’t pay, they would skip meals, forgo heating during winter, and lose the stability of a safe place to call home, damaging the economy in more costly ways.

Treasurers needed to consider more than a narrow definition of economics.


Individual responses. Click to open:

The Conversation

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.


Responses (168)


 

Peter Abelson

Overall rating: B - Keeping inflationary pressures in check: C

B

OVERALL COMMENTS: This was an excellent well-informed and delivered budget focused on the important needs of our community and delivered with appropriate expenditure constraint in the current inflationary environment. While it has been criticised by some for not being radical enough on both social support and tax reform, this was a sensible first step in these directions, including confirming the sensible 30% tax on superannuation balances over $3 million. INFLATION COMMENTS: Our recent inflation has been substantially a supply side phenomenon. The budget should not unduly inflate demand-driven price increases.


 

Garry Barrett

Overall rating: B - Keeping inflationary pressures in check: B

B

OVERALL COMMENTS: There were important measures in the budget which provide relief to vulnerable members of the community. Highlights were changes to the Parenting Payment Single, childcare care subsidy, support for Medicare bulk billing and reduced costs medicines. However, the government could have gone further in lifting the payment rate for Jobseeker (or committing to a phased increase). The change to Petroleum Rent Resource Tax was useful, though again I thought the govt could have gone significantly further on this front, generating further revenues. INFLATION COMMENTS: The government clearly sought to provide relief to families for cost of living pressures without adding to inflation. The range of subsidies such the electricity bill relief, Commonwealth Rent Assistance and Medicare bulk billing incentives and PBS dispensing limits work to reduce the costs of necessities for families without directly increasing the CPI. This was a smart approach to avoid adding to an inflationary spiral.


 

Nicole Black

Overall rating: B - Keeping inflationary pressures in check: C

B


 

Adrian Blundell-Wignall

Overall rating: C - Keeping inflationary pressures in check: D

C

OVERALL COMMENTS: Helping the most vulnerable is a good thing. However, low productivity growth is Australia's fundamental economic problem. This budget does not address that issue. The budget outcome is strong because of our massive focus on fossil fuels, pumping it to China and contributing to climate change well above our local emissions. The budget is short on policies to prevent climate change and long on policies to help people deal with it. It is short on long-term policies that set the groundwork for changing this situation. (As an aside, tax crackdowns around the world have rarely raised significant revenue. Not to be counted on.) INFLATION COMMENTS: Capping prices and giving subsidies does not count as anti-inflation policy. Temporary effects are usually followed by catch up issues later. Putting cash in the hands of the household sector, all over the world and in Australia, was the main cause of the global inflation surge ? a government fiscal fault. Now Australia proposes to do more of that to compensate for that inflation. The propensity to consume out of increased income is always highest for low-income households. This budget will make the Reserve Bank's task harder, as it did during COVID.


 

Alison Booth

Overall rating: C - Keeping inflationary pressures in check: B

C

OVERALL COMMENTS: I'd rate the budget as a disappointing C. The government has performed reasonably on ?restraint?, which is another way of saying it has not taken too many risks especially with respect to political risks. But it has done little to protect us from future climate risks. Overall the government has done a reasonable if unimaginative job in balancing the economics and the politics involved. However much more could have been done. I would like to have seen (i) more done on implementing higher resources taxes (ii) the abandonment of the stage 3 tax cuts (iii) no subsidies for, or new approvals of, coal-related projects INFLATION COMMENTS: Ceteris paribus,or all other things being equal, I think the government has done quite well with regard to inflation. Of course there's uncertainly involved in making any predictions with regard to inflation, given that we are a small open economy and we don't know nor can we sensibly predict what is going to happen internationally (think Ukraine, think Russia, think Taiwan, think COVID), which could further drive up supply chain and other costs that would contribute to inflationary pressures.


 

Markus Brueckner

Overall rating: F - Keeping inflationary pressures in check: F

F


 

Matthew Butlin

Overall rating: B - Keeping inflationary pressures in check: C

B


 

David Byrne

Overall rating: D - Keeping inflationary pressures in check: F

D

INFLATION COMMENTS: Any claim made by the government that fiscal spending will be non-inflationary is nonsensical and ignores a century worth of economic research.


 

Lisa Cameron

Overall rating: B - Keeping inflationary pressures in check: C

B


 

Melinda Cilento

Overall rating: C - Keeping inflationary pressures in check: C

C

OVERALL COMMENTS: The Budget is clearly in much better shape than expected, but a stronger economy is doing the bulk of the work. Tax windfalls have delivered $130 billion in improvements over the next five years, while policy decisions have brought just $20 billion of improvements. That said, the government?s decision to bank more than 80% of the windfall gains is a pretty good outcome. This Budget?s increase in payments and support for the most vulnerable in our community is a good start but does not go far enough. There must be a greater focus on sustainably tackling poverty, joblessness, homelessness and ending the cycle of post-code and intergenerational disadvantage. Longer term, policy decisions are going to have to play a bigger role in improving the budget bottom line. It will not be possible to maintain real spending growth without a sustained focus on program evaluation and reform of our largest areas of spending. And at some point, we must finally reform the tax system. INFLATION COMMENTS: This Budget does a reasonable job of providing support for those most in need in the face of rising living costs, while also limiting inflationary pressures. Delivering energy price relief in conjunction with the states is a well-designed and targeted approach. The relatively subdued public response to the budget, as suggested by recent polling, probably means the government has struck the right balance overall. The real challenge is lifting the productive capacity of our economy, not least to avoid the risk of inflation as we navigate big shifts in our economy and global uncertainty. Future budgets will need to do more on this front.


 

Ken Clements

Overall rating: E

E

OVERALL COMMENTS: There is substantial scope for improvement of the budget process. Defence, aged care, the NDIS, retirement incomes, resource taxation, electricity prices, and on it goes. All this in addition to macroeconomic issues of debts and deficits. The process is too cluttered for the transparency needed for good public policy. Treasury must have a large team of economists working under great pressures to meet the all-or-nothing deadline. And there are armies of analysts in the market trying to unpick the budget to work out what it means (for them). Rather than a single announcement coving such a sweeping array of areas, a staggered approach would lead to better public understanding, and a freeing up of some of the resources now consumed by the process. It may also lead to better policy and a better-performing economy.


 

Deborah Cobb-Clark

Overall rating: B - Keeping inflationary pressures in check: C

B

INFLATION COMMENTS: It would have been good to see more initiatives targeting supply-side constraints,


 

Lin Crase

Overall rating: C - Keeping inflationary pressures in check: C

C

OVERALL COMMENTS: Some relief, reasonable restraint but very little on repair. A long way to go on the latter. The real highlight is that any government's claims that they 'create' fiscal surpluses solely through their own good management can be put aside - hopefully for good!


 

Kevin Davis

Overall rating: B - Keeping inflationary pressures in check: C

B

OVERALL COMMENTS: The budget strikes a reasonable balance between relief, repair and restraint, and thus will be criticised by all those who want more of one or other of those objectives. Personally I think that more could/should have been done on the tax front: abolishing the Stage 3 tax cuts; reforming the tax system (including negative gearing), higher resources rent tax; etc. While most of this would have minimal consequences for this year's budget outcome, the positive consequences for future revenue could have allowed more to be done in the 'relief' area. The budget loses marks in terms of not doing enough on the 'repair' of the environment. INFLATION COMMENTS: I suspect that the budget will exert a mild contractionary effect on economic demand and employment and thus may be anti-inflationary via those mechanisms. But to the extent that much of inflation is reflecting supply side influences, the budget seems unlikely to have much impact in that regard. Overall, I would expect that the inflation outcome will be primarily determined by factors other this budget.


 

Janine Dixon

Overall rating: B - Keeping inflationary pressures in check: B

B

OVERALL COMMENTS: The budget does appear to strike a good balance, given that the strong revenue is only expected to be temporary. With dwelling investment expected to decline for three years in a row while record migration numbers push population growth, the budget could have done more for housing supply. INFLATION COMMENTS: The hangover from the large amounts of government borrowing during the pandemic will ease, and the 2023-24 budget should not add to inflationary pressures.


 

Brian Dollery

Overall rating: D - Keeping inflationary pressures in check: F

D

OVERALL COMMENTS: The budget treads a tenuous line between outlays aimed at easing living costs and not inducing further inflation through public expenditure. It is unlikely not to have an inflationary impact. INFLATION COMMENTS: The budget treads a tenuous line between outlays aimed at easing living costs and not inducing further inflation through public expenditure. It is unlikely not to have an inflationary impact.


 

Uwe Dulleck

Overall rating: B - Keeping inflationary pressures in check: C

B

OVERALL COMMENTS: I feel this budget tries to address the well-discussed and formulated government priorities, in particular helping those that most experience vulnerability in the current economic climate. At the same time it avoids playing costly favours to states or territories. Certainly this is much easier in a non-election year. Still, it makes for a reasonable budget. That cost-of-living relief is focussed on those most exposed keeps some limits on inflationary pressures. INFLATION COMMENTS: I still feel current inflation is more due to supply shortages than wage inflation. In that sense helping only those that really need support (and helping them with lump-sum transfers instead of subsidised prices) allows the price system to work.


 

Craig Emerson

Overall rating: A - Keeping inflationary pressures in check: B

A

OVERALL COMMENTS: This is the best budget I can remember. It is economic responsible, compassionate and aspirational. The trebling of the bulk billing incentive for general practitioners begins the repair of the primary health system. INFLATION COMMENTS: The 2022-23 surplus is slightly contractionary, while the small projected deficit for 2023-24 will not have a material effect on aggregate demand.


 

ALLAN FELS

Overall rating: B - Keeping inflationary pressures in check: B

B

INFLATION COMMENTS: The starting point is that the budget has a small surplus suggesting it may not be inflationary as a whole.


 

Gigi Foster

Overall rating: E - Keeping inflationary pressures in check: D

E

OVERALL COMMENTS: What is conspicuously absent in the budget, comparing it to the descriptor given by the treasurer, is 'repair'. I also see little 'restraint', and what 'relief' is provided is peanuts. On the repair front, we need a far more root-and-branch restructure of the many institutions that failed us during the covid period, and actions with economic logic and cost-benefit analysis behind them to address structural problems in the Australian economy ranging from aged care quality to health care workforce burnout to quality child care inaccessibility to property market unaffordability. We need accountability, admission of the government's complicity in creating our current economic woes, and admission and serious attention to the big problems facing Australian society that we see today by looking at statistics on labour productivity, excess deaths since mid-2021, and work absences. What we have instead in this budget are little spurts of handouts to selected groups of people 'doing it tough' that get crowed about by the government in order to draw attention away from the massive handouts to their cronies and lobby groups (e.g., the pharmaceutical industry) that the budget also includes. There has been no 'restraint' in the area of reducing grey corruption ? the biggest catalyst of theft from the people that Australia is burdened with today, and therefore the most crucial phenomenon to admit and reduce in order to direct our resources efficiently towards maximising the people's welfare. The 'relief' provided in the budget looks even more anaemic once one accounts for the increased taxes expected on low and middle-income earners (while the stage 3 tax cuts, effectively readjusting the tax brackets, for rich people are expected to still go ahead). One thing I liked is the indexing of welfare payments. I liked this first because it's a move towards fairness, and second because it reduces the ability of future governments to crow about the scraps they throw to struggling people. Overall, with this budget the government in a way is trying to be all things to all people, and has ended up standing for nothing. INFLATION COMMENTS: There is not a lot that can be done in the fiscal or monetary policy realm to keep inflationary pressures 'in check' given the real economic situation we now find ourselves in. At least this budget doesn't include JobKeeper-style amounts of handouts while the economy is held in suspended animation due to lockdowns ? the main cause of today's inflation. Mainly the government in this budget should have focused on getting out of the way of the businesses and people it has so thoroughly betrayed the past three years, so that they ? the engine of the economy ? can pick up the pieces that were smashed. So I would have liked to see a focus on slashing bureaucracy and red tape, funding for some truly independent audits of decision-making during the COVID period, perhaps some time taxation of government workers (where the top of the public service must spend a day per month directly assisting people in the sector they are responsible for overseeing - to keep them in touch with the actual needs of the people), and in general a re-focus on the government's role as the servant of the people rather than their daddy.


 

John Freebairn

Overall rating: C - Keeping inflationary pressures in check: D

C

OVERALL COMMENTS: In a short term context the budget goes some way in reducing government aggregate demand and complements monetary policy to reduce the rate of inflation. It provides limited assistance to many on low incomes, but not for low income taxpayers who lose from bracket creep because of failure to index or increase the tax brackets. In terms of addressing longer term structural growth of government expenditure relative to revenue, and the need for reforms to stimulate national productivity growth, the budget says very little. INFLATION COMMENTS: I can see some direct benefits from a reduction in government net aggregate demand for the current year, but I have concerns about the net positive increase of aggregate government demand in future years under optimistic projections for future inflation and employment. In fairness to government, as information on future performance of the economy becomes available, fiscal policy can and will be adjusted to the changed conditions. My major concern that the budget offers little in the form of a more efficient tax system, improved productivity of government expenditures, and changes in regulations and incentives to assist improved private sector productivity growth.


 

Lata Gangadharan

Overall rating: B - Keeping inflationary pressures in check: B

B

OVERALL COMMENTS: The relief measures are well-thought out in principle, but perhaps do not go far enough to have a real impact on cost of living pressures that people are currently facing. The budget could have included some bold measures, such as cutting the planned Stage 3 tax cuts, further increasing resource taxes etc. INFLATION COMMENTS: Those receiving unemployment benefits, single parenting payment, youth allowance, rental assistance will have more money to spend. But the increase is not much and is targeted more towards people in need, not the wealthy.


 

RICHARD HOLDEN

Overall rating: C - Keeping inflationary pressures in check: D

C

OVERALL COMMENTS: The budget takes meaningful steps to help the least-advantaged members of the community without going (nearly) as far as various groups and committees advocated. It does so at some inflationary cost. INFLATION COMMENTS: Next year expenditures increase by 1.7% of GDP while receipts increase by 0.9%. Anyone who says a 0.8% of GDP net expansion is not inflationary is off their rocker. There is a question of the magnitude of the inflationary effect, but it is hard to believe that it doesn't lead to interest rates being at least 0.25 percentage points higher than they would otherwise have been.


 

Nicki Hutley

Overall rating: B - Keeping inflationary pressures in check: B

B

OVERALL COMMENTS: There's a great deal of detail in this year's budget and much to like. Targeted support for low income households, particularly rent assistance, is a positive. And a big plus goes to energy efficiency measures (far more sensible than cash rebates for bills). Banking 80% of windfall revenues is also deserves credit. A number of measures, such as lower health and energy costs, will support lower inflation rates. So the balance is pretty good. But what marks this budget down, for me, is what is missing. There's just no justification keeping people on JobSeeker in poverty. Even staged increases would have been better than the miserly increase given. Housing is also a loser. Supply needs to shift far more rapidly. Build-to-rent support is great. First home buyer grants are not. And there's nothing to start repair of structural deficits. We need to raise spending to support the worst off in society and to move faster on climate action (and that?s before defence measures). With an ageing population, our tax-revenue equation just doesn't add up. This was the year for the government to be bold, but it are still playing it 'safe'. INFLATION COMMENTS: There are swings and roundabouts for inflation. Dollars to low income households will get spent (and rightly so), but other measures such as lower health and energy costs should offset these impacts. Housing is probably the biggest concern, with more stimulus to demand than supply.


 

David Johnston

Overall rating: B - Keeping inflationary pressures in check: D

B


 

Frank Jotzo

Overall rating: B - Keeping inflationary pressures in check: B

B

OVERALL COMMENTS: It's a sensible budget. Less timidity on social support, subsidies for energy efficiency and gas taxation would have made it better. INFLATION COMMENTS: It is not an expansionary budget, any effects on inflation will be small in context. Some of the budget measures provide some help to those who bear the brunt of inflation.


 

Michael Keating

Overall rating: B - Keeping inflationary pressures in check: B

B

OVERALL COMMENTS: I think the Budget could have done more on relief, but that would have required increased taxation, with the Stage 3 tax cuts and the PRRT being the two most obvious sources of additional revenue. INFLATION COMMENTS: Neither I nor financial markets think the budget will seriously add to inflation. While there is a continuing structural deficit that will need to be addressed, it is not the first priority right now.


 

Geoffrey Kingston

Overall rating: C - Keeping inflationary pressures in check: D

C

OVERALL COMMENTS: There have been worse budgets. Some of the outlays are justified, such as the ones on aged care staff and bulk billing. But many are not, such as the ones on hydrogen power development and continued inadequate control of access to NDIS. Overall there is inadequate support for the Reserve Bank?s efforts to cool the economy. INFLATION COMMENTS: Placing all the responsibility for cooling the economy on the RBA is too narrowly based. As a consequence, millennials who recently bought a house bear most of the brunt of disinflation. That is unfair. We could also face an excessively drawn-out disinflation, as in 1984-1992.


 

Michael Knox

Overall rating: C - Keeping inflationary pressures in check: F

C

OVERALL COMMENTS: The historical context is that we have recently experienced the highest terms of trade in Australia's history. Indeed the terms of trade is now higher than it was during the 2000's resources boom, and higher than in the boom following World War 2. During the boom after World War 2, the historical record shows that the treasurer Arthur Fadden ran major budget surpluses which brought down inflation. This was followed by smaller surplus budgets for the next two decades. These kept both inflation and interest rates down. On this occasion we have one year in which we have a balanced budget by the narrow margin of 0.17% of GDP. We then revert to small deficits. INFLATION COMMENTS: The treasurer appears to believe inflation is an accounting problem and not an economic one. Spending to reduce power bills might make one or two quarters of the CPI look better, but it also adds to demand, leading prices to spring up elsewhere. The treasurer seems be following the Biden administration approach of leaving the problem of inflation entirely to the central bank. This led the US central bank to lift rates higher than they might otherwise be. This budget will have the same result. The test will be if the RBA continues to raise rates. Further RBA rate rises will now follow.


 

Emily Lancsar

Overall rating: B - Keeping inflationary pressures in check: B

B

OVERALL COMMENTS: The budget responds to many of the major cost of living pressures (in rent, particularly for older Australians, energy, youth allowances, single parent payments and unemployment benefits), appropriately targeting those most in need. However, to my mind it did not go far enough in increasing JobSeeker or considering how to help the long term unemployed more generally. Going further would of course have required tradeoffs elsewhere in the budget, but tradeoffs I think worth making. INFLATION COMMENTS: Inflation is of course not the only consideration when designing the budget. However, inflation is a ?tax on the poor? so it is challenging to strike a balance between the much-needed increase in spending on essential services and to meet re-distributional goals while also not substantially adding to inflation. In addition to the increase in government spending there are measures to reduce costs of goods and services, such as in the health sector reduced dispensing fees via changes to allow scripts to cover two rather than just one month's worth of medicines, and bulk billing incentives which reduce out of pocket payments to see general practitioners (while the incentives are payments to GPs, their existing incomes mean at least some of the higher income will be saved rather than spent). Higher prices due to tobacco excise are welcome as they serve other public health goals and potentially reduce future health care costs.


 

Guay Lim

Overall rating: B - Keeping inflationary pressures in check: B

B

INFLATION COMMENTS: In a high-inflation, low-growth economy, with tightening monetary policy, it is desirable for fiscal policy to adopt a neutral stance. Stimulatory budget initiatives could fuel inflation, while contractionary measures could push growth lower and the economy into a recession. On balance, the small budget surplus suggests relatively neutral macro effects.


 

Elisabetta (Lisa) Magnani

Overall rating: C - Keeping inflationary pressures in check: B

C

OVERALL COMMENTS: The budget delivered a set of mesures to address the need to provide relief to disadvantaged groups, repair the budget suffering from the effects of the pandemic and from the effects of the current military/energy crisis, and restrain government spending to avoid further inflationary pressures. These fiscal imperatives have emerged in the last few years at the intersection of several complex crises at the international and global levels. Unfortunately, the budget does little to structurally address this complex situation made even more complex by decades of inaction. Long-term social and environmental sustainability requires a more ambitious plan for private-public partnerships in support of ecological sustainability. Changes in the tax revenue sources would allow an overall rethinking of strategies to address rampant inequality in housing, education, earnings, and opportunities. A budget that supports a long-term vision to enhance research and development in universities and in the private sector are missing or very timid. In this sense, the May budget lacks courage and long-term vision. INFLATION COMMENTS: There is nothing inflationary in this budget. The proposed relief for the least well off groups in society is not inflationary. The main concern is that wage repression is going hand in hand with upward pressure on profits. Profits can be inflationary unless their increments are used to fund structural transitions such as a move away from fossil fuels or educational reforms, and university funding changes. We need a mature discussion on tax structure and tax reforms is part of the agenda, but also fiscal courage and vision.


 

Margaret McKenzie

Overall rating: C - Keeping inflationary pressures in check: B

C

OVERALL COMMENTS: A timid budget for a government which has support in almost all states. Little relief on some very obvious fronts including for the bottom quintile, with little for those on JobSeeker, and so called mutual obligations still in place. Small CRA increases. It remains to be seen what happens to taper rates for marginal tax rates with the increased welfare payments. Nothing toward reform of university funding, although they are in complete crisis, or for student fees and debt. Not getting rid of activity test for childcare, although this might be potentially done off budget. Almost nothing on large subsidies for private sector services in health and education. Teensy resource sector tax increases which are shown up by the support from that sector for the RRT measures. At the same time I recognise that some budget measures are targeted at existing opportunities for rorting set up by the previous government. When these habe become so entrenched they become quite difficult to dislodge, especially those concerning outsourcing. The NDIS is a case in point and I think they're trying. 'Repair' is unnecessary with the current surplus, and anyway, built-in stabilisers should continue to operate as they have in COVID. Even though the Stage 3 tax cuts might hopefully be abandoned, they show up in the future deficits forecast. While the repair measures are not nothing, the budget could have done more. INFLATION COMMENTS: It is hard for me to rate in inflationary terms, as I don't think the budget necessarily drives inflation which is coming from overseas through supply chains, wars and trade policy impacting on resource prices etc, and the impact of climate change. The budget could have been much more assertive in promoting productivity and improving spending in the bottom two quintiles,which would also counter inflation.


 

Warwick McKibbin

Overall rating: B - Keeping inflationary pressures in check: C

B

OVERALL COMMENTS: The budget did not provide concrete reform on either the medium term spending pressures or the distortions in the revenue system. The size of the deficit is not a good measure of fiscal quality. The improvement in the short term fiscal position was mostly due to a revenue surge outside the decisions of government. The good news in that much of the surge in revenue was saved rather than spent. INFLATION COMMENTS: While not adding to inflationary pressures the budget doesn?t put downward pressure on inflationary pressures, although it will likely temporarily reduces measured inflation.


 

Flavio Menezes

Overall rating: B - Keeping inflationary pressures in check: C

B

OVERALL COMMENTS: The 2023 federal budget includes measures to help households and businesses struggling with inflation. Electricity and gas prices have risen by 34% in the past two years. Immediate relief measures include $500 electricity rebates for low-income households and $650 rebates for eligible small businesses. Other measures, such as increased payments for JobSeeker, Youth Allowance, Rent Assistance, and Austudy, will have a more permanent impact. There are also energy-transition measures, like tax incentives for businesses to become more energy efficient and low-cost electrification package loans for households. The debate about whether these cost-of-living relief measures will contribute to inflation is misguided. Electricity rebates and JobSeeker increases are inflationary in the same way as wage increases, yet no one suggests that we should not increase wages at all to alleviate inflation. We should also dismiss the idea that we should not help those who are most disadvantaged in society to avoid putting pressure on inflation. To address inflation, the government has two options: 1. Wait for supply responses and higher interest rates to take effect 2. Reduce expenses and increase taxes elsewhere. The budget attempts the latter with measures like a superannuation tax for balances over $3 million, a $2.4 billion rise in the petroleum resource rent tax over four years, a $3.3 billion increase in tobacco excise, and multinational tax measures. However, these efforts are modest and represent less than 1% of total government spending over the next four years.


 

James Morley

Overall rating: B - Keeping inflationary pressures in check: C

B

OVERALL COMMENTS: The budget displays a fair degree of restraint given the improved fiscal position due to higher than expected tax revenues and a lower path for the debt/GDP ratio. There is net new spending versus taxes, which keeps the surplus small corresponding to a 'structural deficit'. The new spending seems to be targeted to help those particularly struggling with high cost-of-living shocks, such as pensioners. The budget clearly 'kicks the can down the road' in terms of how to contain NDIS costs. It also puts off any reneging on Stage 3 tax cuts closer to the next election, meaning that addressing bracket creep is likely to happen after all, even if the Treasurer might give in to temptation and modify the Stage 3 cuts a bit. All in all, it seemed much less like a 'special interests' budget than from the previous two treasurers. INFLATION COMMENTS: The main item in terms of ?cost of living? relief involved subsidies to reduce energy bills for pensioners and those on payments (and some small businesses). As a technical matter, this will actually lower headline inflation from what it would have been otherwise. So at the margin, this will put less pressure on the RBA to raise rates. The RBA had already been signalling it would ?look through? some of the coming inflation due to retail energy prices and rents as being reflective of relative price shocks that have to do with supply constraints. But if these are going to be as large and persistent as the RBA is forecasting, it would put pressure on them to raise rates if inflation suddenly bounces back up after a likely decline over the next quarter or two. However, one problem with the energy bill subsidies is that they are not really all that different than giving the same households a transfer payment to offset their higher energy bills. The only real difference is in what is implied for the measure of inflation, not in the real economic impact. For the real economic impact, what matters with the budget is an overall net change in new spending versus new taxes. On this score, the budget is actually slightly expansionary and the RBA is likely to respond to that by having a somewhat greater bias towards further interest rate increases to offset the macroeconomic effects of the stimulus. The fact that interest payments on future debt are projected to be lower given the surprise improvement in tax revenues given higher nominal GDP growth provides further room for the RBA to raise rates without worrying about the fiscal implications. In terms of rents as another source of persistent inflation over the next couple of years, the increased rental support in the budget does not do much to lessen that. The initiatives to boost supply in rental housing could obviously help in principle, but are likely to take a long time to have much effect on rents. So I don?t see these initiatives as particularly relevant for the RBA?s decisions about how to respond to inflation over the next year. All in all, I would say the budget increases the probability of future rate increases compared to a budget without new net spending relative to taxes. But, as the treasurer said, it does so less than if more of the surprise boost in tax revenues had been spent in the budget. And it is not a highly stimulative budget, just moderately so. So the RBA is likely to pay more attention to other drivers of inflation, such as what is happening to inflation and economic activity overseas, in its decision about whether this last increase in rates was really the last for a while. I think it will be very data-driven over the next few meetings about future rate increases more than responding to the budget per se.


 

A Abigail Payne

Overall rating: A - Keeping inflationary pressures in check: B

A

OVERALL COMMENTS: Given the cards the government has been dealt (the pandemic, the war in Ukraine, and cost of living pressures), this was a stronger budget that what might have been expected. I encourage the government, however, to continue to be bold in considering how best to meet Australia's needs while constrained. There are many opportunities to test and try solutions to ensure they stand a strong likelihood of success before implementing. Stay strong and be innovative for providing a valuable evidence base for making decisions.


 

Ben Phillips

Overall rating: B - Keeping inflationary pressures in check: B

B

OVERALL COMMENTS: The budget is overall well framed and fiscally sensible without providing any significant fuel for inflation. However, the budget did not go far enough on 'relief' for those who are the lowest income earners in Australia ? JobSeeker and Youth Allowance recipients. $40 per fortnight is a long way short of that recommended by the Economic Inclusion Advisory Committee ?$256per fortnight. The boost to rent assistance and the parenting payment changes were well overdue but very welcome. INFLATION COMMENTS: The budget of course could have done more to take some pressure off prices but this would involve cuts to spending or tax increases. Overall, the budget added some extra spending but not an amount that materially adds to inflation. Some of this spending will, at least in the short term, lower measured inflation (as measured by the consumer price index) as net costs for child care and energy are lowered. The government's role is first and foremost to provide valuable public goods and services. Inflation is a concern but secondary to the provision of public goods and services.


 

Alison Preston

Overall rating: A - Keeping inflationary pressures in check: C

A

OVERALL COMMENTS: The treasurer, understandably, is required to consider both the economic context as well as the political context. I?ve rated it as an A based on this consideration (?A-? actually). ??It is, arguably, an inflationary budget but predictions are that the economy may soon be heading into a recession. The concern is that we don?t end up with stagflation. Overall it was a good budget for women ? but it could have been better. I think the losers in this budget were young people and young women in particular. Ballooning student debt in the Higher Education Loan Program (HELP) is a ticking time-bomb. Just over 60% of all those with an outstanding debt are women. The debt is indexed to inflation. In June 2023 it will be indexed by 7.1%, taking the overall debt from around $74.4 billion to around $80 billion. We are presently in the midst of a skills shortage (especially in female-dominated areas such as teaching and nursing) and are actively recruiting from overseas ? often from countries where education is free (such as Scotland). Meanwhile we have a system that is increasingly going to deter investments in tertiary study ?especially postgraduate study. This will be a drag on future productivity growth. Future budgets need to have young people in their sights.


 

John Quiggin

Overall rating: E - Keeping inflationary pressures in check: F

E

OVERALL COMMENTS: I've given an E, but I don't accept the premise of the question. The stated objective is a meaningless word salad. I am ranking the budget on whether it promotes full employment and a more equal distribution of income, the objectives I would expect from a Labor government. On those criteria, it's very poor. Only the fact that the government was shamed into increasing Jobkeeper at the last minute puts it above F. INFLATION COMMENTS: I've given an F because I reject the premise of the question. This is a misconceived framing of our economic situation. We have achieved full employment for the first time in 50 years, and the government is throwing it away in pursuit of an arbitrary inflation target. Although the claimed theory is that inflation reduces real wages, the aftual strategy involves further downward pressure on money wages, leaving workers worse off than if we allowed wages to rise to offset past inflation.


 

Mala Raghavan

Overall rating: B - Keeping inflationary pressures in check: D

B

OVERALL COMMENTS: Overall, the government deserves a B grade. Great to note that the focus of the budget was to support the vulnerable communities in Australia by providing cost-of-living relief. However, is the support offered sufficient and or appropriate for these communities to deal with their day-to-day financial stresses in an uncertain environment? For example, will increasing the commonwealth rent assistance by 15% help solve Australia's acute rental crisis? Overall, the budget dealt with short-term demand-driven measures rather than providing a clear pathway for building supply capacity, which is much needed to contain inflation pressure. INFLATION COMMENTS: The budget could put upward pressure on inflation if not met with easing supply-side pressure, making the RBA's job of containing inflation more challenging.


 

Alicia Rambaldi

Overall rating: B - Keeping inflationary pressures in check: B

B

OVERALL COMMENTS: Long term budget repair requires structural tax reform of which there was barely anything. There is some targeted relief and a large doze of restraint. INFLATION COMMENTS: The budget provides some targeted relief which in itself is unlikely to be a major source of increase in prices.


 

Sue Richardson

Overall rating: B - Keeping inflationary pressures in check: B

B

OVERALL COMMENTS: I thought that the targeting of cost of living relief was smart, but still too mean. The steps to reduce the shocking housing crisis, while in the right direction, are still far from adequate. I support the direction of the 'repair', including accelerating action on reducing greenhouse gas emissions, but the measures are too timid. As examples, the change to the operation of the Petroleum Resource Rent Tax should have been bolder and the scope of the Emissions Safeguard Mechanism should have been widened. There needs to be much wider and bolder tax reform. INFLATION COMMENTS: A bigger surplus would have helped to reduce inflationary pressures. But in the absence of major tax reform, and the unwillingness to forgo the Stage 3 tax cuts, it would have come at the expense of vulnerable people or action on climate change and in my view that would not have been desirable.


 

Leonora Risse

Overall rating: A - Keeping inflationary pressures in check: B

A

OVERALL COMMENTS: My assessment wavered between A or B. There are likely to be other economists who contend that MORE could have been done across these areas. My focus here is on the nature and directional impact of what WAS done. On 'relief', the cost-of-living support measures are targeted towards the most financially vulnerable. While there is an economic case for the JobSeeker rate to be increased further (as advised by the Economic Inclusion Committee) it is important to recognise that support for this cohort includes expansions in indirect forms of support such as the energy price relief, and the broad wraparound services and longer-term changes that matter for JobSeekers, such as improvements to the skills and training system. An area that was overlooked, however, was addressing the very high indexation rate that higher education graduates now face on their HECS-HELP loans as a result of high inflation. On 'restraint', the current high inflationary environment signals that the economy is at (or very close to) its productive capacity, meaning there is no need for the big stimulus spends that we typically see in budgets. The government demonstrated this restraint in banking over 80% of the revenue windfalls that were generated through automatic stabiliser mechanisms and stronger than expected commodity prices. In our current economic landscape, any outlays need to be directed towards productivity-boosting measures, and examples of this include incentives for renewables and energy-saving investments. On 'repair', many economists will say more needs to be done on tax reform to address the Budget's structural deficit ? that is, the chasm between the budget's expenditure obligations and the revenue stream to finance these obligations. An economic case can be made for broadening the tax base, including for example by recouping more of the profits extracted from Australian resources. The government has made some inroads through changes to superannuation concession rates at the upper end. Such fundamental repair is a big ask, politically, for a government in its first 12 months, and could be part of a more comprehensive agenda over future years. For now, credit should be given to new approaches in this budget that bring more rigour to policymaking process and will strengthen the budget's future sustainability. This includes a much stronger focus on the evaluation of policies to ensure cost effectiveness and the assessment of impacts, reflective of the evidence-based approach that economists like Andrew Leigh are now bringing to parliamentary policymaking. It includes, for example, putting major infrastructure proposals through a more rigorous cost-benefit assessment. Another example is the move toward ?gender responsive budgeting? which brings more rigour, equity and transparency to the policymaking process. While this shift in policymaking processes might not seem significant right now, I would argue it constitutes a repair to a process that was previously lacking and will facilitate better value for money, and better outcomes for society, in future expenditure decisions. INFLATION COMMENTS: It is a valid concern that government spending could fuel inflation pressures. Concern has been expressed that the cost-of-living support package, in particular, could add to inflation. In this case, the government has appropriately used the budget as an income redistribution tool, mindful that high inflation hits lower income households the hardest, while guarding against adding to inflationary pressures overall. Support measures in this Budget are targeted towards essential items like energy and rent costs among low-income groups, rather than a broad-based cash handout, and can be delivered in instalments over time rather than a lump-sum. These design elements take the edge off these inflationary risks. A counterfactual scenario is to consider what would happen if the Budget did not offer these cost-of-living relief measures to the most financial vulnerable in society. Rent still needs to be paid. Food, electricity, basic groceries, toiletries and medications still need to be bought. In extreme circumstances, inability to afford these essentials can lead to people turning to charities and food banks, skipping meals, forgoing heating during winter, and losing the stability of a safe place to call home. These situations can spiral into a stream of more costly implications for our economy, and money still ends up being spent to provide for people's basic needs. Investment in cost-of-living relief can be considered a preventative step to lessen the chances of these negative and costly outcomes.


 

Rana Roy

Overall rating: C - Keeping inflationary pressures in check: A

C

OVERALL COMMENTS: In my judgement, the budget prescribed the right macroeconomic medicine but used a wrong linguistic description of what it had prescribed. Therefore, interpreting the above question literally, and grading the budget purely in terms of its stated objective of striking 'a balance between relief, repair and restraint' rather than in terms of its macroeconomic efficacy, I cannot grade it above a 'C'. There was a perfectly coherent and cogent message that the Australian treasurer could have delivered on budget night. It goes something like this: 'Our most immediate and demanding economic challenge is to reduce inflation without triggering a recession. To that end, we are obliged to prioritise restraint over immediate cost-of-living relief, to save and sterilise the better part of the large increase in revenues received, to add as little as possible to aggregate demand. This is the budget restraint that Australia had to have'. Indeed, on some occasions, the treasurer has made this point, and made it well. In The Australian on May 10 he said his predecessors, Prime Minister Howard and Treasurer Costello saved only 30% of revenue upgrades. His immediate predecessors saved only 40%. He and Finance Minister Katy Gallagher Katy saved 87%. And then he 'went and spoilt it all by saying something stupid like, I love you'. (Sinatra) Consider the following: 1. From the numbers in the budget papers, and from the treasurer?s own words as cited above, it is clear that the budget prioritised savings, and that ?targeted cost-of-living relief? did not receive anything like an equal priority ? even though it is listed as the first priority in the list of ?budget priorities? (Budget Paper No. 1, Statement 1, page 3). 2. In ordinary language, cost-of-living pressures impact most negatively on those whose real incomes are most reduced in percentage terms by the increase in consumer prices. From earlier-published ABS data, we know that real wages suffered a record decline in calendar year 2022 (see here). The budget breaks down the decline by fiscal years but the message is much the same (see budget Paper No.1, Table 1.1). And yet there is no ?cost-of-living relief? targeted specifically to workers suffering a decline in their real wages ? even if many workers will share in the one-off $500 reduction in electricity bills and some will share in the expected increase in access to Medicare bulk-billing. Rather, the vast majority of workers ? that is, those earning less than $126,000 per year ? will pay up to $1,500 in additional tax this year, and every year, as a result of the termination of the Low and Middle Income Tax Offset. 3. The bulk of the ?targeted cost-of-living relief? has been allocated to those on Centrelink payments that are automatically increased in line with the increase in consumer prices ? that is, to those whose real incomes have been largely unaffected by the recent surge in inflation. I support the increase in Centrelink payments ? indeed, I support a much larger increase in the JobSeeker payment and am on record for doing so ? but I do not support this needless assault on ordinary language. The correct technical term for this policy is 'a fair shake of the sauce bottle' ? not 'targeted cost-of-living relief'. 4. However described, some part of the modest increase in payments and concessions to those on incomes below $126,000 per year is at risk of being clawed back through a policy change that has gone largely unremarked: namely, the circa $3 billion increase in expected revenues from the increased excise tax on tobacco products. Can we really be sure that all of this revenue will be extracted only from the ?top end of town? ? from, say, former treasurers and former finance Ministers who go on to become ambassadors to the United States or a Secretary-Generals of the OECD? Or could it be that other people, people on AusStudy or JobKeeper or Single Parent Payments, will also be caught in the net? 5. In sum, the budget provides very little cost-of-living relief to those whose real incomes have suffered the greatest decline and only a slightly-less-unfair shake of the sauce bottle to those on the lowest incomes. Given the constraints, this may have been the responsible thing to do ? but let?s not speak of charity, or even balance. INFLATION COMMENTS: Here, I am more than happy to grade the Budget as A. In my judgement, and accepting the world of constraints as it exists rather than as I would like it to be, the budget is likely to achieve the maximum-feasible sustainably-downward pressure on inflation. Consider the following: 1. On any comparative measure, the Budget is tough. To repeat the treasurer?s words: ?Katy and I saved 87%.? Had it been much tougher, had the treasurer and the finance minister saved 100% of the upward revisions or more, it could well have triggered a recession or the first signs of it ? and, therewith, a likely reversal of both fiscal and monetary policy in response to a recession or in anticipation of it. A tough policy that is unsustainable is not actually tough. Consider only the fate of the apparently-tough budget announced in 2014 by the then treasurer and the then finance minister. 2. The Budget is tougher than it looks. I make bold to predict that, in 12 months? time, the treasury will need to report another mysterious ?surge in revenues?. Spoiler alert: there is no mystery here. The dramatic collapse in commodity prices and hence in Australia?s terms of trade forecast again in the budget (see Budget Paper No. 1, Table 2.2, footnote ?f?, page 58, and also Chart 2.28, page 74, and Box 2.4, Table 1, page 76) will not materialise. It is not meant to be an accurate forecast. Rather, it is, as Chris Richardson put it when interviewed by the ABC on Budget night, ?Treasury?s hollow log?. (And in the highly unlikely circumstance of such a collapse, implying as it does a collapse in growth in China and India and ASEAN, et al., we will not need a tough budget.) 3. By appearing to be less tough than it actually is, the budget leaves sufficient room for monetary policy to do its requisite work. What seems to have escaped the notice of the arithmetically-challenged is that the real policy interest rate of the Reserve Bank of Australia remains deeply in negative territory. So too does the policy interest rate of the US Fed ? and the Bank of England ? and the European Central Bank. To conquer inflation as well as to liberate the productive economy, we need to put an end to the regime of negative real interest rates, which has so long served to deliver undeserved riches to the undeserving rich.


 

Stefanie Schurer

Overall rating: B - Keeping inflationary pressures in check: C

B

OVERALL COMMENTS: The budget delivers on both relief (cost of living relief for eligible households and small business), and repair/restraint (creating a budget surplus in this financial year of $4 billion). This is not a budget season for elaborate expansions of government spending. I am pleased to see the government produced a surplus of at least $4 billion, but more could have been done (up to $8 billion, see discussion by Steve Hamilton, which I personally support). What is really positive to see is that the fiscal relief measures are targeted at the more vulnerable households. Most notable is the expansion of access to the Parenting Payment (Single) for single parents who are the principal carers, 91% of whom are women. Access to support has been curtailed since the mid-2000 when the Howard government declared an unimaginable war on single mothers. Many may have forgotten this, but in 2006 the Howard government introduced the Welfare to Work policy, which forced single carers to participate more in the labour market. The policy was euphemistically called a self-reliance booster for single carers on income support. It entirely ignored the immense time and financial pressures under which single carers of small dependent children operate. Single carers have to do two jobs: they have to be main income earner and they have to care for and stimulate and nurture their dependent children. Forcing single carers to spend more time in the labour market at a pittance wage, and without affordable and high-quality child care, means that these carers will spend much less time stimulating their children's soft and hard skills. The Welfare to Work policy blatantly ignored the reasons for why single carers are alone (often to avoid domestic violence). We ? Alexandra de Gendre from University of Melbourne, Angela Zhang and I (both University of Sydney) ? have evaluated the changing plight of single mothers over the past two decades of welfare reforms. Single motherhood has important intergenerational consequences through the development of the child, thus financial and moral support is key. We concluded that, in the presence of positive spillover effects, welfare payments to vulnerable families may function as a social investment rather than a sunk cost. Read more here. There are many other positive spending priorities in the budget, among others creating the incentives for doctors to provide bulk-billing services, funding that helps vulnerable and high-need families to access GP services at affordable cost, and incentives for energy upgrades that help households save and to reduce reliance on fossil fuels. What is truly missing, as every year, is a strong and unambiguous commitment to climate change policies. INFLATION COMMENTS: It is a challenging if not impossible task to attribute any causal interpretation on the effect the budget may have on inflationary pressures. The budget can influence both inflation itself and inflation expectations (which will affect inflation in the future). The budget included significant amount of relief payments to poorer households that ? according to theoretical and empirical research findings ?are more likely to spend the extra amounts provided. This is likely to create some inflationary pressures. The budget is relatively careful, as a large amount of windfall income has not been spent but saved to reduce national debt. I keep a neutral stance on whether the budget can relief inflationary pressures, as there is no way to study this question in scientific rigorous way.


 

Jeffrey Sheen

Overall rating: B - Keeping inflationary pressures in check: B

B

OVERALL COMMENTS: The budget gave some relief only to the most disadvantaged and it provided the first steps towards repair. The government had little choice but to show restraint after the inevitable fiscal blowouts during the COVID lockdowns. Fortunately recent tax revenues have been booming, thanks to persistently low unemployment, high commodity prices and a weaker exchange rate. Without sustained fiscal restraint, the burden on monetary policy to correct inflation using interest rates would be too great, risking financial instability. INFLATION COMMENTS: The budget?s measures will only make a small direct contribution in bringing down inflation, but it has avoided an inflationary fiscal expansion that we might have expected of a typical Labor government at this stage of the political cycle.


 

Kalvinder Shields

Overall rating: B - Keeping inflationary pressures in check: B

B

INFLATION COMMENTS: Clearly, any injection into the economy has the potential for inflationary pressures. However, in this case, in my opinion, it is not clear that the budget measures proposed will definitively be inflationary for the following reasons: (i) the government has been smart in the mechanics of particularly the introduction of the energy subsidies ? meaning a short-term reduction in the consumer price index (ii) this short term reduction has the potential to influence and decrease inflation expectations ? since actual inflation is important in influencing expectations of inflation (iii) the government spending injections are targeted to the most vulnerable in our society ? which means that any extra spending is unlikely to be discretionary but rather cover essential needs.


 

Julie Toth

Overall rating: B - Keeping inflationary pressures in check: B

B

OVERALL COMMENTS: This budget makes solid progress in providing small but carefully targeted relief for most welfare payment recipients. The increase in Rent Assistance and the expansion of Single Parenting Payments will be particularly significant in lifting more families out of extreme housing stress. The increases are relatively small, but they are a good start and will make a difference to those who receive them. Measures to boost the availability of affordable rental housing are also welcome, particularly the increased liability cap for the National Housing Finance & Investment Corporation (which will enable a greater number of social and community dwellings to be built) and the changes to tax arrangements for build-to-rent projects (which will encourage a greater number of private-sector rental dwellings to be built). These measures will complement the boost to affordable housing availability that will commence when the Affordable Housing Future Fund Bill is finally passed, and more money can begin to flow into social housing projects that are urgently needed. Measures to boost the supply of affordable housing will become even more urgent over the outlook period. The budget forecasts confirm that further falls in dwelling investment will occur at precisely the same time as the peak of our post-pandemic recovery in net migration (mainly tertiary students, backpackers and other categories of temporary residents who will all need somewhere to live for the duration of their stay). Despite this year's rare (and rather unexpected) surplus, budget repair remains a long-term goal. Some heavy lifting is still required in order to genuinely close the structural deficit. INFLATION COMMENTS: The net effect of the budget on inflation will be neutral or very minimal. The cost-of-living relief measures seem to be carefully targeted to support some of our most disadvantaged people, without spreading any spending stimulus more widely. Some of the key measures are designed to provide support without giving cash directly to households (such as medical bulk billing, prescription changes and energy bill relief) so there wont be much room for an increase in discretionary spending. The technical measurement of inflation for some items will actually go down, because the consumer price index measures the average out-of-pocket cost to households. We saw this effect during the pandemic for example, when the temporary subsidies to childcare caused the out-of-pocket price of childcare to plummet in the CPI, only to rise again when the temporary measure ended.


 

Joaquin Vespignani

Overall rating: C - Keeping inflationary pressures in check: D

C

OVERALL COMMENTS: The budget falls short on enhancing productivity through improving education at all levels and upskilling Australian for the jobs of the future. Productivity is the primary mechanism to protect real wages. INFLATION COMMENTS: The budget will be ineffective in keeping inflationary pressure in check. Many policies, such as increasing JobSeeker payments, increasing rental assistance and increasing expenditure, may be necessary but are also inflationary. A surprise inflationary policy for Tasmania is building a new AFL stadium for Hobart when house affordability is a major problem and the construction workforce is already scarce.


 

Rachel ViforJ

Overall rating: C - Keeping inflationary pressures in check: E

C

OVERALL COMMENTS: The Budget contains some measures to deliver much-needed relief for low-income households from cost-of-living pressures such as the 15% increase to the maximum rate of Commonwealth Rent Assistance. However, it does not deliver the structural reforms needed to repair the budget. More disciplined fiscal policy and reforms to boost productivity are needed. INFLATION COMMENTS: There are no obvious measures in the budget to rein in government spending. This budget runs the risk of fuelling inflation and more interest rate rises by the RBA. In the rental market, this in turn risks eroding the effectiveness of measures such as the increase in rent assistance if landlords continue to pass on interest rate rises to tenants in the form of increased rents.


 

Beth Webster

Overall rating: B - Keeping inflationary pressures in check: A

B


 

Danielle Wood

Overall rating: B - Keeping inflationary pressures in check: B

B

OVERALL COMMENTS: The government?s central challenge in this budget was delivering relief to the most hard-pressed without adding to the inflation problem, not to mention the longer-term fiscal challenge. I think the government can claim overall success in achieving this. There were many welcome measures to help the most vulnerable ? modest increases to JobSeeker and rent assistance, extension of single parenting payment to parents until their youngest child is 14. These measures were desperately needed to help those languishing far below the poverty line and, in the case of Jobseeker and rent assistance, I think they should have gone further. There was also additional cost of living assistance (an increase in bulk billing rebates, electricity bill relief, changes to pharmacy dispensing rules) that will reduce parts of the consumer price index which will be helpful in keeping inflation expectations in check at current highs, even though it should create a modest second round boost to inflation (see my answer to the second question). The government showed relatively strong discipline, at least by historic standards, by banking more than 80% of the budget windfalls. There is also some good reform in there: the pharmacy dispensing rule change is a win for consumers and government, and the budget also takes early and sensible steps towards primary health reform (shifting to more team-based care in general practice and changing the way we fund treatment of chronic disease). I think it falls short of an A because the government is being pretty timid on terms of bigger tax and spending changes to improve the medium-term budget position. I would have liked to see them go further on some of those hard decisions (See here.). Tax and spending measures could have partly supported a larger increase in welfare payments (which could include the Opposition's proposed changes to the JobSeeker work test) and could have partly done more to address the structural budget problem (which was underplayed by rosy assumptions in the budget). INFLATION COMMENTS: New spending measures were largely targeted at the most vulnerable households. Some measures ? most notably the energy bill discounts ? were designed to deliver cost of living relief while also reducing the consumer price index, which will be helpful for managing expectations given that inflation is close to its peak. Over time, more money in the hands of consumers will lead to more demand and therefore higher prices, but the size of the impact will be small. Policy decisions add a net of $20 billion to the economy over 4 years. Treasury claimed this was too small to even factor into its forecasts. Since the budget, two independent macroeconomists have estimated the budget will add about 0.1 percentage points to the CPI. Not nothing, but not enough to keep Reserve Bank Governor Philip Lowe up at night.