‘Here comes the sun’: is our budget pain over?

Sam Hawley: Hi, I’m Sam Hawley, coming to you from Gadigal Land. I’m inside the budget lockup in Sydney to bring you a special edition of ABC News Daily.

Parliamentary speaker: The Treasurer.

Jim Chalmers, treasurer: Thank you, Mr. Speaker. I move that the bill be now read a second time.

Sam Hawley: And I’m joined by the ABC’s business editor Ian Verrender. Thanks for joining me. It’s a lot of fun in here. Now, Ian, we’ve spoken to you a few times for budget lock-ups and I know you love to give budgets a song title. We’ve had Back in Black…

Josh Frydenberg, former treasurer: Tonight I announce that the budget is back in the black and Australia is back on track.

Sam Hawley: …the Hot Chocolate budget, where everyone was a winner… that was a good one…. And Highway to Hell, which was really bad, obviously. So your verdict?

Ian Verrender, ABC business editor: Maybe, ‘Here comes the sun’?

Sam Hawley: Here comes the sun, brilliant! So it’s looking up, obviously, because this budget projects a surplus, the first in 15 years. And Jim Chalmers seems pretty proud, it’s a Treasurer’s dream!

Jim Chalmers, treasurer: Because our first two budgets made such a firm commitment to responsibility and restraint. We are now forecasting a small surplus in 2022-23, which would be the first in 15 years.

Ian Verrender, ABC business editor: Well, it is. And I guess, though, you have to ask the question, how did we get here? And is this down to the brilliance of the government, or are there other factors at work? And really, I mean, I think even the Treasurer would admit that there’s… the economy… Is actually ticking along pretty nicely at the moment, despite all the negativity that surrounds the coverage of what’s going on, and of course, you know, we’ve got an inflation crisis, we’ve got a lot of people hurting with, you know, not being able to cover the bills, rents going through the roof. It’s just, it’s been very tough for a lot of people. But from a treasurer’s point of view, the money is just been pouring in, in recent times, and that has is what has really driven this dramatic turnaround.

Sam Hawley: So what’s happening there? How is it pouring in? We’ve got too much money, by the sound of it?

Ian Verrender, ABC business editor: Well, I guess just last October, the government was forecasting a $32 billion deficit and now we’re in a $4.2 billion surplus. So what’s happened is we’ve got a lot more tax revenue coming into the… Into play. And, you know, there’s a few factors behind that. One is that, you know, our unemployment rate is at a half-century low, so 3.5% unemployment would have been unheard of just a few years ago. We’ve also got wages growth, for the first time in a long time. So that’s pushing people into higher tax brackets and increasing the, you know, the amount of money that’s coming in. Plus we’ve got record numbers of people employed because we’ve now got, you know, migrants back in the workforce. So there’s a lot of people out there employed, and that has a double whammy effect, not only is everybody, or a lot more people, paying tax, and paying a little more tax than they were in the past, but you’ve got a lot less people on unemployment benefits on JobSeeker. So you get extra revenue, and less costs. So it really turbocharges the, you know, the whole equation. And then on top of that, we’ve had, particularly in the past year, massive increases in commodity prices, particularly energy… Coal, gas, oil… And that’s really turbo-charged revenue as well, so all of these factors have come into play at once to to really drive up the amount of revenue that the government is collecting.

Sam Hawley: Hm, to make a rather happy Treasurer. So he is celebrating a return to surplus. But how long does that last, Ian? How long do we have that for?

Ian Verrender, ABC business editor: Just this year.

Sam Hawley: There’s a catch!

Ian Verrender, ABC business editor: Yeah. Yeah. So it all starts to unravel next year. We go back into deficit next year, and those deficits actually get bigger the year after that and stay at, you know, in the mid $30 billion deficit era beyond that. Now, you know, if we’d had, say, a $70 billion debt this year, or a $70 billion deficit, which was kind of what was expected this time last year, that would have added enormously to the… To the debt levels. And that debt goes on forever, you know. So this time, we’ve not only eliminated that, but we’ve added a little we’ve taken a little bit off the top as well. So that has an impact right across the the broader spectrum. So those interest payments actually start to decrease further out.

Sam Hawley: So that’s pretty good news. And of course, Jim Chalmers is really happy with that. But what Australians, I think, really want to know is when will things actually get easier for them? So Ian, what does this budget tell us? What does it predict when it comes to inflation, which has been really high for a really long time now?

Ian Verrender, ABC business editor: Yeah. Well, the… There’s been a debate in the last few days, particularly about the amount of money being spent on cost-of-living relief and the measures that have been announced tonight to to do that and whether or not they’re actually inflationary. So if you give people money to make their life easier, that means they’re going to spend that money, which is going to add to inflation. They’re doing it in such a way that they’re reducing the pressure on households and also claiming that that’ll knock about three quarters of 1% off the inflation rate. So if you look at the inflation rate stretching out to next year, the Reserve Bank is I think forecasting around about 4%. And the government today was was forecasting a three quarters of a percentage point lower than that.

Sam Hawley: So they’re expecting… The government is expecting inflation to fall – its prediction is, in this budget at least, from 6% this year to 3.25% next year, but that’s slightly lower than what the RBA predicts.

Ian Verrender, ABC business editor: That’s right, that’s right. The Reserve Bank was saying four, they’re saying three and a quarter. Yeah, and that’s primarily due to the fact that they’re instituting these cost-of-living measures, which they also claim will reduce inflation. Now it’s the way you hand the money out – rather than just hand the money out to people and say, ‘here’s the cash, go and pay your power bill’, it’ll be done as a payment to the to the company itself so that the money goes directly off your power bill rather than you get the money to be able to go and spend it.

Sam Hawley: So not inflationary?

Ian Verrender, ABC business editor: Well, look, there’s still an open question about that.

Sam Hawley: So let’s have a look then at these measures that the government has announced to help people with the cost of living pressures that they’re facing. You’ve mentioned help with electricity bills. So how does that play out? How many people are going to be helped by that? What else are we seeing, and is there anything new that we, sort of, didn’t see before we actually laid eyes on the budget papers?

Ian Verrender, ABC business editor: Not much. There’s not much new in here. There’s 5 million households and 1 million small businesses apparently that are going to benefit from the power bill assistance. And I mean, that will help a lot of people, there’s no doubt.

Sam Hawley: It’s about $500?

Jim Chalmers, treasurer: Tonight we are delivering up to $3 billion in direct energy bill relief for eligible households and small businesses co-funded with the states and territories. More than 5 million households will have up to $500 deducted from their power bills in the next financial year. Real relief, right off your power bill, right when you need it.

Ian Verrender, ABC business editor: Yeah, yeah. I think it’s going to be, if not means tested, at least handed out to those who are most needy. They’ll get they’ll get more than other people. And yeah, 1 million small businesses as well. And bear in mind, a lot of small businesses, people who have mortgaged their house against their business.

Sam Hawley: Also, as we knew beforehand, JobSeeker will be extended, but it’s only about $40 extra a fortnight. It’s not huge money, is it? It’s like, it’s a tinkering really, isn’t it? It will help I suppose, but it’s not massive.

Ian Verrender, ABC business editor: It’s not massive, but it is a wider application I think, than was most people anticipated. So it is for everybody. Yeah. Because I think the original idea was that only certain people were going to get it and there’s going to be extra support for over 55 seconds as well. Long term unemployed, over 55 seconds, most of whom are women in that in that situation.

Sam Hawley: Yeah, what else is there then, Ian?

Ian Verrender, ABC business editor: There’s quite a lot of medical… Health initiatives… Out there. There’s about, I think, $5 billion being spent on Medicare. There’s a tripling of the bulk-billing incentive. You’ve then got rent assistance, about 1.1 million people benefiting from that as well. It wouldn’t be hard to put into, you know, to figure out that those people needing rent assistance are also the people on JobSeeker because there’s 1.1 million each of those.

Sam Hawley: Again, that’s around a $31 a fortnight extra?

Ian Verrender, ABC business editor: Up about 15%, so not a lot but yeah, every bit counts.

Sam Hawley: So Jim Chalmers said he wanted to deliver cost-of-living relief in this budget without driving up inflation. Of course that’s key. So do you think he’s achieved that, in this budget?

Ian Verrender, ABC business editor: Well, I think so. I mean, it’s a pretty tricky kind of balancing act. So if you go out on a spending spree, that’s going to force the Reserve Bank to jack interest rates up even more, you know, it is a balancing act for the Treasurer. I know there’s a lot of pressure. I mean, every minister apparently in the ministry was traipsing into his office saying what all this extra money’s come in. How about you hand it out for here, you know, so they’ve, they’ve tried to be, I guess all things to all people, but the government is saying, well you know, the Treasurer particularly is saying 82% of of our revenue upgrades in the past two years are going straight back into the government coffers.

Sam Hawley: Okay. Okay. So if we are looking at inflation sort of returning to the RBA’s target rate by next year and into the following year, when will the RBA start to drop interest rates? When will food, sort of, become cheaper? When will life be shinier?

Ian Verrender, ABC business editor: You know, six months ago, we were predicting a huge deficit and now we’ve got a surplus. I don’t know how anyone can predict anything these days. And look, there are a lot of forecasts out there that the global economy is in serious problems and that could tip into recession. The UK is certainly looking like it’s going to go into recession. New Zealand is right on the cusp of a recession at the moment. If America tips into a recession and a lot of analysts think it will, that could change all the dynamics and it might kill inflation right off. It might cause central banks to start really cutting interest rates. And, you know, a recession is a sure fire way of killing inflation, but it also adds to unemployment.

Sam Hawley: So the answer is, we don’t really know? But we’re hoping that there will be more sunshine to come.

Ian Verrender, ABC business editor: Yeah, I mean, the plan is to keep as many people in a job as humanly possible and bring inflation down. Now, you know, if you wanted to… If you were just focusing on inflation, you could put a huge number of people out of work, you know, quite easily by jacking interest rates up even more. But you do that, and you create all sorts of pressure points for the economy down the track.

Sam Hawley: But of, you know, of all the budgets we would have expected, this was a little bit of a surprise – better than we could have hoped for?

Ian Verrender, ABC business editor: Yeah.

Sam Hawley: All right, Ian Verrender. Thank you very much.

Ian Verrender, ABC business editor: Thanks, Sam.

Sam Hawley: Ian Verrender is the ABC’s business editor. The budget papers are also forecasting Australians will finally experience real wage growth by the middle of next year. For more coverage of the budget, go to the ABC News app. This special budget episode was produced by Veronica Apap and Chris Dengate, who also did the mix. Our supervising producer is Stephen Smiley. I’m Sam Hawley. Thanks for listening.