A cost-of-living package worth almost $15 billion forms the centrepiece of the Albanese government’s first annual Budget, which includes a lift in the jobseeker rate, cheaper medicines, and energy rebates for low-income Australians. The suite of measures to help with the high cost of living are worth $14.6 billion over four years, but the Albanese government insists they won’t fuel inflation further, but are designed to help the most vulnerable in the community.

Threatening to eclipse the cost-of-living relief package was the surprising fact of the Budget surplus, coming in at $4.2 billion this financial year. It’s the first surplus in 15 years, and the first since the global financial crisis (GFC). The small surplus is a vast improvement from the $36.9 billion deficit that the government predicted in its mini-Budget in October, and underscores the rapidly changing economic environment in which we live.

In delivering the Budget, Chalmers spoke of the challenges the global economy is facing, and how these are affecting Australia.

“Australians have shown resilience in the face of heightened global uncertainty, persistent inflation and higher interest rates, which are combining to slow our economy,” he noted.

“The best response to these challenges is a responsible Budget that strikes the right balance between fiscal restraint, easing cost-of-living pressures, securing the essential services people rely on and investing in sustainable drivers of growth.”

The government has a “renewed determination for Australia to make the most of the defining decade ahead”, Chalmers told the nation–and it starts with this Budget.

Budget Forecasts: The Numbers Are In
Chalmers predicts the economy will grow in 2023-24 by 1.5% while inflation, which is currently at 7%, is forecast to fall to 3.25% next year.

This inflation level returns to the RBA’s target band for 2024-25, Chalmers explains, which is “still higher than we’d like for longer than we’d like – but tracking in the right direction”.

Real wage growth of 0.75% is expected for the year to June 2024, which is up half a point since the October budget.

Unemployment, meanwhile, is predicted to steadily rise from 3.5% in the June quarter of 2023 to 4.25% in the June quarter of 2024—an indicator that would please the RBA which has been citing record low unemployment among its reasons for hiking rates.

The surplus, while a welcome surprise, is not expected to last, with the government predicting a deficit of $13.9 billion in 2023-24. It’s not a figure that worries Chalmers—as lower deficits are expected across the coming years compared to recent Budgets.

This will lead to “a $125.9 billion improvement over five years–and a much lower public debt burden” he noted.

But what does the Budget mean in real terms? Here is a break-down of the key Budget measures announced on Tuesday, May 9:

Single Parents Can Stay Home Longer
Single parents can stay at home until their child is 14 years old without being moved to the less-generous jobseeker payment.

Previously, a parent moved from the single-child benefit to the jobseeker payment when their child was 8. The change will mean an extra $176.90 a fortnight for those who would otherwise have been moved to the unemployment payment.

The move will be welcome news for single parents, although the new age cut-off is still two years less than what the government’s own economic equality task force recommended, which was 16 years of age. The new rule is set to take effect from September 20, however it will need to pass through Parliament first.

Energy Rebates for Vulnerable Australians
Some 5.5 million households will receive a one-off payment to help off-set rising electricity bills, which are expected to jump this year by as much as 20%. It follows increases of up to 18.3% in energy bills last year.

Under the plan, pensioners, small businesses and those receiving government support will be eligible for up to $500 in rebates.

However, the amount each person receives depends on which state or territory they live in, as the government was required to negotiate eight separate agreements with premiers and chief ministers.

The Federal Government has also announced a national net zero authority that will be designed to help Australia transition away from coal and gas, and insulate the economy from global energy shocks caused by events such as Russia’s invasion of Ukraine. The new agency will help workers in regions dominated by fossil fuel industries to find employment and retrain.

The Budget also contained funding for an electrification package to help low-income Australians and renters improve energy efficiency by providing money for improvements to heating, water heating, and cooking appliances.

Lifting the Jobseeker Rate
The Federal Government has faced intense pressure within its own ranks to lift the rate of jobseeker, which has not received a permanent increase above regular indexation in years.

On increasing the jobseeker payment, the former Treasury secretary, Ken Henry, said it would be “cruel” to not lift the current payment in the Budget, which currently amounts to $50 a day.

The Government, in response, has announced an increase of $40 per fortnight increase for jobseeker recipients, plus those on Youth Allowance, Austudy and other income-support payments.

Additionally, while many Australians previously had to wait until age 60 to receive higher benefit payments on jobseeker–due to the difficulties of finding work–the government has now recognised that it “gets difficult earlier than that”. Now, Australians over 55 years of age will receive a higher rate.

“The majority of people aged 55 and over on jobseeker are women, many with little to no savings or superannuation, and who are at risk of homelessness,” Chalmers said, explaining the government has identified this group as among the most disadvantaged of Australians.

Additionally, the government has also announced it will scrap the ParentsNext program, ending compulsory mutual obligations for about 100,000 parents.

Cheaper Medicines
From September, millions of Australians will be able to buy two months’ worth of medicine for the price of a single prescription in a move that will drastically cut out-of-pocket costs for GP visits and medicines. More than 300 common medicines will be included in the scheme, including for chronic and common conditions, such as high cholesterol, high blood pressure and heart disease.

The health minister, Mark Butler, announced the change in the lead up to the Budget, in a measure designed to reduce doctor visits and save patients more than $1.6 billion over four years.

Consumers have, unsurprisingly, welcomed the move, but many pharmacists are opposed to it as they fear it will impact their bottom line.

Addressing the Housing Crisis
Housing is a major issue for many Australians, with rental vacancies at all-time lows and interest rates lifting at a record clip. Chalmers has announced new tax breaks for investment in build-to-rent housing to encourage more supply into the market.

In its October Budget, the Albanese government announced a Housing Accord that promised to build one million homes. It was criticised by some as amounting to too little, too late, and Chalmers has given state and territory leaders until next month to come up with ways to expedite planning pathways so homes are built faster.

There was some good news for renters, too, who are at the coalface of Australia’s housing crisis.

The maximum rates of the Commonwealth Rent Assistance program are being increased by 15%, which will provide up to an extra $31 a fortnight for people renting in the private market and community housing.

It’s the largest increase in more than 30 years, Chalmers said.

Healthcare Funding
Healthcare is a perennial issue for governments, and this year’s Budget includes nearly $1.5 billion in new funding to overhaul Medicare, which would include incentives for GPs to extend their opening hours.

There will be a $3.5 billion boost to bulk billing that will help GPs provide free consultations to around 11.6 million eligible Australians. As part of the measure, the bulk billing incentive for GPs will be tripled for standard consultations for pensioners, children under 16, and Commonwealth concession card holders.

Health professionals, such as nurses and pharmacists, will also be encouraged to take on additional roles, such as the roll-out of vaccination programs, and the Federal Government wants to attract 500 nurses back into primary healthcare. However, the Australian Medical Association (AMA) and the Royal Australian College of General Practitioners (RACGP) have expressed concern about allowing pharmacists to administer vaccines.

A MyMedicare program for patients will be rolled out to log health conditions among those who over-present at emergency departments. This data will be used to connect patients with holistic and allied health providers to treat chronic and recurring illnesses.

The total package will cost $2.2 billion, but the Government hopes the pay-off will come in a long-term reduction in recurring hospital visits.

The NDIS, while a valuable service for many, is also growing in cost each year. National cabinet recently agreed to keep growth of the scheme to 8% a year.

Meanwhile, aged care workers, some of the lowest paid workers in the country, will receive a pay rise of 15% at a price tag of $11.3 billion in a bid to attract more workers to the sector.

Cheaper Childcare
More than one million families are predicted to benefit from the government’s cheaper childcare package, which passed through Parliament and has been costed at $55.3 billion in total subsidies over the next four years. Under the new laws to come into effect on July 1, the subsidy rate will be lifted to 90% for families on a combined income of $80,000 or less.

For those earning over $80,000, the subsidy rate will taper down by 1% for every additional $5,000 of family income until the subsidy is removed entirely for families earning $530,000 and above.

The ABC estimated a typical family earning about $120,000 with a child in care three days a week would save about $1,700 a year under the new rules.

Back in Black: Australia’s Budget in Surplus
The big surprise of the May 2023 Budget has been the s-word: surplus. Tonight’s surplus figure marks a big turn-around from the $36.9 billion 2022-23 deficit announced in the mini-Budget in October, and the $78 billion that was forecast by the former Morrison Government in 2022.

The small $4.2 billion surplus is a result of record low unemployment generating additional tax receipts, higher wages growth than anticipated and a commodities boom. The previous Liberal Government came close to delivering a surplus in the May 2020 Budget—and predicted one in their 2019 Budget—but the pandemic put paid to that ambition.

Chalmers couldn’t resist some measure of gloating.

“My predecessors used to spend most of those upward revisions to revenue. I have saved most of it,” Chalmers told the ABC.

Chalmers will reserve more than 80% of revenue upgrades, as he is acutely aware of needing to ensure fiscal policy is not flagrant in the face of the RBA’s restrained monetary policy. Chalmers is also aware that the Budget position, while more positive than expected, faces some challenges ahead, including a rise in defence spending, the NDIS cost blow-outs, and the expensive stage-three tax cuts that the Government refuses to back down on.

Meanwhile, shadow Treasurer Angus Taylor responded to the improved finances with the comment that “a drover’s dog could deliver a surplus” this year, and the real reason for such a healthy bottom line was his former government’s astute fiscal management.

Australia and the Global Picture
Of course, not all of the measures announced on Budget night were aimed at cost-of-living-pressures.

Some, in fact, were big-ticket items dedicated to nation-building and delivering on promises, such as the more than $4 billion that will be spent on expanding the Australian defence force’s missile capabilities and weapons production and the $9 billion that has been slated for the Aukus nuclear-powered submarine project.

The stage three tax cuts will come into play next year, too, which will cost $243 billion and have been criticised for privileging high-income earners. The Budget includes commitments to fund the National Anti-Corruption Commission to the tune of $262.6 million over four years, after legislation was passed in November to enable the establishment of the body.

Combined with rising costs of aged care and health—and falling commodity prices—the Budget is expected to face a black hole in coming years, alongside an increasingly fractious global environment and the very real threat of recession.

Chalmers didn’t shy away in admitting that the slowing of the global economy will affect Australians.

“The global economic outlook has deteriorated and is highly uncertain. High inflation and rising interest rates will see the weakest two years for the global economy in over two decades, outside of the global financial crisis and the pandemic. Tighter financial conditions associated with recent banking strains in the United States and Europe are a further drag on growth and add more uncertainty to the global outlook.”

But he also struck a sanguine note, adding: “While Australia may have a lot coming at us–we have a lot going for us too. High prices for the things we sell overseas; a strong, well‑regulated, secure banking system; low unemployment; and welcome signs that after a decade of being kept deliberately low, wages are moving again.”

How Will the Government Pay for the Budget Measures?
Chalmers insists that paying for the cost-of-living centrepiece, as well as the ballooning costs of administering the NDIS scheme and the considerable future defence spend, will come from money the government has accrued since entering office—some $17 billion from Tuesday’s Budget—as well as ear-marked savings.

These include a plan to prohibit superannuation accounts with a balance of more than $3 million from claiming the reduced tax rate of 15%. The change will take effect in 2025, and is estimated it will raise some $900 million over four years.

Chalmers is also increasing the Petroleum Resource Rent Tax (PRRT) paid by oil and gas companies to $2.4 billion, on their offshore liquefied natural gas projects, over the next four years.

From September, the government will also increase the tax on tobacco by 5% per year over the next three years, raising an extra $3.3 billion over four years. (The government will also crack down on vaping and move to end the sale of vapes in convenience stores).

Finally, there will be a crackdown on multinational tax payments with the Albanese Government falling into lock-step with the Organisation for Economic Co-operation and Development’s desire for a minimum 15% tax floor.

Source: ForbesADVISOR