Australian Federal Treasurer Jim Chalmers handed out $15 billion to people needing welfare while quietly taking in an extra $22 billion from a simple change in commodity prices.
Fluctuations in commodity prices have nothing to do of course with the achievements of the Government of the day. But it can work both ways – for or against the budget bottom line. There is no doubt, however, that the Government will enjoy a commodity-friendly bias for the foreseeable future.
The problem with the budget from a market’s point of view, is that the surpluses are unlikely to last and the fear of the inflationary pressure that may arise from the welfare spending.
However, I think some economists are really over-ramping the idea that this form of welfare spending will be inflationary. The $15 billion may sound like a big number, but it is minuscule at the implementation level. This is not about excessive consumerism behaviour as was much of the Covid largesse.
In the current round of analysis, we Australians are doing what we always do. Making the mistake of tinkering with already existing systems in the hope of sounding clever and progressive. The underlying real theme is always the same. Another over-taxed, give a little back, claim to be heroes’ budget.
There is no defence against the raging recession risk, only an attempt to add a little to those who will suffer from this below trend growth period of just 1.5% next year. According to the Government, it may be much worse.
In fact, despite the many protests among big business economists, this is no time at all for a surplus budget. The only real attempt in the government’s plans to assuage the decline in the economy is to ramp up immigration to economically troubling levels.
It is true that immigration has been a major driver of economic growth.
However, an over-loading of immigration, coming too quickly, can indeed lead to housing shortages and welfare blow-outs. It is not just that some coming to this land will have greater difficulty and longer lead times in finding work, due to the ever greater competition from other immigrants, it is equally the highly problematic situation of their displacing some previously employed Australians from their jobs.
The number one reason Australia achieved record-low unemployment post Covid, was not so much economic outperformance, as it was an absolute shortage of temporary workers and immigration. A return to higher, more normal levels in both these regards, is going to have a far more profound impact on the unemployment level than the Department of Treasury has forecast for this budget.
The surplus is likely to happen but will have more to do with continuing firm commodity prices, than actual government policy.
We have to address the major issues of remaining competitive in an increasingly sophisticated economic region where we are a small nation. This means a completely different revenue and distribution approach. Not the endless tinkering and window dressing with the existing platforms.
Market commentary and analysis from Clifford Bennett, chief economist at ACY Securities.
