Economic analysis of 2023/24 budget
My overall assessment of the 2023/24 budget is very similar to what I’ve said for the last couple of budgets. It is neither good nor terrible, but it is another lost opportunity, which highlights the lack of political willingness to make hard decisions.
Once again there is a total lack of microeconomic reform. The lack of serious reform over the last 20 years (with the exception of the stage-3 tax cuts) is the underlying reason why productivity and wage growth has been so sluggish. Taxes and regulations continue to creep ever-upwards, putting greater burdens on the private sector, and resulting in a stagnant economy. Government spending pressures continue to mount, as health, aged care & disability spending continue to grow at unsustainable levels. All of these issues have been put in the “too hard” basket yet again.
It is certainly a good thing that the 2022/23 underlying cash balance is in surplus. The 2022/23 fiscal balance actually continues to be in deficit by a modest $1.5 billion, and the cash surplus is largely an accounting trick, but nonetheless it is true to say that the 2022/23 result is a significant improvement over previous forecasts. This is largely because of high commodity prices and bracket creep pushing normal taxpayers into ever-higher tax brackets, but the government does deserve some credit for allowing this budget improvement to occur instead of squandering the extra revenue.
After this one-year good news story, it is disappointing to see the budget immediately return back to deficit. This didn’t have to be the case. The 2023/24 budget deficit is almost $14 billion, but in this budget the government announced almost $14 billion in new spending for 2023/24, and another $28 billion in new spending for the next three years. Governments from both sides of politics constantly feel the need to announce new spending every budget, but if they had the discipline to introduce no new spending for one year, then the 2023/24 budget could have also been in surplus.
Tax revenue continue to edge upwards, through a combination of intentional tax increases (worth $22 billion over the next four years), and the hidden scourge of bracket creep. This secret tax increase slugs workers with approximately an extra $10 billion every year as they move into higher tax brackets, and both sides of politics gladly pocket the windfall. The consequence is that taxes are now higher than ever before in Australia’s history, though most people (and certainly most journalists) seem blithely unaware of this fact because the tax increases aren’t advertised.
To highlight the incredible increase in tax in Australia, government revenue is now roughly double what it was only 30 years ago, and that is *after* we account for inflation and population growth. As table 11.11 of the budget shows, federal government receipts for 2022/23 are now $18,245 per person, compared to an inflation-adjusted $9,175 per person back in 1992/93. It is highly doubtful that government services have improved an an equivalent rate, and it is nonsensical that the government should need to grow so dramatically at a time when Australians have become richer.
In conclusion, the government gets one star for allowing the 2022/23 budget balance to improve to a cash surplus (small fiscal deficit), but this budget includes yet more tax and spending and a disappointing lack of serious reform, and the 2023/24 deficit was unnecessary and inappropriate.