The Federal budget: Making the right choices

Each budget is different. The economic environment, global context, budget priorities and goals are all different. In terms of this budget – the first in the Government’s new term – the Government wants to be seen as “making the right choices”. That focus makes sense – the Government has to maintain an “accommodative” fiscal stance in the current environment just as the Reserve Bank maintains an “accommodative” monetary policy stance. It is not yet the time to tighten policy settings. The Reserve Bank (RBA) believes it has gone far enough in cutting interest rates. The RBA now believes that the Government should take on more of a leadership role, advocating that more money be spent on transport infrastructure. Indeed the Government has indicated that spending on the second Sydney airport will be outlined in Tuesday’s budget.

The Government is expected to outline more spending on infrastructure in the budget while at the same time committing to return the budget to surplus. So it will need to be cutting recurrent spending – as it plans to do with university funding – but spend on economic and social infrastructure that will create jobs, maintain economic momentum and support economic activity over the longer term. The concept of “good” and “bad” debt has been raised by the Treasurer and is expected to feature in the budget. The thinking is that spending on economic and social infrastructure is “good” in contrast, for example, to a cash handout to families. Apart from infrastructure spending and funding cuts to universities, the budget is also expected to contain measures to address housing affordability. The important point to remember is that the Government has had significant difficulty in getting policy changes through a hostile Senate. And nothing has changed since the last election.

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