As turmoil in fuel markets rattles the global economy, the upcoming Federal Budget has become a critical test for the Albanese government. A leading economist warns that policy missteps could worsen cost-of-living pressures for Australians.
Five Priorities for the Budget
AMP chief economist Shane Oliver said the Budget represents a rare opportunity to reset the economy. He outlined five priorities the government cannot afford to ignore if living standards are to improve.
Limit Cost-of-Living Stimulus
Oliver warned that the oil supply shock stemming from conflict involving Iran could push the government toward short-term populist measures rather than long-term reform. He stated that any cost-of-living relief should be modest and well-targeted to those who truly need it, such as low-income earners and businesses with high energy cost exposure. He noted that pandemic stimulus, while timely, was not well-targeted and arguably contributed to inflation.
Cut Government Spending by Around $100 Billion
The government has already spent nearly $7 billion on electricity rebates for all households and small businesses, while the home battery subsidy scheme has seen a $5 billion cost blowout. Oliver argued that federal spending has surged to record highs and needs to be cut by around $102 billion. He said the Budget should focus on freeing up economic capacity to ease inflation, requiring cuts to the NDIS, more aggressive cuts to the public service, and more means-testing of welfare. The government has signaled it will reform the NDIS, aiming to remove at least 160,000 people from the program by 2030.
Serious Tax Reform, Not Just Tax Hikes
Oliver urged the government to pursue genuine tax reform rather than ad-hoc revenue grabs. Labor has flagged possible changes to property capital gains tax concessions and is considering a minimum tax on trusts, an export levy on gas producers, and extending road-user charges to electric vehicles. While each has merit, Oliver warned that if this is all the Budget offers, it will be a tax hike and not real reform. He argued that Australia relies too heavily on income tax, which accounts for 62% of revenue compared to 35% in other OECD countries. He suggested shifting more of the tax burden to the GST, along with lower personal tax rates, higher thresholds, and replacing stamp duty with a broad-based land tax.
Significant Productivity-Enhancing Reforms
Productivity, or output per hour worked, has stalled over the past decade. Lifting it is essential for improving living standards. Business Council of Australia chief executive Bran Black said excessive regulation is a major factor holding back productivity. He cited examples such as a café owner in Victoria needing 37 separate licences and approvals, and a tradie on the Gold Coast paying hundreds of dollars in permits to work across the NSW border. Cutting such duplication would help bring down costs for households and businesses.
Reform the Charter of Budget Honesty
Oliver warned that the Charter of Budget Honesty, introduced in 1998 to promote transparency, has been weakened by the growing use of off-budget spending. Labeling spending as investment obscures the true state of the budget and weakens accountability, even though it adds to public debt. He said projects justified on grounds of boosting domestic manufacturing or supply chain resilience should be subject to independent cost-benefit analysis by bodies like the Productivity Commission. Without such scrutiny, taxpayers risk funding costly, politically attractive projects that deliver little economic return.
