- In contrast to its big-spending agenda at the 2019 election, shadow treasurer Jim Chalmers will argue that Labor will have to prioritise its policies and sequence them over time.
- He will say the best way to fix the budget is to grow the economy and lift employment, rejecting calls for a sharp reduction in spending.
- This will all be factored into a second budget this year with a focus on boosting productivity and winding back “wasteful” spending if Labor wins government.
Australia’s economic recovery could be derailed if consumers fail to tap their $250 billion in COVID savings, shadow treasurer Jim Chalmers will warn while promising not to run an austerity budget if Labor takes office in May.
As both sides of politics come under pressure to tackle major tax reform, boost child care funding and make it easier for foreign students to become citizens, Dr Chalmers will use a speech on Tuesday to commit to a second federal budget by year’s end that will avoid deep spending cuts.
Labor’s Jim Chalmers says the future of the economy’s post-recession recovery will hinge on whether households spend their $250 billion in extra savings.Credit:Alex Ellinghausen
Households have accumulated more than $250 billion in savings since the COVID-19 recession began, much of it through government stimulus, reduced consumer spending and falls in mortgage interest rates.
In an address to the Australian Chamber of Commerce and Industry, Dr Chalmers will argue that while high commodity prices are helping the budget, the economy ultimately rests on the nation’s consumers and how they use their savings.
“Despite a likely boost in national income and the budget bottom line, we will be touched by global investor uncertainty and the impacts of higher energy costs on the world economy,” Dr Chalmers will say.
“How this nets out will be key as will whether, or when, Australians feel secure enough to start to spend the $250 billion accumulated in savings. If they hang onto those savings because of uncertainty, rising interest rates and skyrocketing living costs, the recovery could stall.”
Treasurer Josh Frydenberg will hand down his pre-election budget on March 29, the earliest in Australia’s fiscal history. He has already conceded the budget, which last financial year showed a record $134.2 billion deficit, is unlikely to be in surplus over coming years.
Gross government debt has reached $868.1 billion, with the nation’s interest bill on track to reach $30 billion annually.
While promising to save much of the windfall that is flowing into federal coffers due to high prices for key commodities, Mr Frydenberg is expected to deliver cost-of-living relief to low- and middle-income earners.
In contrast to its big-spending agenda at the 2019 election, Dr Chalmers will argue that Labor will have to prioritise its policies and sequence them over time.
He will say the best way to fix the budget is to grow the economy and lift employment, rejecting calls for a sharp reduction in spending.
“Our fiscal strategy recognises now is not the time to flick the switch to austerity. Nor is it time to spray money around unnecessarily,” he will say.
A growing concern is the lift in global interest rates, with interest on government debt up by 0.7 percentage points since the mid-year budget update in December. A full percentage point increase in rates would add $10 billion to the budget’s interest bill over the forward estimates.
This will all be factored into a second budget this year with a focus on boosting productivity and winding back “wasteful” spending if Labor wins government.
“We’d take advice on the best specific timing and confer with Treasury on the possibilities, with an eye to bringing down a proper budget before the end of 2022,” Dr Chalmers will say.
“We’d have a chance to look at the full extent of nearly a decade of rorts and waste and start dealing with it.”
He will make the comments after the release of a report by the Committee for Sydney that calls for whichever party wins this year’s election to embark on serious reform across a range of areas.
In its federal election agenda, the committee says there needs to be better access to affordable childcare to boost women’s workforce participation. Some women are in effect priced out of working by the cost of care.
It wants a $5 billion lift in the childcare subsidy for low-income earners and the hourly rate cap to be axed. It estimates that for about 60 per cent of families, the cost of care would fall to less than $20 a day.
Parental leave should change, it says, with each parent entitled to six weeks’ paid leave and another 12 shared between them. Single parents would be entitled to all 24 weeks.
To further boost the jobs market, the committee says all foreign students who complete a bachelor’s degree or above should have access to a four-year post-study work visa. Students who remain in Australia during this period would have a pathway to permanent residency.
On tax, the committee believes the GST should be broadened to fresh foods, health and education.
“Among its benefits, this switch would mean older, wealthier households that are living off savings and investments rather than earning a salary would contribute more,” it said.
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