Pre-election Budget shows eyes are on the wrong prize

This pre-election Budget shows a disappointing lack of attention to the long-term challenges facing Australia, the Committee for Economic Development (CEDA) says. 

“The smaller-than-expected deficit, while welcome, has again been driven by higher personal and company income tax takes and strong commodity prices,” CEDA Chief Economist Cassandra Winzar said. 

“These are all temporary windfalls that mask the well-known structural problems in the Budget.  

“Like too many budgets from both sides before it, this Budget does not address the issues that threaten to derail Australia’s strong economy over the longer-term.  

“Failure to act will damage our ability to sustainably provide the critical services Australians value so highly and that underpin our social compact.” 

The Albanese Government’s fourth budget estimates the current upheaval in the international economic, geopolitical and trade landscape will have relatively modest direct impacts on Australia’s economy but have created significant uncertainty and volatility. 

“This makes caution on spending even more important. We should get our long-term financial stability in order, to ensure we can respond to shocks if and when they arise,” Ms Winzar said.  

“Neither side should engage in pre-election spending sprees at such a time.” 

This Budget forecasts a deficit of $27.6 billion this financial year, increasing to $42.1 billion in 2025-26 and further deficits over the forward estimates.  

But it contains no measures to address the mismatch between revenue and spending over the medium term.  

“We must stop baking in ongoing spending decisions without addressing how we will pay for them,” Ms Winzar said.  

“While the extra spending on health and aged care is welcome, there are not enough measures to grow capacity in the economy and help fund services like these.” 

Tax reform

The Budget contains new cuts to personal income tax rates, with the current 16 per cent tax bracket reduced to 15 per cent from July 2026, and a further reduction to 14 per cent in July 2027.  

“These cuts will be welcomed by households but worsen the budget situation, nor do they address ongoing concerns around bracket creep,” Ms Winzar said.  

“All sides of politics must start the conversation with Australians about our tax system to lay the foundations for proper reform.  

“Current arrangements are unsustainable and deeply unfair to young people. 

“All parts of the system must be on the table if we want to properly fund critical services like health, aged care and education into the future. Our social compact is at risk if we cannot sustainably fund them.  

“On the spending side, the Government should start a systematic review of program evaluations through the Australian Centre for Evaluation, so we know which programs are effective and which are not. 

“As a general rule, government programs should be better targeted than they are currently.  

“Australia’s social compact was built on the principle that those who could afford to pay for services would do so. Today, however, many Australians receive a benefit whether they need it or not, and regardless of whether this brings a net benefit.”  

Productivity 

Improving productivity is the only way to expand the economy, support the Budget position and increase living standards for all Australians.  

“New national licensing for electricians is an important step to reduce occupational licensing restrictions and boost weak productivity growth,” Ms Winzar said.   

“CEDA has long argued for reform of Australia’s rigid licensing system where it will not jeopardise safety, particularly as worker shortages hold back progress and productivity in crucial sectors such as home-building and clean energy.  

“This is a welcome use of the National Productivity Fund, but we must get cracking on implementation and investigating other avenues to encourage states to make key productivity-enhancing reforms now.  

“A commitment to banning the unreasonable use of non-compete clauses is also a welcome move.  

“Much more still needs to be done to strengthen the investment environment and dynamism in Australia, in particular by lifting national economic efficiency and performance.  

“This includes reinvigorating the Seamless National Economy agenda, focussing on streamlining regulation; removing duplication across jurisdictions; and improving the efficiency and effectiveness of regulation. 

Cost of living 

Although many Australians are still feeling the cost-of-living crisis, the Government should not have extended its energy rebates for all Australians to the end of the year. 

“Energy subsidies should be targeted, timely and temporary, and the time has long since passed to end them,” Ms Winzar said.  

“Universal payments such as these are unnecessary, and risk stoking inflation. The best thing we can do now to bring down the cost of living now, and over the longer term, is keep a lid on inflation and get our housing crisis under control.” 

Housing 

New housing measures in this Budget include an expansion of the already announced Help to Buy scheme to assist Australians to purchase homes, and a modest $54 million to invest in more modern methods of construction. 

While welcome measures, they do not address the underlying issues affecting housing supply.  

“While housing is also a state and territory responsibility, we need much more urgent action federally,” Ms Winzar said. 

“The housing crisis is affecting longer-term wellbeing and social cohesion, as well as causing short-term cost-of-living stress. 

“Some proper measures are finally underway around the country, but many obstacles stand in their path.  

“There is little sign of meaningful progress on barriers such as planning and zoning regulations and the lack of available construction workers. 

Migration 

Getting migration settings right is crucial to support economic growth in both the short and long term.  

There are no new measures in this Budget to improve our migration settings to boost productivity and fill worker shortages in key industries. 

“We continue to believe Australia should have an essential skills visa focused on the care sector to ease persistent worker shortages in these essential roles,” Ms Winzar said. 

“In the face of an ageing population, worker shortages are not just a short-term issue. 

“While we acknowledge the limitations inherent in a pre-election budget such as this, all sides of politics must take seriously the challenges on the horizon.” 

CEDA Chief Economist Cassandra Winzar is available for further comment and interviews.