YETSENGA: Budget 2022, reframing the narrative

The Australian Federal Budget has been labelled a ‘no-surprises’ budget in some quarters and it’s hard to disagree. But that also doesn’t do it justice.

The government has taken advantage of its first budget to reset the parameters, the narrative and the framework of Australia’s economic story.

On the parameters, the budget re-baselines Australia’s economic forecasts for the strength in nominal GDP and employment this year. That’s a win.

But with inflation triple the Reserve Bank of Australia’s target band, the RBA working hard to bring that down, and businesses highlighting the shortage of available labour as their most pressing challenge, the huge positive fiscal surprise coming from these forecast revisions is almost certainly unrepeatable.

Conservative medium-term macro assumptions though do provide a bit of future wriggle room.

On the fiscal narrative, the government has shifted the focus from the budget balance alone, to broader considerations of fiscal sustainability.

The poor structural position of the budget is now up in lights. The National Disability Insurance Scheme and interest payments on debt - but also defence, health, and aged care - have been highlighted in the leadup to the budget, and get plenty of coverage in the budget itself.

But with 40 per cent of revenue coming from individuals’ income tax, the vulnerabilities are there as well. While not easy by any means, the expenditure side of the budget is probably less complicated territory for future budget measures.

The foundations for a more formal budget framework around wellbeing have been established. Fiscal policy has always been about distributional issues as much as getting the overall balance in the macroeconomy right. A wellbeing framework is really putting more formal structures around what was already there.

But with governments in general struggling to step away from the enhanced role in the economy they took through the pandemic - and issues such as climate and housing affordability very challenging for parts of the economy and society - it’s hard to argue against having a more formal structure to assess the budget’s contribution against broader wellbeing metrics.

This budget resets quite a lot, and that will become more apparent over time.

Richard Yetsenga is Chief Economist at ANZ

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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