The Labor Government’s 2023-24 May Budget leverages off the significant surge in tax revenue from strong employment, high commodity export prices, and stable corporate profits to fund a number of election promises including social welfare, health, and cost-of-living support, producing a small short-term surplus with minimal new tax measures and a focus on spending restraint and reprioritisation.
With the Reserve Bank seeking to dampen spending and reduce inflationary pressures through higher interest rates, the Government has adopted a fiscal policy that is a ‘steady-as-she goes’ approach with the forward estimates now predicting deficits will reduce by over $143 billion over 4 years. While there have been material tax changes to the resource sector, tobacco and superannuation, broader structural tax changes have been avoided and the stage 3 tax cuts currently remain unchanged, an approach that seeks to underline the Government’s fiscal credibility. There are targeted tax concessions such as for small business, investing in clean buildings and build-to-rent accommodation, however there are also enhanced tax integrity provisions including revised general anti-avoidance provisions and a minimum global and domestic tax imposition.
The challenge faced by the Government will be balancing the structural spending changes that are long term, against a revenue boost that may only be short lived, all in the context of a slowing Australian economy. Recent history has also shown that outside factors such as natural disasters, geopolitical tensions and COVID can significantly impact the Australian economy, meaning economic conditions can turn quickly and some buffer will be needed to cover these eventualities.
While the Government has indicated its willingness to manage future spending on large outlays such as the NDIS, key economic pressures such as inflation, productivity, and real wage growth remain. The Reserve Bank has noted that productivity has fallen to below pre-pandemic levels and while the Budget contains measures to ease the transition into more efficient energy reform, the Government has largely avoided incentives that promote business investment or improve its global competitiveness. These are no doubt longer term aims that the Government will, as part of its ‘sequential’ approach to reform, need to prioritise and focus on going forward if Australia is to remain connected and relevant in the growing Asian marketplace.


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