Angus Taylor lashes govt for overspending, says Australians will pay the price

“Every Australian has to pay that price… this is the biggest spending government outside of war time or crisis,” he said. “There is absolutely no pathway in this update to a restoration of Australians’ standard of living.”

He said this was on top of seven consecutive quarters of GDP per capita going backwards and he reiterated comments made earlier this week about a reduction in the living standards.

“Australians are paying a price for a government that simply has had the wrong priorities and has consistently made the wrong decisions when we are facing a cost of living crisis and we are facing an economy that has been grinding to a halt," he said. “The only thing this Treasurer does more than spin is spend."

Taylor said spending restraint was “so important” but he emphasised that his approach was not austerity, but restraint in the growth rate of spending.

He said the measures the government has used could have merit in different times but were not appropriate during a cost of living crisis. He said this includes spending for “supposed housing where we aren’t seeing new houses”. However, he did not give other examples.

“The problem for Labor is they have the wrong tools for the times,” he said.

Instead, Taylor said focusing on the basics and the supply-side of the economy was the answer for this economic climate. This would include getting rid of bottlenecks in the housing market, getting approvals through for major projects and securing base load power.

“We have promised already important initiatives and reforms on the tax side,” he said, listing accelerated depreciation for small businesses as an item.

“One of the ways through the crisis … is to encourage business investment,” he said. “The most important thing you have to do to ensure lower personal income taxes … is to ensure the economy grows faster than your spending.”

When asked whether he would rule out cuts to services like Medicare, following comments on Wednesday morning from Chalmers that critics should point out where they would cut spending, Taylor said he was more focused on “big spending initiatives from Labor that are not appropriate at a time like this”.

“The way you pay for essential services … is to have a strong economy with high productivity levels,” he said.

"Over the four years to 2027-28, the headline cash balance has been revised down by a cumulative $33.6 billion. The larger downgrade in the headline cash balance compared to the underlying cash balance is further evidence of the extent to which policies are increasingly being funded ‘off budget’," Lee said.

"While the government deserves credit for saving most of the ‘unexpected’ revenue that flowed into federal coffers during the post-pandemic period, the realities of the budget’s deep structural deficit have been laid bare.

"Australia’s structural budget deficit is the result of years of successive governments neglecting the economic and tax reform needed to create a more prosperous Australia. Significant economic and tax reform is the only way to stabilise Australia’s fiscal position."

Betashares chief economist David Bassanese said the government was “spending like a drunken sailor”. Though he quickly followed it up by noting that said spending is on “increased care for some of the most disadvantaged in the community”.

He said that “while it might be hard to fault the intent behind much of this increased spending … it must be faulted for making no efforts to fund this spending responsibly, especially at a time of economy-wide capacity constraints, high inflation, and high interest rates”.

“This mid-year update is not chock full of big, expensive new decisions,” he said. “We’ve done what’s necessary, we’ve accommodated pressures and priorities in the most responsible way we can.”

The Treasurer further emphasised the strength in the jobs market, moderating inflation, growth in real wages, the reduction in the gender pay gap and the improvement in the budget compared to the pre-election period.

“We’ve struck the right balance in our economic strategy and in the budget update today. We’ve maintained a primary focus on inflation and the cost of living, without ignoring our … responsibilities to people when it comes to Medicare and medicines, and pensions and the like and also without ignoring the very substantial risks to growth,” he said.

Chalmers also pointed to peer OECD nations that had a negative quarter of growth while Australia had not. He noted that his $5.5 billion election war chest was a "relatively small number by historical comparisons" and not "an especially big number".

When questioned about the high spending to GDP ratio, Chalmers said it was better than the pre-election outlook.

"We’ve made sure that we’ve done what we can to get that a little bit lower … if you look at the average real spending growth over the six years it’s about 1.5%. It was about three times higher under the former government,” he said.

One of the challenges for the budget has been government support payments, such as pensions, which are indexed to ensure the amounts keep up with inflation. Inflation has continued to run hotter than previously forecast and this has led to higher rises in the payments.

Chalmers said it would be "madness" in both fairness and economic terms to "slash and burn" and have an austerity budget at a time when the economy is barely growing.

Finance Minister Katy Gallagher said the government had sought to find savings where possible while dealing with “unavoidable spending pressures” and showing restraint.

“[While] the budget position is $1.3 billion better off than forecast, budget slippage across the forward estimates is really down to urgent, unavoidable or automatic spending.

“Unavoidable spending is half of those decisions in MYEFO,” she said, labelling the decisions made as "responsible", "prudent" and "methodical".

“This has been an important and difficult balance act in many ways. A lot of pressures, a lot of requests for additional support and we’re trying to find room for all of those important investments while finding some savings,” she said.

Gallagher highlighted that women had been put at the centre of the budget, in terms of appointments to the Reserve Bank board and to the approach to the care economy and investments in women’s safety.

Nationals Leader David Littleproud said on Sky News the government had “run the economy off a cliff” and said the Treasurer had not been able to deliver restraint.

“You can’t solve the nation’s problems by spending the nation’s money,” he said. “You have to structurally look at what’s driving that, proper industrial relations laws, proper energy policy, not just in the long term, but in the short term”.

However, economists will be much more focused on what the government is doing about the future budget challenges not what it inherited post-pandemic.

Also, the use of the term “slippage” about those future years by Chalmers and Finance Minister Katy Gallagher in their joint statement this morning was an especially curious choice with much larger deficits than expected at budget time now featuring in every year after this one.

Some of the forces affecting the budget are not new, nor unexpected, including the downturn in the Chinese economy. Economists will be encouraging the government to undertake significant steps to handle structural challenges affecting the budget and put the nation onto better footing.

With an election coming up, and the success of two surpluses now firmly in the rearview mirror, it’s unlikely the government will want to unveil another budget before the next election.