A solid interim Budget: now for May 2023
PREDICTABLY, Tuesday’s federal Budget was a let-down for those who expected immediate solutions for the burning issues needing urgent attention. It was an interim Budget.
Today’s urgent burning issues, which will have to wait until the May Budget in a little over six months’ time, fall into three categories.
First, the Budget is $900 billion in the red. Tuesday’s Budget measures are aimed at not increasing Government debt any further, rather than at actively reducing debt. Discounting debt by revenue windfalls from high commodity export prices and savings on social security expenditure, Australia is still running a hefty deficit, money that needs to be borrowed in a rising interest rate environment. Anyone hoping for meaningful pensioner cost-of-living relief in tomorrow’s Budget will have been disappointed.
Second, Tuesday’s Budget is aimed at not doing anything that will increase the rate of inflation. The Budget in May next year will be similarly framed with regard to inflation: inflation rates across the developed world are much higher than in Australia. Inflation being a global problem, it is unlikely to be tamed in six months’ time.
Third, the Albanese Government has signalled it wants wages to rise. While this is not something that can be achieved overnight, legislation is soon to be introduced to give workers more negotiating power. Wage rises are dependent on productivity increases, which in turn will increase Government tax revenue to pay for some big ticket reforms.
Incidentally, wage rises are important for the pension. One of the three pension indexation mechanisms is the wages benchmark. This benchmark is the only thing that can increase the pension by more than inflation. It’s the only way a pensioner’s standard of living can be increased.
In Tuesday’s Budget there was $2.5 billion over 4 years to implement Aged Care Royal Commission recommendations. The actions which the Government funds in this Budget are mostly well-publicised, although some are not as well-known, such as the requirement for providers to preference direct employment, civil penalties to protect whistle blowers and the introduction of a power to compel providers to pay compensation to care recipients where loss or damage has occurred due to neglect.
While it is regrettable that this Budget offers no cost-of-living relief for pensioners, the most recent Age Pension indexation costs the Budget approximately $2.75 billion annually.
CPSA would like to see the frequency of pension indexation increased, certainly during times of high inflation. Full rate pensioners had to find approximately $750 over the almost nine months up to September to cover cost-of-living increases. Quarterly indexation would certainly go a long way to assisting full rate pensioners in coping with price rises for essential goods and services.
CPSA notes that since pension indexation in September last, inflation has continued and despite the substantial pension increases, especially full rate pensioners are continuing to do it tough.
As previously announced by the Government, the pension assets test exemption for principal home sale will be increased from 12 months to 24 months for income support recipients. CPSA welcomes that only the lower deeming rate will apply to principal home sale proceeds when calculating deemed income for 24 months after sale of principal home. Arguably, the deeming rate change is of greater benefit than the time extension for the assets test exemption.
One exciting addition was further commitments to increasing social and affordable housing supply. The $10 billion Housing Australia Future Fund promising 30,000 social and affordable homes over five years was already established as part of the Labor Governments election campaign.
However, the new Housing Accord establishes a collaboration between all levels of government, investors and stakeholders with the large-scale aim of building one million new homes over five years from 2024 to increase supply and ease house prices.
The Housing Accord also comes with an initial $350 million to fund a further 10,000 social and affordable homes over five years from 2024-25 and the potential for state and territory governments to contribute another 10,000 properties.
This is a good start, although the size of the housing crisis is such that even a significant initiative such as this will go nowhere near solving it.