A people-friendly budget keeping future growth & sustainability in mind

From the editor’s desk

The uncertainty in global economy continues to loom large and the economic growth in most of the countries is much slower than what those countries need, especially after the pandemic. The projections for the US economy are not what the world expects, given the clout the US enjoys. In fact, the US economy is said to be losing more steam in the months to come after it has been hit by rising prices and higher interest rates, which have adversely affected the lives of families, and performance and sustenance of businesses. Moreover, the global economy is reeling under the pressure created by Russian-Ukraine war. In fact, experts say that the trend of slow growth globally is expected to continue throughout 2023, only to improve slightly in 2024. More precisely, there are pressures across the world, build up like an economic pandemic, owing to the prevalence of high inflation, high interest rates and harsh financial conditions, which are a recipe for limiting economic growth.

Whether one likes it or not, after the US economy, China’s economic condition plays a major role in keeping stability in the global economy. The worsening economic situation in China due to the Covid-19 pandemic saw its economy shutting down partially. Besides, the inflation globally is still very high, and the global financial sector continues to show its vulnerability under trying conditions. These developments do not augur well for consumer confidence, and businesses will find it difficult to tread the path of growth. This situation is somewhat similar in the US and Europe. Many other factors in the global economy are a threat to its sustained development goals. The effect of long-term inflation has necessitated central banks of some countries to keep their interest rates higher for a rather longer period so as to tame inflationary pressures. Global food and energy crises continue, which have been exacerbated following Russia-Ukraine war.

In such a backdrop of not-soencouraging global economic projections, especially in terms of economic growth prospects, the Australian government was expected to do the juggling act of keeping many economic parameters under control, and at the same time, deliver to its people the budget they desperately needed. In fact, the government had to rise up to the occasion and give to the nation a budget that lived up to the reputation of Australia being the country that the IMF forecasts suggest will continue to grow in 2023, though many advanced countries are likely to be under the grip of recession. The IMF has predicted that Australia’s economy will grow by 1.6% in 2023, compared to an average of 1.3% for advanced economies.

As Australia’s Treasurer Jim Chalmers has maintained throughout this period leading up to the 2023 federal budget that though Australia’s growth is expected to exceed all major advanced economies in 2023, the country is not immune to global economic challenges mentioned above. In fact, in modern highly globalised economies, the financial contagion propagates across the world like a pandemic. The Australian economy is also expected to slow down under the constraints of a declining global economy, highlighted by high inflation and high interest rates, which are two main detrimental factors to economic growth. There is a situation of slowing down of household aggregate demand due to cost-of-living pressures, which cannot be brushed under the carpet, and needs to be addressed immediately.

Therefore, the federal budget endeavoured to walk the tight rope walk of controlling debt, inflation, employment and other important parameters, and ensuring growth to the economy as well without which other parameters of the economy’s health will fall flat.

The government’s first budgetary obligation was, as it ought to be in any country, to provide cost-of-living relief to its people. As the government’s budget review states, it will be delivering targeted cost-of-living relief with a view to reducing price pressures and the customer price index by ¾ of a percentage point in 2023–24. As the costof-living eases, it is expected to give a boost to aggregate demand in the economy, which has hitherto shown signs of sluggishness. Increase in aggregate demand will kick-start a series of developments which would ultimately lead to higher economic growth.

Even before this budget, the government has been making efforts to take measures to give a boost to real wages. As of now, as the government’s review of the budget suggests, nominal wage growth will reach 4 per cent in 2023-24, which is, as the government states, the fastest rate of nominal wage growth since 2009. But the real indicator of the benefit of wage growth will be visible from the real wages growth. This is expected to happen when there is a combination of two factors i.e. faster rate of growth of nominal wages and lower rate of inflation, and this, the government expects, will happen in early 2024. Another factor that has bothered Australia just like most other advanced countries is inflation. Though the pressure of inflation on people will continue, the situation is likely to improve in the years ahead. In this regard, the budget review by the government suggests that inflation in Australia is now past its peak, has begun to moderate, and is expected to decline in 2024–25.

But the Australian government recognizes and rightly so that for the fulfillment budget’s objectives, governments at all levels must work together. The government has expressed its commitment that it will pave the way for an atmosphere of cooperation among all states and territories for bringing about the reforms for the next generation of growth, jobs, prosperity and security. One of the important areas where federal, state and territorial governments have a shared vision is for a patient-centred and sustainable Australian healthcare system. This kind of an approach to healthcare will lead to the best outcomes for Australia’s diverse communities. Therefore, the federal budget 2023 has provided for the substantial package to give a boost to Medicare measures agreed by the National Cabinet to address immediate challenges in primary care, and laying the foundations for long-term Medicare reform.

This budget has also provided for an NDIS Financial Sustainability Framework, so as to continue to provide life-changing outcomes for future generations of Australians with disability. These measures are a step towards building a nation that cares for its entire population. Besides a slew of people-friendly measures, this budget announces making new investments to promote better growth, including paving the way for a better migration system by increasing visa processing capacity, expanding pathways to permanent residence for temporary skilled sponsored workers, and taking steps to address migrant exploitation. The budget also makes provisions for sustained investment for a pipeline of new social and affordable dwellings, including delivering the Housing Australia Future Fund, and expanding the capacity of the Affordable Housing Bond Aggregator by increasing the liability cap by $2 billion. Furthermore, the budget also talks about offering tax incentives for build-to-rent projects to increase the supply of housing. Therefore, after getting an overall feel of the budget, one can say that it has been a “carefully calibrated” one.