Chalmers

• The government has delivered measures to ease cost-of-living pressures on the most vulnerable, including on income support and rent assistance.
• Treasurer Jim Chalmers says it’s a balance between “doing what we can for the people doing it tough and keeping the pressure on inflation”.
• But another bunch of critics, loud among them the opposition, will insist the budget wasn’t responsible enough – that it in fact squibs the inflation fight.
• While Chalmers insists his cost-of-living measures are restrained, some economists will maintain they’ll in fact add to the inflation problem.
• Those in the centre of the income scale, feeling squeezed by escalating interest rates, may feel left out in this budget.
• But if the budget doesn’t deliver much to these people, not does it overtly poke them in the eye.

• Surplus or not, the budget papers show us living through pretty awful times.
• Living standards measured by the buying power of wages are set to go backwards in 2023-24 as wages are expected to grow by 3.75% while prices rise by 6%.
• Separate figures released by the Bureau of Statistics as Treasurer Jim Chalmers was preparing to deliver his speech show the volume of goods and services bought from Australian retailers has shrunk for the past six months.

The good news is old news

• After 2023-24, it will be deficits again for at least a decade on the budget’s projections, as the unusual circumstances that delivered the unexpected $42.15 billion fall away.
• The unemployment rate is set to climb from its long-term low of 3.5% to 4.25% by mid next year and to 4.5% by mid-2025.
• After that, it is scheduled to barely grow in 2024-25, climbing just 0.5%, before returning to growth of 4.4% and 4.9 in 2025-26 and 2026-27.
• The ultra-expensive Stage 3 income tax cuts deliver a hard-to-defend $2,000 per year to high earners on $120,000 per year.
• Where Chalmers has supported Australians hit by ultra-high inflation in this budget, he has tried to do it cheaply.
• As important as extending parenting payments to single parents with children up to 14 years of age will be those who need it.

Chalmers’ budgets will get harder

• Chalmers said during his press conference this budget had been much harder to put together than his first.
• What he could have added is that his next budget is shaping up to be even harder.
• The economic forecasts in the budget suggest the coming per-capital recession won’t turn into an actual recession.
• Future budgets are shaping up to require just as much.

• While Chalmers says the economy should continue to create jobs and unemployment is expected to remain historically low, inflation remains the top economic concern.
• The clear highlight of this budget is the government’s $14.6 billion cost-of-living relief spending plan, which includes some of the major measures listed below.
• Here are five charts to show how the current budget fits in with historic economic trends and other economic indicators.
• Following that is a breakdown of notable spends and cuts in the budget across specific portfolios.

• On Sunday Chalmers flagged changes to the petroleum resource rent tax (PRRT) – a tax on the profits from oil and gas exports – that he says will mean the offshore LNG industry “pays more tax, sooner”.
• Bad resource tax design works against this because it means those resource profits are immune from tax.
• Read more:
  Australia already has a UK-style windfall profits tax on gas – but we'll give away tens of billions of dollars unless we fix it soon

Dusting off review recommendations

• The changes come in response to recommendations from two reviews: the Callaghan Petroleum Resource Rent Tax review released in 2017 by then-treasurer Scott Morrison; and a subsequent Treasury review released on Sunday.
• The Callaghan report recommended changes to the tax only be applied to new projects, to maintain the stability of the sector.
• Currently, an entity’s liability is levied at 40% of the taxable profit made from its interest in the project.
• His government accepted eight of the 11 recommendations from that review and eight recommendations from the Callaghan Review (recommendations accepted but not implemented by the previous government).

Modest, balanced or weak reform?

Labor’s proposed changes are too modest and are only expected to net the government about $2.4 billion over the next four years. The proposed tax scheme will cap deductions to limit the proportion of PRRT assessable income that can be offset by deductions to 90%. It will also mean that producers will start paying petroleum resource rent tax immediately rather than in 2030 as is the current expectation.

How have the reforms been received?

• She called on the government “to work constructively and cooperatively with the opposition”.
• The Greens want the government to eliminate the $284bn of accumulated credits that allow gas companies to reduce their tax liability.
• LNG exports are worth more than $90 billion per year, yet this step will yield only $600 million annually.
• Local liquified natural gas producer Santos and multinationals including Shell, Chevron, and ConocoPhillips may also be affected, media reports suggest.

Real change is desperately needed

• Significant change to the petroleum resource rent tax is desperately needed to address budget repair and blowouts.
• In the decade before the Gladstone LNG port opened, when Australia’s gas exports soared, company taxes and the resource tax paid by the industry were approximately 15% of revenue.
• In 2022, Australia exported a record 81.4 million metric tonnes of LNG, earning the industry $92.8 billion (when expected revenue was $44 billion).