Treasurer Jim Chalmers has vowed the Budget will avoid an inflationary cash splash and indicated Labor was prepared for a political fight over contentious capital gains tax changes for investors during a predicted property market downturn amid more rate hikes.
“The Budget can’t afford a big cash splash — there are good economic and fiscal reasons why that’s not a good idea in the near term,” he told reporters in Canberra on Friday.
“They’ll be cost-of-living help in the Budget, the important part of that is the fuel tax cut which costs us almost $3 billion.”
Finance Minister Katy Gallagher on Friday announced $64 billion in “savings and re-prioritisations” would be found across Federal Government programs in the upcoming Budget.
The savings figure doesn’t include tax increases, but Senator Gallagher and Dr Chalmers declined to explain what the net savings figure was without Government spending being re-directed rather than cut.
“This is an historically large gross savings figure and it also exceedingly rare that a government will be handing down two Budget updates in a row where there’s a net save,” Dr Chalmers said.
The temporary, three-month halving of fuel excise during the Middle East oil crisis, at a cost of $2.55 billion, expires at the end of June and is wiping 26.3 cents a litre off fuel prices.
While this policy was copied from the Coalition, Labor faces a political fight over its plan to dilute the 50 per cent capital gains tax concessions and restrict negative gearing for investor landlords who make a rental loss.
Prime Minister Anthony Albanese, in Opposition, had vowed to leave tax breaks for property investors untouched, after Labor had lost two elections over such policies.
But ahead of Tuesday night’s Budget, Dr Chalmers said the Federal Government had now changed its mind and wanted to focus on getting more young, owner-occupiers into the housing market, having already fast-tracked the 5 per cent mortgage deposit scheme for first-home buyers.
“My view is, when governments come to a different view on any issue, then the responsibility of the government is to explain why,” he said.
“I think the principle here is when governments come to a different view, they have to front up and explain why that is the case.
“We have seen that before and I think that is the principle this government would adhere to if our policies and views changed on some of those important matters.”
This would also be occurring amid a backdrop of three consecutive interest rate hikes, so far, from the Reserve Bank of Australia with Cotality research director Tim Lawless warning of a downturn in capital city markets in coming months as higher mortgage repayments and unaffordability weigh on demand.
“Sydney and Melbourne are already five months into the early phases of decline, while growth is slowing across the mid-sized capitals,” he said.
“Importantly, the market was already slowing well before the hiking cycle commenced, highlighting the downside impact of waning confidence from late last year alongside rising inflation and worsening levels of housing affordability.”
Westpac has adjusted its forecasts to have the RBA raising rates again in August and September instead of June and August, with chief economist Luci Ellis now expecting a pause next month so the monetary policy board could assess the Middle East conflict.
This was after one of the nine members this week voted against an increase that took the cash rate to a 15-month high of 4.35 per cent.
Another two increases would take it to an 18-year high of 4.85 per cent.
“Together with the dissenting vote, we read this as saying that another back-to-back hike in June is no longer a better-than-50 per cent chance,” Dr Ellis said.
“It is not a zero chance, either, but it should not be the base case.”
Existing capital gains tax concession, introduced in 1999 to replace indexation, disproportionately help the wealthy, with the Grattan Institute calculating the top 1 per cent of income earners reaped 28.2 per cent of the benefit.
With One Nation now outpolling the Coalition in multiple opinion polls amid a housing affordability crisis, Dr Chalmers also highlighted how immigration has plunged under Labor after hitting record highs during its first term.
Net overseas migration grew at a record-high pace of 548,800 in the year to September 2023 but as of September last year, the pace had slowed to 311,000.
“When you think about the migration part of the story, as well, net overseas migration is down about 45 per cent from its peak,” Dr Chalmers said.
“It was surging when we came to office. It was absolutely surging when we came to office.”
When former prime minister Scott Morrison lost the election in May 2022, the population had gone from shrinking by 3600 in 2021 to net overseas migration climbing by 109,600 in the year to March 2022.
Under the previous Coalition government, Australia was closed to immigration during the pandemic in 2020 and 2021.
The net overseas annual immigration pace above 300,000, based on the most recently quarterly population data from the Australian Bureau of Statistics, is still higher than Treasury’s forecast of 260,000 for 2025-26.
“We’ve seen a bit of a tick-up because of fewer departures but we need perspective,” Dr Chalmers said.
In a sign any government handout or tax rebate is more likely to be spent than saved, the Grattan Institute calculated the typical Australian worker earned $75,000, well below the $113,000 average full-time salary with bonuses often quoted.
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