Already a subscriber?If Australia had a fiscal policy framework and platform for prosperity that mirrored the Reserve Bank’s medium-term low inflation regime, we would not be debating whether Jim Chalmers’ thirdwill be contractionary or expansionary and whether it will hinder the central bank’s monetary policy target of bringing inflation down in its 2 per cent to 3 per cent band by mid-2026.
The run of deeper deficits will come even after another forecast revenue upgrade over the next four years.The urgent budget priority should be to restore a clear set of fiscal rules to discipline the political system’s spendthrift habits, re-anchor public expectations unmoored by the China boom and then by the pandemic, and help Australia avoid a future of bigger government, higher taxes and lower growth.
Even the federal Treasury is more optimistic budget forecasts will not get inflation back to the midpoint of the target band, the benchmark emphasised by the Reserve Bank review, until the end of 2026. The lesson from the Keynesian past – such as Paul Keating’s 1992 One Nation package and Kevin Rudd’s school hall building stimulus – is that activist fiscal policy is too unwieldy, too political and too often ends up being pro-cyclical.
The lack of commitment to preventing taxes rising to pay for continued growth in the size of government will weigh on private risk-takers.