A Charles Sturt University economics expert weighs in on what he expects we will see and who is likely to benefit when the Australian Federal Budget is handed down by Treasurer Jim Chalmers on Tuesday 9 May.

By Professor of Economics with the Charles Sturt School of Business John Hicks.

Let us start by saying that crystal ball gazing is fraught with difficulty as one tries to balance economic needs with political aspirations.

But the economic circumstances in which we find ourselves call for budget constraints.

This has been recognised in public statements by the Treasurer. However, governments tend to find such constraint difficult - and Labor governments generally more so (but not by a great margin).

In particular, Labor governments tend to find reducing government expenditure difficult as their constituents are generally seeking increases in expenditure, particularly on welfare, and this has certainly been evident in some media discussions recently. (See, for example, reports in relation to the proposals of the Economic Inclusion Advisory Committee).

Offsetting this is the fact that Labor governments are less reticent than their counterparts in raising taxes – although the current Labor government has consistently argued that the tax cuts legislated by the previous government will be honoured.

In this year’s Budget, we can expect some expansion in government expenditure, especially on welfare-related items, but not perhaps as much as Labor supporters would like to see.

However, there will almost certainly be an attempt to raise additional revenue through tax increases or, more likely, the removal of tax concessions.

In general, the balance is likely to be for economic constraints with revenue rising faster than expenditure.

Four areas have frequently come up in discussions on this year’s Budget.

Housing

Housing appears to be a major issue with the general gist of comments being that the young are being squeezed out of the market by rising interest rates and rising house prices.

The government is probably going to want to do something about each. Notwithstanding the recent reaffirmation of the independence of the Reserve Bank, the stage has been set to guide the RBA into taking greater cognisance of the impact of interest rates on employment.

Any sign of a slackening in the labour market (which currently is experiencing an excess of demand over supply) may therefore be a signal to the RBA to hold fire on further rate increases.

While this is not a direct budget issue, it may give the government the excuse to be less contractionary in its fiscal stance than otherwise may have been the case and to introduce greater levels of assistance for new homeowners than would otherwise have occurred.

Hopefully, however, these will be more on the supply side than the demand side.

Welfare

Closely associated with lower-cost housing and the provision of housing for the homeless are other aspects of welfare – including support for those out of work and unable to work.

It would be most unlikely that these groups will be ignored in a Labor budget.

While payments at the level that are being proposed by some groups are unrealistic from a budget perspective, there is no doubt that some attempts will be made to raise payments.

Taxation

Foregoing the legislated tax reductions seem to be off the table as a policy initiative but given current economic circumstances and the desire to increase spending, some substantial consideration must be given to sources of revenue.

Removal of existing tax concessions (e.g. for retirees) and the introduction of new taxes (e.g. on energy producers) appear inevitable.

Everyone is concerned about the current rise in the cost of living and a Labor government can be expected to be particularly concerned about the distribution of those increased costs.

It would therefore not be unreasonable to expect that policies (taxes and/or subsidies) will be put in place to ensure that the burden of the increase in the cost of living is passed on to those who can most afford it to the benefit of those who can least afford it.