June 2023

The Nation Reviewed

The budget balance

By Frank Bongiorno
Illustration by Jeff Fisher
Compared to the Hawke government’s approach to deficit, how does Jim Chalmers’ new budget stack up?

Budget night is an occasion. There is a buzz around Parliament House: my wife, who works there, at least thought it prudent to drive in earlier than usual to get a parking spot. Enthusiastic young party loyalists lucky enough to score tickets in the gallery will dress up a bit, not only because they might be caught on camera but for the drinks and mingling that will follow. Journalists, some emerging out of the budget lock-up, look for the stories hidden in the numbers as well as the ones the government wants us to hear.

For treasurers, it is a chance to shine, to address the nation – and they often have their eyes on the even larger prize of the prime ministership. The government will have leaked this and that, but will also ensure that there is enough left over for a big reveal or two. A new investment in Medicare bulk-billing played that role for Treasurer Jim Chalmers last month. 

For the government, the budget is a chance to announce its priorities, articulate its values and project its identity. If the treasurer’s speech is doing its share of the political heavy lifting, it tells a story, or “sets out a narrative”, as a paid-up member of the political class might say.

It was not always so. Boris Schedvin, the economic historian, has reported that budget speeches in the 1920s from treasurer and Country Party leader Earle Page “read more like a chairman’s address to the annual meeting of a large public company than the nation’s principal document on economic policy”. It was not until after World War Two that the budget speech became something like an occasion; Arthur Fadden’s 1951 “horror budget”, designed to rein in exploding inflation, was a turning point.

A budget early in the life of a government can often set its tone. That was true of the government that, more than any, still seems to set the benchmark for its successors, or at least its Labor ones: the Hawke government. Today, we more often recall the “heroic” economic reforms that often occurred outside the budget processes: the floating of the dollar, the entry of foreign banks, the winding down of tariffs, the sale of government assets and the development of enterprise bargaining.

If we recall a “defining” economic moment early in the life of the Hawke government, it is the National Economic Summit of April 1983, held in the old Parliament House. It is said to have laid the foundations for “consensus”, for cooperation between government, unions and business in the cause of economic recovery and reform. In recent years, wherever and whenever a business leader, a union leader and a politician gather in anything resembling a friendly spirit, journalists usually manage to find the spirit of the National Economic Summit lurking.

The first Hawke budget is barely recalled in this context. A check of my own book The Eighties: The Decade That Transformed Australia (2015) disclosed that I didn’t mention it, although I gave plenty of attention to the National Economic Summit, and plenty more to the fiscal problems the government faced in its early months and to the dollar float at the end of the year.

The new Hawke government inherited three things from that of Fraser: a deep recession that included double-digit unemployment and inflation; a projected budget deficit for 1983–84 of $9.6 billion, amounting to 4.5 per cent of GDP; and a 1982–83 budget that was already stimulatory. Hawke called the deficit “political gold” – he could use it as a stick to beat his opponents – but the fact that Fraser and his treasurer, John Howard, had already increased spending was also a problem. Labor had its own agenda, and to implement it without cuts elsewhere would have produced a deficit approaching $12 billion.

Hawke Labor was determined that it would not be Whitlam Labor. It would not, as the Whitlam government had done in 1974, spend big when circumstances called for belt-tightening. Already, by the time of the summit, the government had announced a reduced figure of $8.5 billion as its target deficit. It was a small reduction but full of meaning: Labor had signalled its economic responsibility. The government would not allow inflation to get out of control. But it would at the same time fight unemployment through targeted spending, through its formal agreement with the unions – the Prices and Incomes Accord – and through its more informal agreement with business through the summit.

The young Labor treasurer, Paul Keating, not yet 40 years old, had delivered an economic statement in May announcing cuts to help bring down the deficit. So, when he delivered the government’s first actual budget, there were few surprises. Medicare would commence in the following year, and there was spending on unemployment and family benefits, Aboriginal affairs and education, as well as other commitments. But there were also new taxes and levies, and an assets test on the pension, all to help Labor maintain its commitment to restricting the deficit.

Few recall these matters today. If they remember any 1980s budget at all, it is probably that of 1988, which Keating called “the one that brings home the bacon”. He had on that occasion produced a large surplus, and he claimed that the hard reforms achieved in recent years had finally come together. But we recall this budget not because it ushered in a glorious economic era, but because it proved to be the curtain-raiser on a deep and damaging recession. It was ironic that the downturn did so much to present Keating with the prize he had long coveted, the prime ministership. It was his 1988 budget, lavishly framed in what looked in retrospect like hubris, that was supposed to do that work.   

Chalmers knows more about these matters than most of us. He wrote a doctoral thesis at the Australian National University on Keating. In Chalmers’ second budget, delivered last month, he also produced a budget surplus, but, unlike Keating, he was keen to play it down. He predicted that the budget would return to deficit next year. Clearly, the surplus was not the story that the government wanted us to take from the budget.

The current treasurer sought to deliver a rather different message, also in the spirit of the Hawke government. Keating told the parliament in 1983 that the budget focused “assistance on those who have suffered most from the recession and on those areas so long neglected by our predecessors”. Similarly, under Anthony Albanese and Chalmers, Labor says it will combine economic responsibility with help to the most vulnerable and spending on some areas of Coalition neglect, such as the national cultural institutions. 

But its success so far in performing that balancing act is debatable. Another of the subjects that Chalmers and the government did its best to avoid was the forthcoming “Stage 3” income tax cuts. Labor’s commitment to keeping Scott Morrison’s tax bonanza for the well-paid undermines its ability to help those it says most need it.

The Hawke government faced similar problems, but it governed in a period when opinion polling showed that public tolerance for high taxation was low. That was another good reason for the Hawke government’s steer towards “economic rationalism”. But Albanese and Chalmers are not quite so constrained in this way by public opinion. There is a stronger taste today for governments to do things, even if it means collecting more tax. Indeed, if it looks hard enough, the government might find just enough room to manoeuvre on tax and revenue, and in so doing demonstrate that it really has a Labor soul.

Frank Bongiorno

Frank Bongiorno is a professor of history at the Australian National University and the author of Dreamers and Schemers: A Political History of Australia.

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