Jim Chalmers Rejects ‘Temporary’ $50 Billion Windfall

Next week, as planned, he will end the six-month fuel tax cut.

dr. Chalmers said the budget still faces long-term structural challenges and the $50 billion turnaround was not long-term.

“This substantial improvement is welcome, but most of it is caused by temporary factors,” he said.

He said commodity prices had “already begun to fall,” noting that the two-week average for iron ore and metallurgical coal had fallen more than 20 percent since June.

Iron ore is still around $97 per ton, well above the budget forecast of $55, but below a peak of $238 in May 2021.

dr. Chalmers also claimed that some of the expenses not made in 2021-22 as budgeted will be carried over to this year. This includes $3.5 billion in roads, $1.5 billion in health care and the National Disability Insurance Scheme, and $3 billion to buy vaccines and personal protective equipment.

In addition, an additional $5.5 billion has to be found to protect people in elderly care from the coronavirus, $750 million in income support for people without sick leave who are forced to isolate, and $2 billion for emergency relief and flood mitigation.

dr. Chalmers said the projected budget deficits for 2022-23 and future years would be greater than the 2021-22 figure, which was due to be finalized next Wednesday and would be about $30 billion.

“There is not necessarily a link between last year’s substantial improvement and the challenges we face this year.”

There is a big windfall: Taylor

Shadow Treasurer Angus Taylor said that Dr. Chalmers told a good news story because he couldn’t admit he inherited a rapidly recovering budget and a strong economy from the coalition.

“It’s very clear from what we saw today, the budget is in a very strong position, the economy is in a very strong position,” he said.

“He needs to be clear to the Australian people and say, yes, he has inherited a very strong economy, a very strong budget and it is now his job to improve that.

“We saw that there is a big windfall on both the revenue side and the reduced spending. Due to the strength of the labor market, no expenses have been incurred that would otherwise have been incurred.”

dr. Chalmers said that despite the recovery, the long-term structural challenges facing the budget remain formidable. These were health care, the NDIS, aged care, defense and paying off a debt of more than a trillion dollars.

The first Chalmers budget will be simple, the treasurer said. Alex Ellinghausen

The October budget would be little more than a bread and butter exercise in the sense that it would reconcile the current situation and fund Labor’s election promises, such as the extra spending on childcare and cheaper prescription drugs.

In addition, in the run-up to the next elections, the next three budgets would argue for greater structural savings to be made to finance the long-term challenges.

This opens the door to tax hikes and a revival of Labor’s 2019 agenda, which focused on structural costs such as negative gearing and cash refunds for excess postage credits.

“Health, NDIS, aged care, defense and the cost of paying off a trillion dollars in debt, all of those costs are increasing rapidly, and that’s a combination of the inevitable and the desirable,” he said.

“The first budget in October will be pretty standard, pretty solid, a bread-and-butter budget. But there are multiple opportunities in multiple budgets over the next three years or so for us to properly engage the people in a good national conversation about the services we provide and how we fund them.

Reserve Bank of Australia governor Philip Lowe says the budget deficit is a big problem. Alex Ellinghausen

Last Friday, Reserve Bank of Australia governor Philip Lowe said that despite the low unemployment rate of 3.5 percent and record prices for revenue-boosting commodity exports, the budget deficit remained a “major problem”.

dr. Lowe said that during this three-year term, he hoped politicians would face a combination of tax hikes, austerity and/or productivity-boosting reforms to expand the economic pie to fund the higher government spending that the community expects.

dr. Chalmers said there would be pain in the short term, starting next Wednesday, when the six-month fuel tax cut of 22.1¢ per liter comes to an end.

With GST, the fuel tax re-levy adds 25 to every liter. At a net cost of $3 billion for six months, said Dr. Chalmers that it was untenable to extend the fuel lighting.

He warned retailers that the fuel now in their storage tanks should be sold at the discounted rate.

“The ACCC and the government do not expect gasoline prices to skyrocket by a full 23¢ on Wednesday night if normal market pressures continue,” he said.

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