Chalmers’ surplus victory lap doesn’t mean much for cost-of-living relief, yet

The thing about budget documents is that they are chameleons capable of being two things at once: economic roadmaps and political weapons.

In releasing the mid-year budget update, known to economic and political experts as MYEFO, Treasurer Jim Chalmers hopes the power of camouflage will turn short-term backlash into long-term political victory.

Chalmers, in office for just 18 months, is no stranger to the Treasury portfolio. A former chief of staff to a former federal treasurer, he appears to have returned to the Labor playbook of 2007.

Speaking to reporters on Wednesday, Chalmers insisted on six occasions that the government was a “cautious and conservative” economic manager, offering a retreat from then-opposition leader Kevin Rudd’s assurances that he would be an economically conservative prime minister.

Rudd and his treasurer, Wayne Swan, hoped that calling themselves economic conservatives would silence Coalition accusations that they would be reckless with money. It ran in 2007 and helped form a Labor government.

Chalmers, at least for now, has resisted calls for cost-of-living support. He also refuses to say what seems inevitable to many: that the government will run its second consecutive budget surplus. Come May, he’ll probably be singing from a different sheet of music.

Whatever short-term pain Chalmers may suffer from punters for not offering more cost-of-living support, he is betting that it will ultimately generate longer-term political gains.

Billions in budget windfall

Chalmers and Finance Minister Katy Gallagher have done a credit to speaking out about the difficult economic decisions they have made.

They point to cuts to the Coalition’s unfunded programs as a way to launch a political attack suggesting the previous government left behind a wasted budget.

This is part of the story, but it is far from the full picture.

Low unemployment, big profits in the mining and banking sectors and higher-than-expected inflation are estimated to have contributed an additional $64 billion over the next four years. This is an improvement in just six months since the government published its May budget.

The budget calls for the price of iron ore to be $60 per ton. Currently it is more than double. The rough estimate suggests that for every $10 per ton over budget, the budget receives an additional $500 million each year.

Charging…

With few in the sector leaning towards a drop in iron ore prices any time soon, Chalmers can be confident the billions will continue to flow into its bottom line.

Not that I’m willing to offer that prediction.

“The Treasury is deliberately cautious and conservative when it comes to forecasting revenue and there is good reason for that,” Chalmers said.

“That’s because our predecessors were downright humiliated when they over-promised and under-delivered. They spent more time flogging merchandise like ‘back in black’ mugs than delivering the responsible economic management the country needed.

“So we are cautious and conservative. The Treasury is cautious and conservative when it comes to commodity prices.”

If you were taking a drink every time I said cautious and conservative, you’d be on the floor.

So why is there no surplus?

The Labor Party has long been sensitive to criticism from the Coalition that it is a reckless economic manager.

The opposition likes to dismiss Chalmers’ surplus last year as a matter of luck. The Treasurer could therefore be forgiven for wanting to rub the prospect of a second surplus in the Coalition’s face.

But now is not the time for that.

Wages are rising in Australia but barely above inflation.

So while those higher wages mean the government is banking more of the personal income tax collection, what Australians are left with after the taxman has taken his share is being devastated by inflation.

Any prospect of Chalmers gloating over a surplus budget would likely be met with anger from a tough electorate.

“We do not yet foresee a second surplus, but we are within striking distance,” he said.

“We’ve given ourselves a chance, but we’re not there yet, and we’ve been deliberately cautious and deliberately conservative.”

Charging…

May offering a different image.

But fast forward six months to Chalmers delivering what could be a pre-election budget in May, being able to offer more cost-of-living support and confirm another surplus could position Labor well to counter the Coalition’s campaigns on economic management.

Chalmers will be hoping that inflation forecasts prove correct and Australians start to feel the benefits of real wage growth (not to mention the prospect of the Reserve Bank cutting rates).

The treasurer says lower-than-expected deficits in the coming years, in addition to all that revenue going toward debt repayment, will mean interest payments will be $31 billion lower over the next decade.

By not offering much in terms of new spending, Labor has been able to spend its days insisting that it is using its extra income, paying off what it likes to call Coalition debt (a large chunk of which came during the pandemic from programs governments that the Labor Party was eager to support at the time).

The challenge ahead

Chalmers and Gallagher almost had a skip in their step as they entered their news conference Wednesday.

But the road ahead is not without challenges.

As recent weeks have shown, your MPs want more government support to make life easier for the people they represent. The government hopes a new deal with states and territories will go some way to slowing the growth of the NDIS, the Federal Reserve’s second-fastest-growing expenditure.

That’s without getting to the stage 3 tax cut question of whether or not Labor is willing to delay the controversial change that will be implemented as legislated next July.

Respected independent economist Chris Richardson spoke this week about the luck Labor was enjoying in managing the economy.

“Luck is wonderful but not permanent,” he told ABC.

Chalmers doesn’t see his budget as luck, but it will make his life easier if he continues.