Australia Gives Thanks to Commodity Prices Budget

The Treasurer handed out $15 billion to people needing welfare, while quietly taking in an extra $22 billion from a simple change in commodity prices?

Fluctuations in commodity prices have nothing to do of course with the achievements of the Government of the day. And can work both ways for or against the budget bottom line. There is no doubt however, that the Government will be enjoying a commodity friendly bias for the foreseeable future.

The problem with the budget from a Society perspective, is that it merely tinkers with helping the struggling. $20 a week for an un-employed person should allow them the luxury, if they can spare it, of just one take-away burger and coffee to have in the local park, once a week.

Australia has the lowest un-employment payment in the OECD. This is a national disgrace that every government seems happy to persist with. Increased immigration will lead to higher un-employment. Which has been under-estimated in this budget.

The problem with the budget from a Markets point of view, is that the surpluses are unlikely to last, and the fear of the inflationary pressure that may arise from the welfare spending.

However, I think some economists are really over-ramping the idea that this form of welfare spending will be inflationary. These are people who are struggling to buy the bare essentials of life. When they go to Woolworths, it is about buying an extra lettuce and some carrots perhaps. The $15 billion may sound like a big number, but it is minuscule at the implementation level. This not about excessive consumerism behaviour as was much of the Covid largesse.

What is right about a budget is always the air of responsible action. While every interest group will claim to be unfairly treated. Why is this? Because they are. We all are, by too high taxation in the first place which slows the speed of circulation and un-necessarily reduces the financial independence of people and businesses.

In the current round of analysis, we Australians are doing what we always do. Making the mistake of tinkering with already existing systems in the hope of sounding clever and progressive. When we actually need to have a far more major over-haul of what would be the best system of taxation and distribution going forward in this now very different world.

The underlying real theme is always the same. Another over-taxed, give a little back, claim to be heroes budget.

There are three big elephants in the room. All resting atop one more gigantic creature which will remain nameless for the moment.

As a nation we make sure we impoverish and punish the un-employed and truly incapable of sustaining work incomes. More so than any other western nation.

There is no mention of the most cancerous and harmful to Australian families, that of the fuel excise tax. This tax severely disproportionately hammers families and workers of lower income levels.

There is no defence against the raging recession risk, only an attempt to add a little to those who will suffer from this below trend growth period of just 1.5% next year. According to the Government. It may be much worse.

In fact, despite the many protestations among big business economists, this is no time at all for a surplus budget. The only real attempt in the government’s plans to assuage the decline in the economy is to ramp up immigration to economically troubling levels.

It is true that immigration has been a major driver of economic growth. However an over-loading of immigration, coming too quickly, can indeed lead to housing shortages and welfare blow-outs. It is not just that some coming to this land will have greater difficulty and longer lead times in finding work, due to the ever greater competition from other immigrants, it is equally the highly problematic situation of their displacing some previously employed Australians from their jobs.

The number one reason Australia achieved record low un-employment post Covid, was not so much economic out=performance, as it was an absolute shortage of temporary workers and immigration. A return to higher, more normal levels in both these regards, is going to have a far more profound impact on the unemployment level than the Department of Treasury has forecast for this budget.

The surplus is likely to happen, but will have more to do with continuing firm commodity prices, than actual government policy.

To be fair to this Government, they did not create the inflation and rental crises. The rental crisis is more about property owners simply passing on higher interest rate levels to their customers, rather than absorbing some of this cost themselves as would have happened in previous years. These interest rate hikes themselves are the product of global forces, an over-spending Morrison government and a dismal performance form the RBA.

These are not problems the government created, but it does have the power to address them, more than it has done so. And for this reason, the Albanese/Chalmers budget gets a fail.

That gigantic creature I mention earlier?

We seem to be headed as a nation down the path of an ever widening wealth gap. In fact we appear headed in a direction akin to that of the USA? This is not something any society should be looking to emulate. We cannot simply allow it to go all wrong, successive governments, then over-tax, give some back and claim to be heroes. While the proportion of the population in poverty just keeps growing. It is now estimated that 1 in 6 children live in poverty. At half that rate it would be a disgrace.

Especially, for a resources rich nation like Australia, and with a relatively small population?

We have to address the major issues of remaining competitive in an increasingly sophisticated economic region where we are a small nation. This means a completely different revenue and distribution approach. Not the endless tinkering and window dressing with the existing platforms.

It staggers belief that we are spending $368 billion, $9 billion this year, on our submarines becoming part of the US fleet. To potentially fight our biggest trading partner. While taxing every family regardless of wealth for using their car to take the kids to school, go to work, and perhaps once in a blue moon for the less fortunate to take a major trip to a beach.

Australia has again be saved, for the time being, by rising commodity prices. We still deserve more from our politicians.

Clifford BennettACY Securities Chief Economist

The view expressed within this document are solely that of Clifford Bennett’s and do not represent the views of ACY Securities.

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