Unpacking the 2022 federal budget

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An image of Treasurer Jim Chalmers and Finance Minister Katy Gallagher arriving at Parliament House before delivering the Albanese government's first budget.

Treasurer Jim Chalmers and Finance Minister Katy Gallagher arrive at Parliament House before delivering the Albanese government's first budget. Image: Martin Ollman/Getty Images

Treasurer Jim Chalmers and Finance Minister Katy Gallagher arrive at Parliament House before delivering the Albanese government's first budget. Image: Martin Ollman/Getty Images

Federal Treasurer Jim Chalmers delivered the Australian Government’s first budget this week – almost 5 months since Labor’s election victory in May.

Most of the big announcements were election commitments that had been predicted for some months, with families and healthcare the big winners.

Contact spoke to a range of UQ experts who shared their opinions about how the 2022 budget will impact various sectors across the country.

Housing supply and affordability

Image: Piman Khrutmuang/Adobe Stock

Professor Alicia N. Rambaldi
Professor of Economics
Director of the School of Economics Centre for Efficiency and Productivity Analysis
School of Economics

The new ‘Housing Accord’ announced in the recent federal budget brings states and territories, the Australian Local Government Association, investors, and representatives from the construction sector together. Since housing supply, prices and rents are all influenced by the combined policies and actions of our 3 levels of government (highlighted in a recent report by the Productivity Commission), this announcement is important. 

The Accord has a target of 1 million new, well-located and more energy-efficient homes to be delivered over 5 years, starting from mid–2024. It is interesting to note the use of the terms ‘well-located and energy efficient.’

While there are few details on the Accord at this point, we know there will be a small number of dwellings built with direct funding from the federal and state governments (up to 30,000), with the rest being financed by private investment, with superannuation funds expected to play a major role.

A new housing future fund will be established, and its returns will be used to build new social and affordable dwellings over the next 5 years. In addition, there is a new scheme to guarantee up to 15 per cent of the purchase price for first-home buyers in regional areas, a ‘Help to Buy’ scheme to provide an equity contribution to eligible home buyers, and expansions in the incentives to downsize for those in the 55–59 age group. These initiatives, if well implemented, will lead to improvements in housing affordability of middle- and lower-income younger households, whether they choose to rent or own.

Why are the ‘location and energy-efficiency’ words important? Housing located close to transport and places of work provides benefits to people residing in these dwellings as well as to taxpayers. Lower travel times and better connectivity can improve labour productivity. For taxpayers, benefits accrue from a more cost-efficient management and deployment of infrastructure, including transport. Energy-efficient dwellings can provide substantial relief to household budgets by lowering the cost of energy. This is particularly important for lowering housing costs for private renters.

In the immediate term, however, the historically low supply of rental places will continue to strongly affect private renters with low incomes, the majority of whom spend over 30 per cent of their income on rent (Productivity Commission, 2022).

An image of a builder at housing construction site.

Image: Piman Khrutmuang/Adobe Stock

Image: Piman Khrutmuang/Adobe Stock

A person calculating the cost of living with a phone calculator and a desk full of bills and till receipts.

Image: Ming/Adobe Stock

Image: Ming/Adobe Stock

Cost of living

Image: Ming/Adobe Stock

Professor Flavio Menezes
Professor of Economics
Director of the Australian Institute for Business and Economics (UQ)
Faculty of Business, Economics and Law

The October budget was carefully crafted to not fuel inflation, meaning that only limited assistance has been provided to households to meet cost-of-living pressures. 

Our current inflation arose from a combination of things: the massive fiscal stimulus created by the pandemic, supply chain issues due to disruptions to international trade, and high energy prices following the invasion of Ukraine by Russia. When there are supply constraints and demand is high, additional demand caused by higher income leads to even higher prices. The concern with not increasing demand further is behind the ‘5-point’, $7.5 billion cost-of-living package in the budget. 

The measure with the most immediate impact is the increase in maximum childcare subsidy rate. However, this only occurs from July 2023, and it is likely that some of the subsidy will be eroded in the form of higher fees. The savings of up to $12.50 per script for medicine under the Pharmaceutical Benefits Scheme, from January 2023, will also offer limited relief. It will not affect concessional cardholders, who arguably face the brunt of increased inflation. They will continue to pay at most $6.80 per script, until reaching the $244.80 annual threshold, when scripts become free. 

The impact of the progressive increase in paid parental leave is more indirect, but long lasting. It increases labour force participation, thus helping alleviate labour shortages and pressures on wages and prices. The house affordability commitments in the budget are also longer-term.

Commitment to growing wages is the most significant measure. What matters for the standard of living is real income – the difference between income and inflation. Real income is only predicted to increase during the 2023–2024 financial year, when inflation is expected to be 3.5 per cent and wages to grow by 3.75 per cent. This won’t help much after inflation was 6.10 per cent in the last financial year and is expected to be 5.75 per cent this financial year, with wages growing 2.2 per cent and 3.75 per cent, respectively. Also, stage 3 tax cuts will only begin in July 2024, and those on higher incomes will benefit the most from them. 

The bottom line is that the concern with inflation resulted in households receiving limited support from the budget to meet cost-of-living pressures. Hopefully, this budget is the first step towards a long-term strategy to lift wages and protect the most economically vulnerable members of society. 

Families, aged care and welfare

Image: Peter Atkins/Adobe Stock

Professor Paul Henman
Professor for Digital Sociology and Social Policy
School of Social Science

Australians and major social institutions – from aged care and disability services to housing and health affordability – are facing crises, often resulting from what I believe are years of neglect. The Labor Government’s 2022–23 ‘steady-as-you-go’ budget has avoided immediate cash handouts due to inflation risks, instead opting for more steady co-payments and investments with medium-term results on social wellbeing.

The focus is on locking in election promises – such as enhancing childcare subsidies ($4.7 billion over 4 years), extending paid parental leave ($0.5 billion over 4 years), increasing aged-care salaries ($2.5 billion over 4 years), and reducing pharmaceuticals by up to $12.50 per script – which will grow in their effect over time. Such expenditure largely flows to working households, leaving those most in need without any immediate support. These changes will benefit low-income workers in childcare and aged care, most of whom are women, thereby reducing gender and income inequality.

The Government’s multipronged, multibillion dollar investment over 5 years in building new affordable homes was one surprise and is an important first step to addressing Australia’s long-standing and growing housing affordability crisis. Like other initiatives, the benefits will not be immediate, but will be seen over years. There are some increases in domestic-violence funding (including $169 million for 500 frontline workers), restoring telepsychiatry mental-health services, and disaster-relief response ($3 billion), as well as commitments to the social service sector ($0.5 billion) to maintain their services, which relieves some of the stresses and uncertainties facing that sector.

There remain glaring gaps for addressing the immediate pain people are experiencing, especially among those relying on Centrelink benefits. The problems of energy prices anticipated to rise by 50 per cent in less than 2 years, accelerating expenditure in the National Disability Insurance Scheme and public hospitals, and the declining Medicare system (of reducing bulk billing and higher GP out-of-pocket costs) have been kicked down the road. The Australian Government is facing these challenges with one hand tied behind their back with their continued commitment to the excessive stage 3 tax cuts legislated by the Coalition government.

An image of a woman using a walker in an aged care home.

Image: Peter Atkins/Adobe Stock

Image: Peter Atkins/Adobe Stock

An image of a solar farm between Toowoomba and Dalby in central Queensland, Australia.

Image: 169169/Adobe Stock

Image: 169169/Adobe Stock

Environment and climate

Image: 169169/Adobe Stock

Dr Andrea La Nauze
Lecturer and environmental economist
School of Economics

The budget is delivering almost $25 billion in climate-related expenditures. So, is it a climate budget or not? $25 billion is a substantial increase compared to the March budget. The Climate Council, which labelled the last budget a ‘massive lost opportunity’, is calling this budget update a ‘refreshing change’. But 80 per cent is for delivering the Australian Government's commitment to support investment in transmission infrastructure for renewables in their Rewiring the Nation Policy – certainly needed, but also expected. So, perhaps it is a no-better-than-expected climate budget. 

Yet that characterisation belies the underlying message about how serious this government takes climate change. As a crude statistic, we can compare the number of pages devoted to climate change in Budget Paper 1, where the government of the day outlines its economic and fiscal outlook. Budget Paper 1 devoted less than 2 pages to climate change in March. In this budget, climate takes up at least 8 pages, with the costs of recent natural disasters placed at the forefront of this discussion and climate change being recognised alongside other key economic challenges that Australians face, like an ageing population. Further, while the numbers may be in the millions, not billions, the funding devoted to improving transparency of climate-related expenditures and rebuilding the Treasury’s modelling capacity are wins for effective climate policy.  

So, are climate economists breathing a sigh of relief? This is a decent start. Personally, before I congratulate the Australian Government too much on its approach to climate policy, I would like to see substantial changes to non-budget measures, like the Safeguard Mechanism – a government-wide approach to incorporating the social cost of carbon into policy evaluation – and, dare I say it, an economy-wide carbon price.

Foreign affairs and Defence

Image: Ian Hitchcock /Getty Images

Associate Professor Marianne Hanson
School of Political Science and International Studies

The Labor Government's first budget showed, as predicted, a strong focus on domestic issues and cost-of-living challenges. By contrast, when it came to foreign affairs and Defence matters, not much came as a surprise. But some points are worth noting, nonetheless.

First, the Australian Government has refrained from making any fundamental changes to Defence spending, given that it's currently engaged in the Defence Strategic Review process, the results of which will not be known until next year. That outcome is likely to determine the contours of our defence spending for several years.

Defence funding remains more or less in line with the previous government’s budget, released earlier this year, albeit with a slight increase, sitting at $48.7 billion. This translates to around 2 per cent of our GDP spent on Defence. By comparison, New Zealand spends roughly 1.37 per cent, Canada around 1.42 per cent and Indonesia just under 1 per cent of their respective GDP. Of course, Australia will incur additional (and huge) costs over the coming decades – up to $170 billion – should the Labor Government proceed with the controversial nuclear-powered submarine proposal announced by the Coalition last year.

In terms of this week’s budget, however, the level of around 2 per cent of GDP per annum has remained steady.

If the Defence picture did not change much, some changes were visible in the foreign affairs budget. At $6.6 billion, it is not greatly different from that of recent years, but a renewed focus has been evident. The slight increase in our overseas development assistance (ODA) was notable. Even with this increase, however, Australian ODA levels remain at a rather low 0.20 per cent of GDP, making us one of the least generous Organisation for Economic Co-operation and Development countries. Still, the slight increase is welcome.

The budget also reflected a strong focus on greater engagement with our regional neighbours in South and South East Asia, and especially the South Pacific. A realignment with our geographic reality suggests a more pragmatic approach to geopolitics.

Other noteworthy inclusions were the provision of an additional $200 million in aid for Ukraine (covering both humanitarian assistance and military armaments), a focus on scientific engagement in the Antarctic, and further promotion of trade and tourism. 

An image of an Australian Army uniform.

Image: Ian Hitchcock /Getty Images

Image: Ian Hitchcock /Getty Images

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