Budget a heady mix of the good, the bad and the fudgy

Treasurer Josh Frydenberg’s pre-election budget is a strange mix of the good, the bad and the fudgy.

The good is the $8.6 billion cash splash will be the focus of the big hard sell that will be happening from here on.

Expect to be reminded daily that you will be saving $0.22 a litre at the petrol bowser for the next six months due to a temporary excise cut – time for a driving holiday?

Also expect to hear plenty about Australia’s super low unemployment rate and how it means your wage will be rising – believe that when you see it – and about the $250 one-off payment to be made to six million pensioners, carers, veterans, job seekers, concession cardholders and some self-funded retirees.

Lamington with the lot

The much fabled “lamington” – the Low and Middle Income Tax Offset or LAMITO – which was due to expire has instead been ramped up even further to give singles up to $1,500 and couples up to $3,000 in their next tax return, as long as they earn less than $126,000 a year.

Then there is a massive generalised spray of money in a whole host of other areas – infrastructure, curbing violence against women and children, defence, parental leave, education, skills, small business, health and heaps of money in the bush for a wide range of projects.

These could be very helpful for some people but again it will depend very much on your individual circumstances.

Debt and deficits as far as the eye can see

The bad is really the stuff we already knew about.

While the Australian economy is recovering brilliantly from the COVID-19 pandemic, as shown by booming government receipts, that is only making a small dent in the growing mountain of debt and deficits.

In simple terms, our Federal Government debt has never been bigger as a percentage of the economy and it is showing no sign of shrinking soon.

This budget forecasts a $78 billion deficit which is better than expected earlier, but still a massive chunk of change when the budget is effectively in structural deficit from here on and all new spending promises are being made with borrowed money.

How a “surplus’’ morphed into a $524 billion deficit

Since Treasurer Frydenberg confidently forecast a budget surplus for 2019-20 – which never arrived courtesy of a certain virus – he is now expected to deliver a combined $524 billion in accumulated deficits by the middle of 2026.

That is the scale of the emergency spending on the COVID-19 stimulus and the ongoing costs of compounding debt – which is set to rise now that interest rates are on the way up.

By 2025-26, the interest alone on Australia’s gross debt will be $26.3 billion a year – the sort of money that could finance a big program such as family assistance.

Treasury now concedes we have a long-term structural budget deficit of around 1% of GDP.

“This reflects the major investment in essential services that the government has undertaken in recent years in areas such as the NDIS and aged care,” the department said in the budget.

“An increase in interest payments also contributes to the higher payments profile over the medium term, reflecting the increased levels of debt accumulated as a result of the pandemic.”

Which side can be trusted to be better economic manager?

Of course, this all feeds into the election discussion on which side is the better economic manager with Treasurer Frydenberg already trumpeting his side as the only one to manage its way from here on and his opposition number Jim Chalmers promising smarter spending and policy.

The reality for either side is that the debt mountain will take a lot of shifting with gross government debt on track to break the $1 trillion mark in 2023-24 and hit $1.2 trillion by the middle of the decade.

How fudgy are the budget predictions?

That’s the good and the bad, now what about the fudgy?

Well virtually every figure you read in the budget has an element of rubber in it and this year’s is no different.

Just the heroic changes in the coming year’s budget deficit show what an inexact “science’’ government finances can be.

Rapidly falling unemployment and higher mining revenue managed to put the government in a position to be “growing the economy to reduce debt and rebuild fiscal buffers’’ but those factors can easily reverse without warning.

Confidence will also play a big part with an unprecedented $250 billion in COVID savings sitting in private bank accounts.

Whether households and businesses start to spend that money or to sit on it will steer the next leg of the recovery and very much frame the task of writing the next budget – whoever gets that task.

Forecasts have been terribly inaccurate

Budget forecasts in recent years have consistently been very wide of the mark for reasons such as this – how do you accurately forecast a pandemic or what people are going to do with their bank savings?

You can’t, which is why budget forecasts can look so foolish just a third of the way into the year they are written for.

The global situation adds to the fudginess.

What direction the US, Ukraine?

What will happen out of the Ukraine war and, most importantly for us, what direction will the world-leading US economy take over the next few years, towing the rest of the world along in its wake for good or ill.

Life is inherently unpredictable and economics even more so.

X-factors can intercept the best laid intentions at any time and make a mockery of our most learned extrapolations and predictions.

Then there is the will of the people which is similarly fickle and will remain fluid right up until the day the ballots are finally cast.

Who can I trust?

Many of those voting intentions will be formed with economic credentials as their touchstone which depends not just on a crude “what’s in it for me” judgement but also on a more generalised feeling of “who can I trust to do the best job.’’

Treasurer Frydenberg will be hoping that he can instil that trust with his combination of the good, the bad and the fudgy – or at least get some gratitude vote from recipients of this or earlier cash splashes.

His opponents in the labor party will be hoping they can be seen as superior economic managers.

The unvarnished fact is that whoever wins the election is going to face some of the most challenging and delicately poised economic and budgetary times ever seen.

With the pandemic muted but very much still with us, tanks and fighter jets buzzing around Europe, China flexing its muscles in the Pacific and the US outlook highly uncertain, even the humble Australian voter faces an uncertain task in picking the right political leadership.