Federal Budget 2022: Desperate Coalition wheels out pre-election pork

Tonight’s Federal Budget delivered by Treasurer Josh Frydenberg was a pre-election pork fest by a desperate Government trying to snatch victory from the jaws of defeat.

Turning to the key economic parameters first, the budget projects a significant reduction in the deficit over the forward estimates:

The budget projects that the nation’s unemployment rate will fall to 3.75% by 2022-23 with real wage growth to also turn positive (+0.25%). This would represent the lowest unemployment rate since the 1970s:

Real GDP is basically forecast to return to trend, despite slower population growth. This suggests that per capita GDP growth will be strong:

With immigration negative and Australia’s labour supply stagnant, the ratio of unemployed people to vacancies is at a record low:

This explains why the budget forecasts the unemployment rate will fall to its lowest level since the 1970s, despite only trend employment growth and record high labour force participation:

The budget also assumes that commodity prices and the terms-of-trade will fall abruptly from their current high level:

The near-term forecasts capture much of the recent increases in commodity prices but, given the current high-level of volatility and uncertainty, conservative export commodity price assumptions have been adopted. Elevated coal, iron ore, metals and other ores prices are unwound over 2 quarters (that is, by the end of the September quarter of 2022) to levels consistent with long-term fundamentals…

The iron ore price is assumed to decline from US$134 to US$55 per tonne free on board (FOB).

Metallurgical and thermal coal prices are assumed to decline from US$512 to US$130 per tonne FOB and US$320 to US$60 per tonne FOB, respectively.

This year’s budget projects a faster return to ‘Big Australia’ immigration than was projected last May:

Accordingly, population growth forecasts have been ramped up:

The federal budget conveniently makes little mention of per capita GDP growth, which has benefited greatly from the fall in population growth, other than stating:

This Budget predicts real GDP per capita over the forecast period to be higher than was forecast prior to the pandemic in the 2019-20 MYEFO.

Budget spending announcements:

This is a big spending pre-election budget squarely aimed at buying votes.

Below is a list of the key announcements:

• For the next 6 months, fuel excise will be cut in half, saving motorists 22 cents a litre.
• $12 billion of road funding over the coming year.
• A new one‑off $420 cost of living tax offset for more than 10 million low‑and‑middle income earners.
  • Individuals already receiving the low and middle income tax offset will now receive up to $1,500 and couples up to $3,000 from 1 July this year.
• A new one‑off $250 Cost of Living Payment for 6 million pensioners, carers, veterans, job seekers, eligible self‑funded retirees and concession card holders.
• A new $2.8 billion investment to increase take up and completion rates of trade apprenticeships, which will provide $5,000 payments to new apprentices and up to $15,000 in wage subsidies for employers who take them on.
• $3.7 billion for an additional 800,000 training places to help find employment for disadvantaged youth, Indigenous Australians, the mature aged and Australians with a disability.
• For every hundred dollars a small business spends on training their employees, they will receive a $120 tax deduction.
• A new $7.4 billion investment in more dams and water projects to improve vital water security and expand irrigation.
• A new $2 billion regional accelerator program to invest in skills, education infrastructure, export market development and supply chain resilience for our regions.
• A new $1.3 billion telecommunications package to expand mobile coverage across 8,000km of regional transport routes.
• More than $500 million for local councils to deliver priority projects and $880 million to better connect regional Australia with ports, airports and other transport hubs.
• A new $1.3 billion package to end violence against women and children.
• More than doubling the Home Guarantee Scheme to 50,000 places per year, which will help single parents to buy a home with a deposit as low as 2% and first home buyers buy a home with a 5% deposit.
• $2 billion for ‘affordable housing’ through the National Housing Finance and Investment Corporation.
• An additional $1 billion to protect the Great Barrier Reef.
• More than $800 million to enhance our scientific capability in the Antarctic.
• More than $170 million for threatened species and habitat restoration including for our koalas.
• A new 10 year, $9.9 billion investment in Australia’s offensive and defensive cyber capabilities.

The big pitch to households is the $8.6 billion in giveaways via the temporary halving of the fuel excise, the one-off cost of living allowances for low‑and‑middle income earners, and the one‑off $250 Cost of Living Payment for welfare and concession card holders.

The more than doubling of the Home Guarantee Scheme to 50,000 places per year is also pitched squarely at households.

The Coalition has also thrown a lot of infrastructure pork at the regions to buy the country vote.

To be fair, there are several good announcements, including the spending on trades and apprenticeships, as well as employee training.

My initial impression as I finished writing this at 8.30pm on Tuesday night is that this is a typical pre-election budget that spreads the fiscal fire hose far and wide in order to buy as many votes as possible.

It will be interesting to see if it moves the voter needle away from Labor, which looks to be cruising to a stomping election victory.