Australian Financial Review
29 September 2022


Some things in politics are as predictable as the sun rising in the east. One such predictability is that a new government will seek to undermine the legacy of its predecessor. With great audacity, the Albanese Government is transparently deploying this tactic against the economic management of the previous Coalition Government.


In the pursuit of base political advantage, Labor’s ministers can’t stop themselves from talking down Australia’s economic standing. However, the facts tell a vastly different story. Yesterday’s release of the Final Budget Outcome (FBO) for 2021-22 broke new records for improved economic and fiscal outcomes.


In a hugely volatile global environment, the Albanese Government inherited an economy growing faster than many of its peers, yet with lower inflation. Australia continues to record lower comparable debt than other nations, alongside historic lows in unemployment.


Labor’s challenge shouldn’t be the political objective of demonising their predecessors; it should be the much more real challenge of maintaining and building upon the economic advantages they were bequeathed.


The FBO demonstrated that, in the final year of the Coalition Government, Australia’s economy grew by 3.9 per cent. This, it should be remembered, was still a Covid afflicted year.


Shortly after the 2021 Budget was delivered, the Delta variant struck and more lockdowns ensued. More government assistance than had been budgeted was required for health systems, business assistance and household support.


Then, as the mid-year budget update was delivered in December, Omicron hit. Christmas and New Year were ruined for many businesses, with yet more costs incurred.


Covid wasn’t the only disrupter. As the economy finally opened up, Russia opened fire on Ukraine and oil prices went through the roof. To maintain consumer and business confidence, Australians received multi billion dollar fuel excise relief.


All of these shocks make Australia’s outcomes all the more remarkable. The 2021 Budget forecast a deficit of $107 billion for 2021-22. The final outcome is a deficit of $32 billion. To put that into perspective, Australia’s final deficit in a year that was riddled with economic and budget shocks was less in nominal terms than it was in seven out of the eight years that followed the Rudd Government’s response to the Global Financial Crisis.


At 1.4 per cent of GDP, the deficit for 2021-22 is one of the best outcomes since the end of the Howard-Costello surpluses. It was marginally bettered just once in the Rudd-Gillard years, at 1.2 per cent. Under the Coalition it was bettered in 2017-18 as our budget repair strategy paid dividends with a deficit of 0.6 per cent of GDP and, the last year prior to Covid, when the 2018-19 budget was in balance.


Many will quickly point to high commodity prices and high terms of trade. They certainly played a part in the improved outcomes. But there is much more to Australia’s strong outcome than those factors alone.


Along with company tax receipts being up, so too were income taxes, superannuation taxes and GST revenue. Record employment played a huge role here, with employment growing 3.3 per cent through the budget year, strongly ahead of forecast. Contrary to much of Labor’s wages narrative, Australians took home more money, with total compensation of employees up 5.6 per cent, the highest growth rate in ten years.


As a government we had said that budget repair required a strong economy. That’s what we delivered, with record numbers of Australians in work, taking home more money and therefore contributing more in tax, even though stage 2 income tax cuts had been brought forward. Companies also had multiple opportunities to reduce their tax paid through various Covid recovery initiatives, yet receipts grew.


Alongside this, expenses shrunk by more than $44 billion compared with 2021 forecasts. Fewer Australians on welfare and economic policies that focussed on tax incentives to invest rather than cash handouts all contributed to the strong outcome.


While we should hope that the Albanese Government continues the Coalition track record of conservatively forecasting commodity prices, its budget will benefit on the other side of the ledger with most temporary Covid measures now past. These measures added an estimated $42 billion to expenses last year, while reducing receipts by an estimated $35 billion.


So, despite the gloomy faces whenever new government ministers talk about the budget, Labor inherited as strong an economic situation as any developed nation could hope for after the triple whammy of COVID, a war in Europe and economic coercion from its largest trading partner.


Labor’s challenge is not the budget it inherited. Its challenges are global factors, as all governments face, along with a test of self control. There needs to be restraint to ensure fiscal policy complements monetary policy, as it did during Covid. Can they avoid big, new structural spending commitments? Can they resist the temptation to hike income or other taxes or break its promise on future tax cuts? Time will tell.


Senator Simon Birmingham was Minister for Finance.