Ironically, in his book, Australia was first called “the lucky country” in 1964 by author Donald Horne. It is ironic because his title was intended as a warning: Australia’s political and business leaders were mediocre, but the nation somehow managed to coast along on good luck.
Instead, the country unofficially adopted the book’s title as its national slogan, ignoring its contents.
Now, independent economist Chris Richardson is echoing Horne, saying the latest set of politicians—the Albanese government—has had an undistinguished term, and the country’s luck is about to run out.
Although the federal coffers are about to be boosted by $365 billion (US$237 billion) due to larger-than-expected tax receipts, Richardson says this is due to the last vestiges of luck.
He forecasts that, over the next four financial years, the bottom line will be $20 billion worse off than Treasury predicts.
War drove up global prices—including those of Australian exports—and migration increased population, both of which increased tax collection.
This was also bolstered by high inflation, which took more from earners and their families.
However, iron ore prices, inflation, and migration are all easing. While the latter two factors may be good news for individuals and families, none of them is positive for the country’s balance sheet.
Richardson explained that Labor added $104 billion in spending since coming to office in 2022 but only raised taxes by $44 billion, creating a $60 billion gap in the bottom line.
He described tobacco, superannuation, and resource taxes as examples of Australia’s “increasingly dumb” budget policies, as they created even more holes in the budget as the years passed.
“It’s a wasted opportunity. The luckiest government Australia has ever seen—at least in budgetary terms—didn’t take the opportunity to get the national budget better prepared for the long haul,” he said.
Richardson said the $20 billion hit to Treasury’s prediction of the extent of deficits is due to increasingly “dodgy action off-budget.”
Off-budget spending doesn’t affect the underlying budget position, such as when the government buys an asset that retains its value.
With the latest national accounts data due to be released on Dec. 4, Richardson is predicting the budget will be $32 billion in the red by the end of 2024/25 and almost $44 billion in 2025/26—billions of dollars worse than Treasury’s figures.
A mid-year budget update will also be released in the coming weeks, ahead of a planned federal budget in March 2025. However, whether an early election may take that off the agenda is still hotly debated in Canberra.
Increasing Pressures on the Budget: Treasurer
Treasurer Jim Chalmers is certainly dampening expectations ahead of the announcement, saying slow economic growth was anticipated.“We’ve been up-front for some time that pressures on the budget are becoming more challenging, not less,” he said.
“We’ve overseen the biggest-ever fiscal turnaround in a single term, turning two big Liberal deficits into two substantial Labor surpluses, and that’s a powerful demonstration of the Albanese government’s responsible economic management.”
Chalmers has delivered two consecutive budget surpluses, mainly due to rising commodity prices. Observers widely predict that the next fiscal update will forecast deficits well into the future.
The national accounts report for the September quarter is expected to show Gross Domestic Product (GDP) expanded by just 0.4 percent in the three months and by 1.1 percent over the year.
If that proves to be the case, it would be the slowest expansion rate since December 1991, excluding the COVID-19 pandemic.
Meanwhile, Australian consumers don’t appear to share the bleak outlook. They spent more than forecast on early Black Friday sales, leading to a 0.6 percent rise in retail sales in October, above the 0.4 percent expectations.
One of the key drivers of economic growth is consumer consumption and spending.
“The stronger-than-usual October month saw some retailers enticing buyers to spend early [by] discounting, particularly on discretionary items,” said Australian Bureau of Statistics (ABS) head of business statistics Robert Ewing.
The “other retailing” category logged a substantial 1.6 percent increase, and household goods sales gained 1.4 percent. ABS noted that people spent more on televisions and other electronics as they went on sale.
The overall lower gain was due to the fact that not all non-food categories rose over the month, with clothing, footwear, and personal accessory retailing sinking 0.6 percent and department stores falling 0.3 percent.
Oxford Economics Australia’s head of macroeconomic forecasting, Sean Langcake, said the months leading into Christmas were often volatile and influenced by sales periods, but the underlying trend was improving.
“Tax cuts and lower inflation appear to have been supportive [of] consumer spending, which should continue to gain momentum into 2025,” he said.
