With the stark realities of global economic turbulence rapidly seeping into Australian livelihoods, Labor is approaching a crossroads.
It must decide between gearing its fiscal policy towards softening the blow of the cost-of-living crisis for households or maintaining sizeable levels of spending to fulfil its initial election promises.
Earlier last week, Federal Health Minister Mark Butler announced that his government will be increasing the excise tax on tobacco products by five percent annually over the next three years.
Butler believes the policy injection will significantly curtail the purchase of cigarettes and other tobacco products nationwide.
“A whole new generation of Australians will need support to quit their new nicotine dependency, and they won’t be alone in their quest to kick the habit,” he said.
“We know that a higher priced cigarette is a more unattractive cigarette.”
However, towards the end of Butler’s address to the National Press Club, it became clear the Albanese Labor government’s primary focus in introducing such a policy may not derive from health-related concerns.
Cost of Living to Factor Heavily
It appears Labor has found itself stuck in an awkward predicament.Prime Minister Albanese’s triumph at the 2022 Australian federal election was based on a number of ambitious promises to the electorate surrounding climate change, wage growth, education, and Indigenous affairs, just to name a few.
With global inflationary pressures supercharging an insufferable cost of living crisis for the average Australian, Labor is urgently searching for avenues to finance the fulfilment of these costly promises without expanding the significant budget deficit inherited from the Liberal-National Coalition as a result of COVID-19 policies.
It does for now, however, appear that cost-of-living concerns are being taken into account by Albanese’s government. Treasurer Jim Chalmers in an address on May 4, claimed the soon-to-be-announced federal budget was primarily focused on those most affected by the woes of inflation.
“This will be a budget in the best Labor traditions, help for the vulnerable with cost-of-living pressures, an eye on the future, and strict fiscal discipline as well,” he said.
“We will help where we can but we will help in a way that doesn’t add to inflation.”
There is, of course, the question of how safe of a guarantee that really is considering the precarious nature of the current economic climate, with many of the budget’s forecasts likely to become subject to significant cost overruns.
With price hikes deriving from global geopolitical tensions, inflation is becoming an issue outside the control of central banks, which can only rely on raising interest rates (a blunt tool) to rein in the cost of living.
Green Initiatives Another Expensive Promise
In 2022, Albanese promised voters his government’s climate policies would lower their power bills by $275 annually by 2025.The government’s green energy promises were a fundamental tenet of its victory at the ballot box in 2022 but it is very much aware of the fiscal challenges that lie ahead in fulfilling them.
The Labor government will be looking for ways to bankroll them without worsening the national debt. We saw glimpses of such an agenda earlier this year when Treasurer Chalmers hinted at a plan to use superannuation funds to finance large-scale renewable energy projects.
At a forum in late February, Chalmers revealed his government plans to strongly encourage superannuation investment in projects aligning with the national interest, particularly public housing and renewable energy.
“The objective of superannuation is to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way.”
With Labor’s budget for 2023-24 to be released on May 9, and many analysts saying the current economic turmoil is only the tip of the iceberg, we are yet to see what’s in store.
We can be certain of one thing, however, that rocky roads lie ahead for Australia.
