Unpacking the 2023 federal budget

Cost of living

Professor Flavio Menezes
Professor of Economics
Director of the Australian Institute for Business and Economics (UQ)
Faculty of Business, Economics and Law

The 2023 federal budget introduced a range of measures to provide immediate relief to households and businesses facing inflation, that has increased by over 12% in the last two years, with electricity and gas prices rising by a staggering 34%. Some of these measures will have a one-off impact, such as the $500 electricity rebates to 5 million low-income households and the $650 rebates to eligible small businesses. Other measures – such as the $1.9 billion to fund single-parent payment extensions until the youngest child turns 14, and the modest real increases in JobSeeker, Youth Allowance, Rent Assistance and Austudy – will have a more permanent impact.

There are also energy-transition measures, such as the extension of the $20,000 instant asset write-off for small businesses, new tax incentives for businesses with turnover of up to $50 million to become more energy efficient, and $1 billion in low-cost electrification package loans to households. These measures will also assist with cost-of-living pressures, but their impact – while permanent – will not be immediate.

The debate about whether these cost-of-living relief measures will contribute to inflation is misguided. Electricity rebates and JobSeeker increases are inflationary in the same way as wage increases, yet no one suggests that we should not increase wages to alleviate inflation. We should also dismiss the idea that we should not help those who are most disadvantaged in society to avoid putting pressure on inflation.

Instead, the government should either wait for supply responses and for the impact of higher interest rates to subdue inflation or reduce expenses and raise taxes elsewhere. The budget made a timid attempt at the latter. There has been an increase to superannuation tax for balances over $3 million, a $2.4 billion rise in the petroleum resource rent tax over four years, a $3.3 billion increase in tobacco excise, and further multinational tax measures. The budget also included savings and reprioritisation of spending amounting to less than 1% of total government spending over the next four years.

Families, health care and welfare

Professor Greg Marston
Director of the Centre for Policy Futures
Faculty of Humanities and Social Sciences

The federal budget provides Australian households and individuals with different levels of material support, which is informed by weighing up relative needs in the community. Federal budgets are therefore moral statements, reflecting competing ideas about what has value and what is fair. Leading into the 2023–24 budget, the Australian Government was under considerable public pressure to do more for Australian citizens by providing measures that would address – among other things – the national housing crisis, spiralling living costs, inadequate social security payments, gaps in the public health system, and cost blowouts and fraud in the National Disability Insurance Scheme (NDIS).

The federal budget delivered a suite of social-policy measures that hit the mark in some areas but missed it in others. In terms of Medicare, the Australian Government has sought to address the decline in bulk-billing rates by tripling the incentive for GPs to bulk bill for most common consultations. The costs of hundreds of prescribed medicines on the Pharmaceutical Benefits Scheme will be effectively halved by allowing people with chronic health conditions the ability to buy 2 months’ worth of medicines on a single script, saving them the co-payment. In disability care, the Australian Government is seeking to contain costs in demand-driven NDIS by improving decision-making in the agency that administers the program, the National Disability Insurance Agency (NDIA). Extra funding of around $700 million for the NDIA aims to improve outcomes and eliminate unethical service providers who overcharge or commit fraud by claiming services that were never delivered.

Reducing out-of-pocket expenses and improving service delivery in health and disability services will be welcome news to millions of Australians. However, many advocacy groups are rightly claiming that the budget did not go far enough to improve economic security for the most vulnerable in the community, including low-income tertiary students on Youth Allowance and job seekers under the age of 55, who will only receive an increase of $2.85 per day (or $40 per fortnight), leaving them on payment levels that remain well below the poverty line. The Australian Government has claimed a larger increase in social security payments for all recipients on allowances was not affordable in the current fiscal environment.

It will be harder for the Australian government to maintain an argument about affordability as it moves to introduce the promised stage 3 tax cuts in 2024, costing the government around $70 billion over the next four years. These tax cuts will provide an additional $25 per day to high-income earners, which is around 9 times the increase that job seekers have received in the 2023–24 federal budget. It is difficult to see how this passes the fairness test.    

Defence and foreign affairs

Associate Professor Marianne Hanson
School of Political Science and International Studies
Faculty of Humanities and Social Sciences

A total of $52.558 billion has been allocated to Australia’s Defence budget for the year 2023–2024, up from the $49.131 billion spent this financial year.

It has not come as a surprise, and it is controversial with many Australians. The latest allocations are directed to implementing a major reorientation of Australia’s Defence and security policy. Apparently, this still leaves the Defence budget more or less ‘spending neutral’, as cuts in other areas of Defence will proceed.

This reallocation is designed to increase military cooperation – or full ‘interchangeablity’, as the Defence Minister has called it – with the United States military forces. This includes implementing the AUKUS nuclear-powered submarine project, long-range missile strike capabilities, and strengthening military bases in northern Australia for increased rotations of US military personnel and aircraft. The unspoken target of this ramp up of military spending is fear of China, as it rises to great power status in the Asia-Pacific.

But even bigger spending will come in the 2030s, when Defence funding will jump much higher, from the current point of about 2.04% of GDP to 2.3% of GDP. And this will increase even more once the submarine project gets under way. For comparison with other countries’ defence expenditure in the most recent period, see the table below.

The recently revealed Defence strategic review presaged this increased spending over the medium term. Questions remain, however, and are already being asked by critics: is this the best allocation of national resources, especially as welfare, health and other areas are under-funded? Is increased military spending – including an additional $368 billion over the next few decades for nuclear-powered submarines – the optimal answer to what some claim is an over-drawn fear of China’s intentions towards Australia? 

In contrast with Defence matters, foreign affairs get relatively little attention overall in the budget and in the media. What appears most prominently in the statements released is the $477 million allocated to official overseas development assistance (ODA), a slight increase from last year. 

Within the ODA budget, deepening engagement with South East Asian and South Pacific states is again highlighted; an important – if perhaps insufficient – commitment to these regions after years of near-neglect by the previous government. Increasing the diversification of trade and enhancing the capability of the foreign service are also key priorities in this year’s budget.

Overall, there appears to be an increasing link between Defence and foreign affairs. While such a link has always been present, we now see a greater emphasis on strategic ties with the US and the need to deepen our diplomatic engagement with our nearest neighbours. This is due largely to Canberra’s views of increasing Chinese influence, and the need to develop strategies to counter this influence.

Nonetheless, Australia continues to be viewed by most of these near-neighbours as ‘retreating to the Anglosphere’, and it remains to be seen whether diplomatic engagement forecast in the federal budget will assuage damaged relations caused by AUKUS and perceptions of strong Australian alignment with Washington’s preferences. It may well be that a lesser focus on military spending, a greater commitment to cooperation with our region, and repairing our relationship with China – our biggest trading partner – through dialogue, diplomacy and developing security and confidence building measures, would be a better overall strategy for the long term. But the opposite is implied in this year’s budget.