Monday , May 17 2021

Jason Murphy about what your budget did not say

Last week, the Australian budget was described as a calm, steady success.

"The budget is again in black, and Australia is on the right track," cashier Josh Frydenberg said on Tuesday night. He also promised the current tax reduction and the year of budget surpluses.

Anyone who has just included could assume that the financial future of Australia is secured.

But there is something the government wants you to not notice.

RELATED: Largest winners and losers of federal budget 2019

Look at the forecasts in the budget and you'll see numbers worse than last year. Wage forecasts, in particular, continue to decline. In the last year's budget, the government expects a 3.25-percent rise in the wage price index in 2019-20. That number did not last. By the middle of the budget update, the forecast fell to 3 percent. And now, just a few months later? Budget fell again to 2.75 percent. This means a salary increase next year just 0.5 percentage points above the inflation forecast.

The payee said this in his budget talk:[E]Only one of us wants to see wages grow faster. "And he's right. We all want that. But that was it. That was the last word in the talk about salary growth from the man who was in charge of managing our economy.


Wage growth is key to ensuring the health of the Australian economy. We need people to make money to spend it in stores, cafes and hairdressers – all we call household spending.

Household spending is more than half of the Australian economy and we will not spend so much if we get nervous about the next payout. It is no exaggeration to say that low growth rises the risk of economic growth.

What could really deter households from spending and saving is the fall in house prices.

This was another topic we did not hear much about the budget night. As 2019 progresses, house prices decline on average throughout the country. In the two largest cities the biggest drop in prices. Prices fell 0.8 percent in the last month in Melbourne and 0.9 percent in Sydney, according to CoreLogic data.

There are many other risks to the economy – we still depend heavily on commodity prices, for example, and could fall. Iron ore is now at a record high price of $ 92 per ton, thanks to a mining disaster that has reduced supply and raised prices. If the price of iron ore falls, we will see lower revenues than if it remains high. (It is important to note that the government was at this point cautious, predicting that the price of iron ore would fall to $ 55 per tonne.)


So the budget sounds as if it's in excellent shape – but only if you're wondering if it's balanced. It is. Revenues are higher than expenditures. However, there is more economy than that.

Finally, Australia returned to surplus even without strong economic growth. How did we do that right?

The answer is partial inflation. As you know, prices grow every year as well as salaries (although salaries have not risen much faster than inflation lately)! While prices and salaries grow, tax thresholds remain stationary and more and more people pay more taxes. This means that the government collects more revenue each year. If the government does not adjust the tax thresholds, it can usually return to surplus only by waiting for people to move to the next tax threshold and pay more tax rates.

We should appreciate tax reduction, but we should not always believe that they are the result of extraordinary economic governance. One – it's our own money that comes back to us, and two – often just compensating for inflation. If governments do not shift these tax grades, they may start to seem very low.

To see what I mean, check the Australian tax thresholds from 1999 to 2000, in the left column of the following table.

The highest tax threshold was only $ 50,000! Our current tax rate is 45% on income above $ 180,000. Just 19 years ago, the highest tax rate was similar – 47%, but the threshold was much, much lower. All this time, you see, governments have moved the thresholds more to take inflation into account and call it a tax cut.

Good news

It is an electoral budget, so it includes cash payments for energy payments, as well as a nice tax reduction for middle income earners.

Both major parties are now committed to delivering these tax cuts.

Sometimes the electoral budget is inaccessible and unobtrusive – all of these brochures! But not this time. This year not only can the budget afford tax reduction, but also the economy needs them. The risks we have described above – any doubts about household wages and spending – will help us put more money into people's pockets.

This is a fortune, not a good management, but a large electoral campaign of high consumption would probably be of great help to the economy right now.

– Jason Murphy is an economist. He writes blog Thomas Think Engine @jasonmurphy

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