IPA Federal Budget Breakfast 2023

Key points:

• The annual IPA Federal Budget Breakfast, presented in conjunction with the Canberra Business Chamber at Parliament House, is one of the earliest chances to hear about the Treasurer's budget night announcements.
• Stephen Jones argued the budget finds a balance between present demands and future challenges, delivering savings and lowering more debt than predicted.
• Sussan Ley pointed to small businesses and middle Australians in “pain”, arguing that this budget will not provide relief to either of them.
• David Pocock, John Kehoe and Tony Greco discussed Australia's narrow tax base, the need to find a balance between the capacity of the public service workforce and Big Four consultants, digital adoption measures, and more.

“In a country where a budget surplus is the holy grail, a Treasurer who's achieved the nation's first in 15 years might be tempted to declare ‘mission accomplished’,” moderator Karen Middleton said, raising the spectre of George W. Bush’s poorly considered 2003 banner draped across the bridge of an aircraft carrier, just six weeks after United States troops invaded Iraq. “But Jim Chalmers made a point last night of saying that neither he nor the finance minister, nor anybody in the Cabinet, was saying that”.

“And it's wise because the $4.2 billion surplus they've banked for this financial year is only lasting on the current figures for this financial year, before we slide back into deficit for at least the three years that follow.”

Middleton reminded the room of the $82 billion turnaround between the previous budget’s forecasts and this budget’s short-term surplus, crediting the war in Ukraine’s commodity price impacts for much of the revenue increase, alongside contributions from low unemployment and skilled migration.

Middleton pointed out that the government plans to reduce debt by reducing the interest payments on debt, rather than spending the higher than anticipated revenue.

Jones called back to this point when he stepped to the podium, contrasting the budget’s “substantial savings” with a “pre-election spendathon”.

Jones characterised the savings as “fiscal discipline”, continuing recent Labor discussions that look to gain ground on Liberal’s traditional lead in the ‘fiscally responsible’ race.

There will be smaller deficits than predicted over the next few years, he explained, meaning lower interest expenditure. With debt reduced by $300 billion over the medium to long term, the interest savings, Jones said, would amount to $83 billion. The 250 or so accountants in the room did not correct his calculations.

While Jones agreed with Middleton’s assessment of the government’s use of the additional revenue, his opinion on the source of it did differ, with Jones citing low unemployment, rather than the war in Ukraine, as the panacea to deficit.

By Jones’s rationale, taxpayers are carrying the burden of increased government expenditure over recent decades, more so than the organisations that extract resources and commodities.

The panel that followed individual presenters – David Pocock, John Kehoe and Tony Greco – discussed Australia's narrowing tax base in a deep-dive Q&A, with questions from Karen Middleton and audience members.

“Personal income tax is raising about half of overall tax revenue now for the Commonwealth. It's never done that before,” said John Kehoe. “That's partly good news – there's more people who are in jobs working more hours. But it's also the insidious bracket creep that is going to start to hit people over the next few years as inflation rises – wages adjust, they go up to higher income tax brackets, but really their take home [pay] is not high.”

Tony Greco also argued that these points need to be addressed: the narrow tax base of individuals delivering half the revenue, and the lack of indexation of tax brackets that causes bracket creep. He doesn’t expect short-term change on either, though.

“There is no mandate for tax changes, let's be clear, and we didn't expect tax reform, so I think we’re in a holding pattern,” Greco said. “Some tough decisions have to be made going forward. I think the conversation has to take place around tax concessions and where the tax base could go moving forward. We know that that surplus is short lived.”

“We need to have a serious conversation about tax,” Pocock said. “We’re so reliant on personal income tax, and we’ve got to start thinking of ways to change that.”

In terms of changes he would like to see in revenue and expenditure, Pocock predictably argued for the petroleum resource rent tax. Less predictably, he conceded that there “may be a legitimate reason to keep some” of the stage three tax cuts: “They might have made sense when they were legislated”.

As for the rest of the cuts, he questioned whether spending that money differently would better set us up for the future.

“One of the really interesting things out of this budget is we have a government now that has acknowledged the role that electrification can play in both reducing bills for businesses and households, but also putting downward pressure on inflation.” Pocock said, referring to the small business energy incentive announced in the budget papers, which allows eligible small businesses to claim a 20% bonus tax deduction on up to $100,000 of energy-efficient upgrades.

“We've seen the Inflation Reduction Act in the US designed to do exactly that. And I would say that there is a huge opportunity for the government in the future to – rather than just giving $500, $600, one-off discounts on electricity – have a meaningful program that's helping companies and households electrify and get off gas, and reduce their energy bills every year. That's thousands of dollars per household.”

Pocock also argued for measures in future budgets which would drive productivity, particularly forward-thinking investments into research, development, universities and the National Reconstruction Fund, and which would address poverty, stating that some of the decisions made in this budget to minimise inflation are also decisions that leave some people in poverty.

“We've seen the Inflation Reduction Act in the US designed to do exactly that. And I would say that there is a huge opportunity for the government in the future to – rather than just giving $500, $600, one-off discounts on electricity – have a meaningful program that's helping companies and households electrify and get off gas, and reduce their energy bills every year. That's thousands of dollars per household.”

Pocock also argued for measures in future budgets which would drive productivity, particularly forward-thinking investments into research, development, universities and the National Reconstruction Fund, and which would address poverty, stating that some of the decisions made in this budget to minimise inflation are also decisions that leave some people in poverty.

The panel was aligned on one major future budget priority: tax reform.

Echoing some of Ley’s earlier language, albeit with less fervour, Greco pointed out that middle Australia was feeling the cost of living pressure that, for many, will not be adequately addressed by this budget’s cost of living package.

Ley characterised the budget as inflationary and unable to address the great difficulties experienced by middle Australia and small business, and claimed that the Liberal Party would “keep speaking up for the real pain that’s out there in the community”.

Kehoe and Greco shared the view that this budget created less change than they would usually expect to see in a government's first full budget – spending priorities have not shifted greatly and there's a lack of big cuts. Considering this, the government may find it more difficult to create impactful change when it comes time to deliver next year’s budget.

Watch the full session on demand now.