An uncertain Budget for uncertain times
Right on queue, just when the Budget's centrepiece is the 22 cents a litre fuel price cut, thanks to the six-month 50% cut is petrol excise, international oil prices have fallen 22% in the past week.
Today the global Brent price of crude is $A127 per barrel, last Thursday it was $A163 per barrel. But even at today's lower prices, oil is still almost one-and-a-half times more expensive than it was 12 months ago.
Ironically, the same forces responsible for this near-50% increase in oil prices are driving Australia's record resources export prices, which are the same forces driving the need for the government to borrow more money to give back to Australian households to help them stave off the effects of Australia's surging 4% inflation rate than in-turn has been triggered by the world recovering from the pandemic and the consequent rise in energy prices.
Which helps explain why despite a range of stimulus measures and cash-backs to help families, Australia's Budget deficit is in 2022-23 projected to get marginally worse, falling another $5 billion from $86 billion in the red to $91 billion in the red. But at least this helps explain why the government's net debt is projected to go up 13% to $715 billion. Mind you, the government's total liabilities are already $1.4 trillion, equivalent to more than 75% of Australia's GDP.
Our net debt is nevertheless low by international standards at about 31% compared to twice that in the United States and five times that in Japan. But it's still almost triple what it was when the Coalition government came to power in 2013.
Projecting Australia's unpredictable Budget isn't going to get any easier, however, with the pressing need to step up defence spending, lift foreign aid to ward on Pacific neighbours granting rights to the Chinese navy to build bases just off our shores and confront rising health and welfare costs due to the pandemic and Australia's gently aging population.
For proof, just cast your memory back to the 2018-19 Budget delivered by the Prime Minister when he was the Treasurer. Back then he projected a 2021-22 Budget surplus of $17 billion. That Treasury's Budget balance forecasts that he was relying on were more than $100 billion off-target and that Australian commonwealth government bonds on issue (debt) have since jumped 67% to $906 billion shows how hard predicting the modern world is becoming.
Who knew that in just a few short years Australia would be battling calamitous bushfires, global health pandemics, devastating floods and war in Europe the likes of which has not been seen since 1945.
Which explains why the Commonwealth government is earmarking hundreds of billions of dollars for increased spending on defence equipment, space defences and cyber security. That's right, Australia now has its own space command.
Amidst all this, Australia's economic situation is projected to be relatively benign. Inflation is expected to moderate to 2% pa within four years and unemployment will stay at near full employment levels of about 4% which should fuel wages to rise 3% pa.
Whether it does or not, we have no way of knowing of course because the world is just too volatile. Such volatility, however, doesn't mean governments shouldn't try to cast a plan. The electorate just needs to be wise enough to know how to interpret that plan and react to what happens. Especially when a Budget is announced within weeks of a tight federal election being called.
Adding even more spice to 2022 Australia is the realisation that the nation's future foundation is set on the intersection of national security policy, economic policy (which involves health, education and employment) and energy policy.
After all, Australia doesn't want to fall into the trap that befell Europe where it tipped the scales too far in favour of active climate action that led to it being geopolitically overexposed to excessive reliance on Russian oil. But without a vibrant economy driven by energy exports Australia won't be able to afford the nuclear submarines that it will need to keep its trade routes open.
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