The hype

It’s budget week, which means you’re bound to hear a lot of conversation about winners and losers of the federal budget as the topic dominates our media.

But what is the budget really about? How can you actually read behind the headlines to understand what it all means? And why were so many economists calling last year’s budget a ‘blue-collar budget’ for a ‘pink recession’?

The budget is about everything, but nothing much at all

Today in Australia, the federal budget night speech is an annual political event that is analysed like almost no other. It’s often compared to America’s State of the Union.

Yet, the reality is that legally the budget does very little at all. 

The Australian Government does legally need the approval of Parliament to collect taxation and spend our tax dollars. However, the bulk of government spending – everything from university funding to pensions, to family support and childcare — is ongoing, approved on a never-ending basis under “standing appropriations” or “special appropriations”.

These special appropriations authorise a payment where an entitlement already exists, or a payment of a specified amount in a separate annual Appropriation Act. Some special appropriations state a maximum amount that is used, or “appropriated”, for a particular purpose but close to 170 of these are unlimited, meaning there is “no defined ceiling on total expenditure”.

According to Peter Martin, the Economy Editor at the Conversation and a Visiting Fellow at the Crawford School of Public Policy at the ANU, this means that the Government doesn’t actually need approval of the budget in order to cover most of the expenditure that is included in the budget or to alter taxes. The only thing that the budget really needs approval for is expenditure on rent and public service salaries. 

So then, what is the point of the budget?

Essentially the national budget is much like any household budget – a great planning tool, but only if you stick to it! It’s an opportunity for the Government to set its intention of what it wants to prioritise in the year ahead. 

Every year the Federal Government looks at how much money it has coming in (income) and how much money it has going out (expenses), and then it tells us how it wants to change its income (largely though taxes) or change what it will spend (through expenditure on things like education, health, defence,  fossil fuel subsidies, etc.).

So, perhaps it’s better to think of the federal budget as an annual values statement because it shows Australians what the Government really is going to value in the year/s ahead – this is because it has actual $s attached to real world expenditure items.

For instance, when the Government tells us it will spend over $42 billion on superannuation tax concessions for the year ahead, and when we know that less than a third of these concessions will go to women (and the majority will go to wealthy Australians), that’s a values statement. 

The budget is a hefty document that also includes sections about the economic outlook and forward estimates (rolling three-year estimates of the revenues and costs of ongoing government policy decisions). These sections are where all the economic figures are set out, and the reasons for budget measures spelled out. It’s quite interesting, if you’re into that sort of thing.

The 2020/21 ‘blue collar budget for a pink recession’ 

At Verve we weren’t big fans of the description given to the budget 2020/21 budget (why do women always need to be referred to as pink!) but we agreed with the sentiment.  

A lot of economic analysis had shown that jobs occupied predominantly by women had been harder hit by COVID-19, and strong economic analysis was showing that the fastest way to drive a recovery in jobs (as well as longer term economic growth and social development) would be investing in industries with female dominant workforces: like aged care, child care and early childhood education.

Many women and our supporters, including many economists, felt that the Government missed a huge opportunity when it instead opted for a recovery to be led by investment in construction jobs, defence, and the gas industry that on the whole weren’t overly impacted by COVID-19. These industries were also unlikely to be the most effective for driving job creation.

Many felt that the government was demonstrating that it valued those ‘blue-collar’ jobs to drive recovery, and for many of us (myself included) it seemed to be driven on outdated views of what stimulates economic growth and not inline with the expectations of modern day workers (of which half are women). 

What is the budget lock-up?

The federal budget lock-up is when journalists are locked in a room in Parliament House for several hours on Budget Day so they can read the budget papers in order to be able to write something about the budget after the budget speech is given.

The rules of the lock-up are strict — no phones or smart watches, no internet etc.

Media are only allowed to report on what’s in the budget when the Treasurer starts speaking in Parliament. Those who breach the embargo may be banned from future lock-ups and could even face legal consequences.

How to understand the budget this year

There are three great ways to look at the budget. The first is to listen and read what the Treasurer says on budget night — this is what the Government really wants you to think about the budget. There will surely be a lot said about how the Government intends to support women and a lot of these figures will sound really big (tens if not hundreds of millions in some areas).

But then there is the reality, some of the announcements by the Government will be deferred (so may not come into effect for a year or more). And proposed expenditure in some areas may sound large, but in reality it’s only a drop in the ocean compared to what is required or being asked for. 

So the second way to understand the federal budget is to follow and read the specialist commentators in the area of your interest to see how they pick the budget figures apart.

And thirdly, if you really want to go deep, read the budget papers for yourself! They are available on the Australian Parliament Budget website. A great place to start is with the ‘Budget At A Glance’ documents.

—

This blog is published by Verve Superannuation Pty Ltd (ABN 65 628 675 169, AFS Representative No. 001268903), which is a Corporate Authorised Representative of True Oak Investments Ltd (ABN 81 002 558 956, AFSL 238184), as the Sub-Promoter of Verve Super. 

Verve Superannuation Pty Ltd and True Oak Investments Ltd are not licensed to provide personal financial advice. The information contained in this blog, including any financial guidance, is general in nature. You should consider seeking independent legal, financial, taxation or other advice to ensure that your financial decisions are suited to your unique circumstances.

You should read the Product Disclosure Statement, Additional Information Booklet, Insurance Guide, Target Market Determination and Financial Services Guide before making a decision to acquire, hold or continue to hold an interest in Verve Super. When considering financial returns, past performance is not indicative of future performance.