Can Chalmers kick the bad habit that keeps breaking the budget?

Treasury concludes prime minister John Howard and then treasurer Peter Costello kept 80 per cent of the revenue boost in the 2003-04 mid-year budget update. A few years later, however, they spent 70 per cent. The saving grace was the creation of the Future Fund.

There were no such luxuries for Labor when Kevin Rudd became prime minister and the GFC arrived within a year. Tax revenue collapsed and there were no windfall gains. Later, in the 2010-11 budget, treasurer Wayne Swan returned 84 per cent of the upside revenue to the bottom line.

Yes, that makes the Treasury analysis convenient for the current Treasurer, Jim Chalmers. He was chief of staff to Swan in those years.

The real horror in the Treasury chart is the recent years. Under Malcolm Turnbull as prime minister and Scott Morrison as treasurer, the Coalition spent 58 per cent of the revenue gains in the May 2018 budget, well before the pandemic. Even last December, when the worst of the pandemic had passed, the Coalition spent 49 per cent of the revenue gains. By this year’s budget, treasurer Josh Frydenberg was saving 74 per cent. He was also, however, throwing $8.6 billion into handouts when inflation was on the rise.

Economists can pick apart these numbers to praise or damn any of the spending. The figures are based on the decisions made for the four-year forward estimates in each budget and mid-year update, so they reflect the forecasts rather than the final budget outcomes.

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It is the pattern that matters. The bad habit became ingrained. The answer to a crisis was a cash handout. It became acceptable to spend the proceeds of those revenue gains before they arrived because it was convenient to believe in the forecasts.

The lazy thinking is still with us this week – for instance, in the call from NSW Treasurer Matt Kean for cash assistance from Canberra to help with household power bills. Rather than use his own power under state law, he expects help from federal coffers that are basically empty.

It is true that economic growth and inflation can erode the debt over time, but that only starts when the deficits stop. And there is no sign they will stop. The deficit in 2026 will be $50 billion – $13 billion more than this year’s.

Interest payments will make up more than half the deficits but the throwaway political rhetoric on this – that Labor is burdened by “a trillion dollars of Liberal debt” – is a deception. Gross debt was $306 billion in the final budget outcome when Labor lost power in 2013. The bill for the global financial crisis is still with us. The gross debt was $895 billion in the final budget outcome this year when the Coalition lost power. The major parties share the ownership of today’s debt.

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Chalmers had the Treasury analysis done for a reason. He is making a virtue of the fact that his budget returns 92 per cent of the revenue gains over the forward estimates. He is trying to keep the fiscal rule the Coalition proclaimed in 2014.

“The easiest thing in the world is to get a temporary boost to revenue and turn it into a permanent spending commitment,” Chalmers said on Wednesday. He is right. But is anyone listening? Labor has to change expectations for a new era of restraint, a key word in every Chalmers interview this week.

Labor is testing community sentiment on budget repair. It is also testing its powers of persuasion. Can it convince Australians to accept spending cuts? The party that blocked savings measures in 2014 now has to find some of its own. That explains why this budget is such a tentative start.

Only by bringing spending under control can Labor create the conditions for a conversation about revenue. The stage three tax cuts, worth $254 billion over a decade, are the ultimate example of a policy decision that empties the coffers in the anticipation of future revenue. They were unveiled in April 2019 when Treasury expected surpluses of $45 billion over four years, not deficits of $180 billion.

Labor has chosen not to break its election pledge on the tax cuts, but this only highlights the need for other actions on spending and revenue. And, perhaps, an amendment to the top end of the stage three package in a day of reckoning on tax.

Old habits die hard. Chalmers is trying to change behaviour that set in over a generation. Younger voters, especially, should see this budget as the first attempt in some time to prevent them being left with the bill.

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