Labor’s budget: Where’s the rest of it?

Straight out of Budget Lockup, Honi gives you all the info on where students lie in this year’s Federal Budget.

With the new Labor Government having delivered its first budget today, young people may be wondering what will change under this government. Honi entered the lockup today to find out what’s in the budget.

Labor’s first budget since 2013 is predictably lacking when it comes to the needs and interests of students. While it delivers a refreshing change of pace compared to the uninspired fiscal policy under the Liberal-National Coalition, the Budget is timid in its approach to several key areas: climate change, cost of living, and higher education. 

Despite the Coalition leaving a gross national debt of nearly $900 billion, fiscal success is better framed around whether the budget can meet social needs through the country’s available resources, rather than whether it’s ‘balanced’. 

Australia’s debt-to-GDP ratio is already low at 37.3 per cent, which is significantly below many OECD nations. While economists debate the extent to which scale of debts and deficits affect economic stability, they generally agree that at such a low level of debt and with our current labour underutilisation rate, government spending could be much higher.

We don’t need to be ‘back in black’ – we need to evaluate whether the spending makes sense.

Likewise, a downgrading of the forecast – i.e, a projected decrease in GDP growth – is not intrinsically problematic. As GDP measures total consumption, investment, government spending, and net exports across the country, it necessarily obfuscates where that money is going. If the economy contracts, we should ask what is being squeezed, and subsequently, does it matter?

Taking an important step in this direction, Labor’s budget included a chapter on national wellbeing, rather than conventional macroeconomic indicators such as GDP and unemployment alone. The chapter focused on how the government will evaluate key areas of wellbeing such as education attainment, premature mortality, housing affordability, gender gap in hours worked, greenhouse gas emissions and more. The first Measuring What Matters Statement will be published next year in 2023.

By moving away from metrics such as GDP and a budget bottom line as the most important factors, the government is creating room for an analysis that centres more human-focused outcomes. After all, if what we care about is how healthy, educated, and happy our population is, we should prioritise those ideals more directly rather than filtering them through the indicators of growth or productivity. 

The budget impacts the way that households, businesses and government agencies behave – it is important to know how it will impact you. It includes issues that impact many students, such as the price of your degree, purchasing a vehicle, buying or renting property, and whether there’s a real plan for climate action

The budget also gets handed down in a particular context, placing pressure on the government to establish and weigh their priorities. With the economic forecast having been downgraded, the government now expects things to be a little gloomier, with slower growth and potentially flagging economic actors, therefore requiring increased spending to support the economy.

Treasurer Jim Chalmers described this budget as “solid and sensible”, what he sees as a measured response to adverse economic conditions. The Albanese Government will have two to three more budgets before the next election, so this first one can be seen as an indicator of its priorities and direction.

So, keeping in mind the extensive fiscal capacity of this government to meet the needs of students, how did Labor do?

University Education

In the budget, Labor has promised an additional $485.5 million in funding for 20,000 additional university places. These places will be Commonwealth supported places (CSPs) and allocated to disadvantaged students from under-represented backgrounds, including low-SES, remote, and/or Indigenous Australians. The biggest winners will be small and regional universities, with Charles Darwin University, the University of Wollongong, Curtin University, Edith Cowan University, and the University of Newcastle set to receive the most funding.

The focus areas for the 20,000 additional university places include over 4000 places in education, one third of which are allocated to early education teachers. Earlier this year, the national childcare regulator found that the proportion of childcare centres who could not meet legal staffing requirements had doubled to 8.1 per cent, in the last four years. 

Additionally there will be 2,600 places in nursing courses and over 2,700 for other health professions including pharmacy and health science, and just under 5000 between IT and engineering. The boost to nursing courses comes after the Victorian Government created 10,000 free places in nursing and midwifery degrees in August. Unlike these Victorian places, the 20,000 additional places will still require fees to be paid.

The National Union of Students (NUS), which is the peak representative body for students in tertiary education, believes that increasing accessibility goes beyond pledging more places. 

“More university places just means more students living in poverty,” said NUS President Georgie Beatty.

Whether commencing a new course or continuing their current one, students will no longer receive the 10 per cent discount given to students who make a voluntary upfront payment on their HECS-HELP loan. The removal of this option is in line with the focus on disadvantaged students in higher education, with higher-SES individuals who can pay part of their university fees upfront more likely to benefit from this program. 

High-school leavers with an ATAR over 80 and an interest in teaching will be able to access up to $40,000 over four years as part of a $56.2 million package offering 5000 bursaries to potential education students. Meanwhile, a $68.3 million expansion of the High Achieving Teachers program will also recruit up to 1500 existing professionals in key areas like mathematics and science to retrain as teachers. Together these policies seek to address the shortfall in teachers across the country.

In a bid to increase entrepreneurial activity across the economy, Labor has allocated $15.4 million to its new Startup Year program. While the details are unclear, postgraduates and final-year undergraduates will be able to access an income-contingent loan from July 2023 to pursue a business idea through university-based incubator and accelerator programs.

Finally, under a new pilot program, $12.6 million will be allocated over two years to assist temporary visa holders who are experiencing domestic and sexual violence. Those on a student visa will be eligible for support.

Vocational Education

The budget will also incentivise students to obtain vocational training at TAFE and through vocational education places, with an additional 180,000 fee-free places to fill skill shortages. Areas to be targeted include care jobs like aged care and health care, technology, and agriculture. This represents a $550 million commitment within the new National Skills Agreement, with the Federal Government negotiating with State and Territory governments to match the funding.

As a part of these extra places, and similarly to University places, the government has committed to “provide access to priority cohorts including women and Indigenous Australia, and those living with disability”.

The move follows over a decade of declining funding for vocational education, with the 2020 Productivity Commission Report on Government Services finding that vocational education spending per student was at a decade low in almost all states, despite the TAFE system contributing an estimated $92.5 billion to the Australian economy each year. The stance of previous Coalition governments on TAFE funding has contributed to, in essence, the privatisation by stealth of vocational education and training, as TAFE is forced to compete for students with poorly regulated private providers. It remains to be seen whether the Albanese government’s injection of funding will revive the TAFE model.

“I’m glad that this new government is paying attention to vocational education and starting to look at a sector that is fundamentally broken,” NUS President Georgie Beatty said. “Apprenticeships should not be cheap labour, they should be a legitimate training ground with fair pay and safe conditions.”

“We need to be confident that with these new places, the government keeps a tight grip on private providers, and that there is increased women’s participation in these courses,” Beatty said.

“By looking into the vocational sector, we’re opening Pandora’s box - there are many issues that this government needs to address.”

Climate Change

A policy area of concern for many young people is climate mitigation, with Albanese promising to “end the climate wars” prior to the election. So what has the new government included in the budget to tackle the climate crisis?

Labor’s commitment to climate change mitigation and adaptation, and environmental protection is a welcome change following years of stagnation with the Coalition.

The federal government allocates money to the transition away from fossil fuels in a few key ways. The Clean Energy Finance Corporation (CEFC) is a government-owned green bank that directs finance into green industries. Acting as a specialist investor, it finances renewable energy development, lower-emissions infrastructure, and grows less carbon-intensive sectors of the economy. 

The Australian Renewable Energy Agency (ARENA) similarly provides funding to help accelerate the transition to renewable energy, including financing research and deployment. 

Particularly in the context of rising interest rates, providing cheap finance to green industry is needed. Further funding is needed to facilitate this, and could potentially allow the body to take equity stakes in green infrastructure projects.

The most significant environmental project in the budget is the Rewiring the Nation initiative, which will provide $20 billion in low-cost finance to assist the private sector in expanding Australia’s various electricity grids.

Major upgrades to transmission are a necessary component of the shift to 100 per cent renewables. Concerns that solar and wind supply may be intermittent could be assuaged from this geographically-dispersed grid, making this funding a welcome package.

Despite highlighting the 3 gigawatt decline in dispatchable energy overseen by the Coalition, Labor has made very little commitment to deploy its fiscal powers to expand energy generation. Instead, there have been many smaller climate-focused commitments including:

  • $141.1 million for carbon capture and storage
  • $20.3 million to enable farmers and Indigenous communities to participate in carbon markets and invest in low emissions technologies
  • $345 million in tax relief for non-luxury electric vehicle purchases
  • $275 million to build a national electric vehicle charging networks and for freight industry electrification
  • $102.2 million for solar banks which will benefit renters and apartment dwellers who cannot access solar
  • $224.3 million for 400 community-managed batteries.

Fortunately, there has been some recognition of the need for a just transition. $1.9 billion has been allocated through the Powering the Regions Fund to assist regional communities harness the benefits of decarbonisation and transition away from fossil fuel industries.

Housing and Cost of Living

Inflation is a key concern for many Australians, including students, for whom the cost of living is becoming a rising concern. The Consumer Price Index (CPI), which measures the overall change consumers are paying for an average set of goods and services, was at a three-decade high in June, at 6.1 per cent. Chalmers recently warned that recent flooding could place further inflationary pressure on the price of groceries as agricultural land recovers from widespread inundation.

The Reserve Bank of Australia (RBA) forecasted an inflation rate of 7.75 per cent in their August economic outlook. Alleviating this pressure on consumers will likely involve a two-pronged approach of attempting to put the brake on price increases and helping households to cope with the cost of living. 

While RBA interest rate rises will attempt to rein in prices, fiscal policy can play an important role in distributing the costs of inflation. The Stage 3 tax cuts, which were initially intended (back in 2018) to boost sluggish inflation rates, have attracted criticism for essentially putting money back in the pockets of richer Australians, just as the RBA attempts to do the opposite. What’s more, the cuts, which will come into effect in 2024, have been forecasted to cost the government $254 billion, which could be alternatively spent directly alleviating cost of living pressures.

More progressive approaches to the crisis would focus on increasing the amount of money available to lower income households. One of the Albanese government’s first economic decisions was to recommend that the Fair Work Commission raise the minimum wage by at least 5.1 per cent, in line with inflation at the time. 

However, the government has been unresponsive on reforms to welfare payments like the Youth Allowance and JobSeeker. The budget offers only indexation to inflation, but does not increase the payments to a living wage. This is despite a recent report from the NUS that found the payments completely inadequate for the needs of welfare recipients, with almost half a million 18-21 year olds locked out of payments entirely.

Another significant financial pressure for many young people is housing affordability, with rental prices around Australia rising particularly quickly as repayments on debt increase. While RBA estimates forecast house prices declining sharply in the coming months, the housing shortfall remains a longstanding problem

Labor’s new Housing Accord is an ambitious plan to build one million homes by 2029 in collaboration with all levels of government and the private sector. The hope is that increasing housing supply will decrease housing costs, which has been the largest contributor to inflation and cost of living pressures for students.

Currently, there are only concrete plans to build up to 55,500 homes. As part of the new Housing Australia Future Fund, social housing stock will increase by 20,000 homes and 10,000 new affordable dwellings will be built. A further 10,000 affordable homes are set to be built through a $350 million dedicated to making affordable housing projects commercially viable. The states are expected to commit their own funding to build another 10,000 affordable homes. Finally, $575 million previously allocated to ‘critical infrastructure’ has been freed up to build a further 5500 homes.

The Labor government has made no specific commitment to build public housing, with the hope that community housing organisations – rather than the government – will maintain the properties. While governments have the ability to maintain public housing through their fiscal expenditure, community housing organisations are often severely restricted by their low revenue stemming from affordable rents.

The definition of affordable housing is also unclear. While best practice is to set the rate near 75 per cent of the market rate, market rates in Australia’s capital cities are some of the highest in the world. Labor hopes that increasing the housing stock by one million over the next five years will decrease the market rate, making purchasing these affordable properties within reach.

The process of building these houses has been outlined through a series of accords with stakeholders, including local and state governments as well as investors. 

“The accord recognises most of this supply needs to come from the market, with government playing a key role in enabling and kick-starting investment,” said Chalmers prior to the budget’s reveal.

“It’s more important than ever that we work together to ensure there is an adequate supply of affordable housing where it is needed – close to jobs, transport and other services.”

The accord with state and territory governments includes the expediting of rezoning and land releases to create opportunities to build social and affordable housing.

Funding will be provided for these homes through a combination of the Housing Australia Future Fund as well as intended investment from the superannuation sector — a $3.3 trillion pool of funds that the government hopes will be encouraged to invest.

University students who are more interested in renting than buying will depend on the private sector to follow through on their commitment as part of the accord to invest in alternative housing models such as Build to Rent, as has been trialled most extensively in Victoria.

A similar scheme has been put into place in New Zealand, with the Kiwibuild program seeking to construct 100,000 homes in just ten years. This is one-tenth of Australia’s target and allows for double the time frame. Beginning in 2018, the program has since been widely lauded as a failure, having delivered less than 1,500 homes as of July this year.

This budget also tackles housing through a commitment of $5 billion to Commonwealth Rental Assistance, as well as $1.6 billion to states and territories through the National Housing and Homelessness Agreement.

The second largest contributor to inflation and cost of living pressures has been energy prices. Unfortunately, these are expected to remain high in the short term due to the war in Ukraine. 

The cost of medicine is set to decrease, with the maximum co-payment under the Pharmaceutical Benefits Scheme (PBS) decreasing from $42.50 to $30 per script. This change is estimated to save 3.6 million Australians on the scheme more than $190 million annually in out-of-pocket costs.

Real wage growth is another significant component for the cost of living. Unfortunately, inflation is set to peak in December before falling to 3.5 per cent mid next year. Students should not expect real wage growth until this point, given that wage rises above inflation remain elusive.

What’s Next?

Peter Dutton will present the opposition’s budget Reply on Thursday evening. Given that the Coalition already presented their own budget in March of this year, it is unclear if the reply will differ markedly from what they have already presented to Australians.

Meanwhile, the new Labor government is faced with a tough economic context: the war in Ukraine, national disasters around Australia, underinvestment in some of the country’s most important infrastructure systems, and a cost of living crisis. 

This budget is a refreshing shift away from deficit-centric economic rhetoric, wisely focusing on the impact of spending on Australians’ living standards. It is pleasing to see cost-of-living relief that seeks to actively bring down or subsidise prices, rather than austerity. 

For young people, a boost to university and vocational education funding will be welcome, but must be followed up with further reforms to support youth struggling with the cost of living. In particular, skills shortages may be partially filled with students incentivised by fee-free tertiary education places, but broader problems in sectors like education and healthcare must be addressed to reduce rates of attrition and make jobs more attractive. 

It is good to see investment in Australia’s green energy infrastructure, but our transition will require greater and more sustained investment going forward. Empowering our public green finance institutions to create a real stake in green industry should be a longer-term project of this government. 

All up, Australians and our national economy will likely have some challenging months ahead of us — a reality that the Albanese government cannot fully control. This budget sets up several exciting priorities for confronting this crisis and building the Australian economy into the future, but the vision will require ongoing investment and elucidation to really come to fruition.