Up in smoke: How one budget burnt a $115 billion hole in the nation’s finances |
Too often, the state of the nation’s finances are looked at through the lens of a single budget.
For all the words written about the 2025-26 budget, we don’t actually know much about its long-term financial impact.
Illustration by Dionne Gain
Sure, there was talk about the political importance of its small tax cuts and how they would affect the government’s electoral chances. But, like a Christmas Day pavlova, it was a political news sugar hit.
In reality, it can take years before we really understand a budget’s true impact.
That’s why it’s time to argue that the 2018-19 budget may be the worst long-term budget this century (so far).
There will only be a few political and economic junkies who can remember that year’s budget (delivered by Scott Morrison) and its mid-year update (presented by Josh Frydenberg).
But two decisions – tobacco tax arrangements and the WA GST deal – in that budget year have punched at least a $115 billion hole in the nation’s finances.
The centrepiece of the 2018 budget was Morrison’s seven-year plan to cut personal income taxes. It would dominate political discourse until Jim Chalmers revamped stage 3 of the cuts in early 2024.
To pay for those tax cuts, the government needed money. And, like previous governments, it went after tobacco.
It decided to change the point at which importers paid excise on cigarettes.
It was described as a much-needed step against illicit tobacco. But it came with the added bonus of an extra $3.3 billion in tobacco excise in the 2019-20 budget year.
A promised budget surplus, which Morrison said was due to good economic management,........