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Briefing paper

The Commonwealth government has tabled its budget for the 2021-22 financial year. The budget will guide Australia’s fiscal and social policies as the national economy (hopefully) continues to recover from the unprecedented hardship of the COVID-19 pandemic and recession. In delivering the budget, the Treasurer indicated the government’s willingness to maintain or even increase program spending in some areas (while cutting spending deeply in others). He also committed the government to expanding fiscal support for certain human and caring services: including aged care, child care, and mental health. While an abrupt turn to austerity was avoided in this budget, overall program spending is nevertheless declining substantially: falling $60 billion this year (or around 3% of Australia’s GDP) as COVID support programs are eliminated. And the new investments announced in some programs neither offset the contractionary impact of overall spending cuts, nor come close to meeting the real need for expanded services in any of these areas.

This briefing paper reviews the main features of the budget from the perspective of workers and labour markets. In particular, we consider in detail a major flaw in the overall macroeconomic logic underpinning the budget. The government is counting on a vigorous and sustained burst of consumer spending by Australian households to drive the post-COVID recovery. Yet the budget concedes that the main sources of income to finance expanded consumer spending (namely, wages and income supports) will remain weak or even contract. These two dimensions of the budget are fundamentally incompatible: the government cannot passively tolerate the grim reality of stagnant wages (and falling real wages), alongside major cuts in income supports, while still hoping that vibrant consumer spending can still lead the whole economy to recovery. Without active measures to stimulate stable jobs and higher wages, the assumed recovery underpinning this budget cannot be sustained. That casts doubt on its optimistic fiscal forecasts – and risks great damage to the well-being of Australians.

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