MYEFO's missing medium-term fiscal framework; high spending ...

Nor has Labor committed to abiding by the Coalition’s 23.9 per cent tax-to-GDP cap to help discipline spending. At this point in the cycle, the budget should be running a string of substantial budget surpluses given that tax revenue is being pumped up by resource company profits fuelled by record higher iron ore, coal and gas prices and by personal income taxes pouring in from a fully employed labour force pumped up by the overdone pandemic fiscal and monetary stimulus showered on households. A string of multi-year surpluses is needed to build back the budget buffers amid the greater risk of external shocks from more geopolitically dangerous times. This will require much more spending discipline given the pressure to accommodate rising defence obligations.

Since the May budget, forecast tax revenues over the next four years have increased by $64 billion as bracket creep and strong economic growth have pushed up personal income tax and higher commodity prices have inflated company taxes. Yet the forecast improvement to the budget bottom line has been limited to $40 billion even after the deferral of infrastructure projects that might not have been done anyway. Resisting political pressures to spend all the revenue windfall is good as far as it goes to avoid throwing even more of the inflation-fighting burden on to the Reserve Bank. But the central bank’s medium-term low inflation framework needs to be mirrored by a comparable medium-term framework for fiscal policy.

The Treasurer’s welcome indication that the government will not seek to overturn the Morrison government’s stage 3 tax cuts legislated from July should provide the political prompt to formally commit Labor to at least start on re-anchoring budget expectations and avoiding Australia becoming a higher spending, higher taxing and lower growth country.