Is the 2025 federal Budget right for these economic times? In this special pre-election Grattan podcast, our experts give their verdict.
Host Kate Griffiths is joined by Grattan CEO Aruna Sathanapally and health policy expert Peter Breadon to analyse what was good in the Budget, what was missing, and what the next government – whether Labor or Coalition, majority or minority – should do to build a better Australia.
Transcript
Kate Griffiths: Treasurer Jim Chalmers handed down his fourth budget on Tuesday night, and now the federal election has been called for May Three. Cost of living was a centrepiece of this budget and is shaping up to be a key election issue. Has the government delivered enough or too much for these economic times? I’m Kate Griffiths, deputy Director of Grattan Democracy Program, and I’m joined today by Grattan, CEO, Aruna Sathanapally and Health program Director Peter Breadon.
Aruna, you were in Canberra for all the action. What was the general mood around this budget?
Aruna Sathanapally: So, this budget wasn’t really expected to happen. The government had already made a series of announcements over time as to its intentions if it is re-elected. So, for instance, measures to ensure that childcare workers are paid more fairly, to extend three days of early childhood education to kids no matter where their parents are employed.
And some big announcements to boost funding for healthcare. These are the things that, you know, we knew about, and that Grattan had actually written about in advance. What this budget effectively did was update us on the economic picture for the data that we’ve seen over the past six months, and that economic picture is, getting better.
So, the economy has hit a turning point. Inflation looks like it’s now under control. We’re starting to see that growth in wages. And what else it did was tally up all these promises from the government in terms of what it means for the budget position. And broadly, this has stayed stable since last year. It’s improved marginally.
There were only a handful of new announcements including uh, for economists and exciting economic reform on non-compete clauses. And then there was a small cut in the lowest income tax bracket, which applies to every working person in Australia. So that was, you know, a more broad-based interest.
Kate Griffiths: Yeah, the tax cuts were, were the main surprise in this budget. What did you make of them? Is this good economic policy?
Aruna Sathanapally: So, a couple of reactions. First off, in terms of overall economic management, so we’ve just come out of this period of inflation, and we think that these tax cuts are designed in a way that avoids having any inflationary impact. Now, this worry about making inflation worse has really tied the government’s hands on a lot of things since it took power.
Now that inflation has come under control and the economy’s picking back up the modest size of these tax cuts and the timing look okay, but this isn’t really the tax reform we need to see, or at least it’s the easy part of the reform. So, in Australia, we don’t actually collect that much tax relative to the size of our economy.
As do other countries we typically compare ourselves to in terms of public services and quality of life. But the way in which we collect tax leaves a lot of room for improvement. So, what we call the tax mix, we lean heavily on personal income tax and company tax and lean lightly on other forms of tax that are just better taxes from the perspective of economic growth, fairness, and people’s incentives to work.
So, cutting the lowest rate of income tax in isolation is an economic positive. It’s particularly good in terms of supporting secondary earners in low-income households who often end up taking home too little of their second and third days of work.
But we haven’t raised any taxes on the other side of the ledger, so we’ve left off the hard bit.
Kate Griffiths: Look, I’m gonna come to you, Peter now because this budget had a big focus on health. Could you talk, walk us through like the main announcements and your take on them.
Peter Breadon: As with the rest of the budget, the government’s strong focus here has been on cost of living in health. That means reducing fees that patients pay. And the government’s emphasis has been on GP clinics and medicines under the pharmaceutical benefit scheme.
So, for GPs, there’s a large package to promote bulk billing, meaning GPs not charging a fee for their patients. That’s gonna add about two and a half billion dollars to the budget on an ongoing basis once fully implemented, and it’s going to expand the incentives GPs get to bulk bill patients. They were already tripled recently, but currently they only apply to concession card holders and kids.
So, these are big and costly measures. They’re going to total about two and a half billion dollars in new ongoing costs for the budget each year once fully implemented. The other big one was to reduce the cost of medicines on the PBS. So, bringing the total maximum payment you can pay for a medicine down from around $31 to $25.
Freezing the fees in place for both non concession and concession card patients.
Kate Griffiths: So, given this budget’s really emphasized cost of living, do you think these investments are the best way to tackle health cost of living pressures, Peter?
Peter Breadon: There is a case for investments to increase bulk billing. The long run average of people saying that they don’t go to the GP because it’s too expensive. That has been below one in 20 people. But in the last few years since the pandemic, we’ve seen that rate shoot up and now it’s close to one in 10 people saying that they’re skipping the GP because it costs too much.
That’s obviously concern. So, it is good to see the government trying to bring that rate back down again. And in addition, this funding increases funding for primary care, and that’s an important long-term objective for the system because as we get an older population, a sicker population. More complex chronic disease, we wanna see primary care better resourced to deal with that burden.
So that is good to see. We’ve seen that pharmaceutical, again, it’s just edged up a little bit. Not like GPs, but we’re seeing a few more people say, oh, they’re worried about getting their medicines, they can’t afford it, and they’re skipping or delaying filling their scripts. So, it is good to see some of these pressures on patients being addressed.
But there are big costs of living pressures that aren’t addressed in this budget that come from people’s healthcare. One of the really notable exceptions is dental care. Now, the share of people saying they’re missing out on visits to the dentist because of the cost of those visits is double what it is for GPs and even more than double what it is for medicines and dental’s been left out of Medicare from the start. There’s been long running calls to bring it in, and we didn’t see progress on that front.
There are some other good things in here. Smaller things like their funding and improvement of the medical cost finder tool, which is a website that tells you how much you can expect to spend if you go to see a specific non-GP specialist.
So that’s good to see and that’s a, a smaller cost of living measure that hasn’t got the headlines.
It’s nice to see pressures on patients relieved. But we haven’t seen a lot in mental health, allied health and dental, and notably dental is a bigger mission given that it’s such a concern for patients being able to afford to see the dentist.
Kate Griffiths: Aruna, um, I’ll come back to you because the government delivered surpluses in its previous two budgets, but in this one we see a deficit through the forwards and medium term. What do you make of the federal government’s finances over the medium term to, take on some new big reforms like Peter has suggested and what do you think needs to change to be able to even consider these things?
Aruna Sathanapally: So early on in this government’s term, they published an intergenerational report, which they actually brought forward from when it would otherwise have been prepared, and that sets out in fairly comprehensive detail, the medium term and the long term picture on the spending side and on the tax side. What this showed us was a, a more pessimistic picture than the previous intergenerational report, but frankly, one that was more realistic in terms of its assumptions around growth.
It helpfully laid out where the big drivers are for expenditure in the medium term because, you can find yourself tinkering around the edges. If you’re not actually tackling the things that that really drive government expenditure. Now, the biggest is health. That’s followed by aged care, then defence, then the NDIS, which has grown very substantially over recent years and interest payments.
And what the intergenerational report lays out, which is what we know is that our current set of taxes will not raise enough money to pay for these things as our population ages. And that’s because we rely quite heavily on taxing working age people and our expenditure. A large part of that expense comes from older Australians.
The good news is that over recent years, the government has paid down a lot of the extra debt, or I think almost all the extra debt we built up during Covid to pay for Job Keeper to pay for extra health funding. So that’s brought down the interest expenses in the future relative to what would’ve otherwise been the case.
Also good to see is that the reforms to the NDIS and aged care that have been agreed to by this parliament have brought down some of the pressures on those drivers as well, but there’s certainly still more we need to do.
The bad news is that defence looks like, if anything, it’s gonna increase further in the future given the broader global outlook.
And we’ve not historically been very good at getting the best value out of defence spending. So, what this means is that. The next government, whoever’s elected, will really have to pull all the levers we have to tackle this fiscal gap to grow the economy, to get the best value from government spending and to raise taxes in the most efficient way.
Kate Griffiths: Long-term growth in health expenditure is obviously a substantial part of that picture. Can you explain what’s driving that growth and what governments can actually do in health to mitigate cost growth?
Peter Breadon: Well, there’s a lot of things that go into health spending like new treatments coming online and people getting healthier because of previous improvements in treatments and care. They live longer; they need more care. They can have more intensive care at an older age, but one of the biggest underlying drivers that governments need to respond to is this rise in chronic disease, and particularly people having multiple and complex chronic disease. And that adds heaps of cost in terms of, treating those people and keeping them as healthy as possible. And that’s driven by a lot of things uh, population aging.
But also, a lot of the lifestyle related factors that cause avoidable chronic disease. So that’s the big underlying shift in our healthcare needs over recent decades. But we haven’t seen a similar big shift in the structure of the health system, in how we fund and manage the system to make it fit for purpose, to really manage this chronic disease burden and prevent it where possible.
So that’s the big challenge to bring down health cost growth. I will say that we will expect health to increase health spending to increase. You see that in all wealthy countries, you’ve seen it over time, and that’s a good thing. But we don’t want it to rise faster than we can afford. And we wanna make sure we get the best value for all the money that we’re spending.
So, what can governments do in response to this big chronic disease challenge? Well, you know, the first thing is preventing chronic disease where you can, of course prevention is better than cure if you can achieve it. But Australia spends far less than the average wealthy country on preventing disease. We also don’t always spend it on the best things, and we don’t take a lot of the sensible regulatory and tax measures that can make it easier for people to make healthy choices. Things like the way we do food labelling, setting maximum amounts of unhealthy ingredients in foods, taxing, unhealthy, sugary drinks. The list goes on.
A serious prevention agenda would be a key part of managing longer term cost growth. That means the new Centre for Disease Control, the body is supposed to help keep us healthy. That’s been announced. That has to be a really strong, independent, robust body that really pushes governments on making the best investments here.
We also need more prevention spending through a new national deal on prevention spending between the federal and state governments. The last agreement that did that was abolished more than 10 years ago. But even if we do all of that great stuff on prevention, we’re still gonna have a lot of chronic disease coming at us quickly. And so, we need to manage that better through investing in primary care.
Now a bit like Aruna was saying on taxation here, we’ve seen a shift in the burden away from the community, towards the government, but we haven’t seen a shift in how we’re spending, just in how much we’re spending. So what we need to see there is a different way of funding GPs to support the ongoing multidisciplinary care that we know is best for helping people manage their chronic conditions, and also to make the funding fairer so that it goes to those communities with less care and those patients with more complex needs.
So, there’s been a few directions set out for that big, structural improvement and expansion of primary care. But in this budget, we haven’t seen the meat put on the bones to, to fund that.
Finally, we have to get the most out of the health expenditure we do make.
We’ve got a piece out this week about how existing policies on the PBS for longer scripts can be implemented better so that governments and consumers get more savings from that. Getting more vaccines into people’s arms, who need it to avoid them coming to the hospital in winter.
But hospitals are the really big cost driver here. That’s where the expenditure’s growing faster and the budget also contained $1.8 billion more for public hospitals, but again, without really changing how we fund public hospitals or how we manage them, and there is a big national agreement that’s been rolled over for another year for hospital funding and for national health reform. And there was a review of the current agreement that said it’s really gotta change. But again, we haven’t seen that happen yet. So, these, I’d say are the, the three big buckets. Prevent the disease, manage the disease better in primary care, and then have a really strong focus on productivity for all the health spending that governments do.
Kate Griffiths: Aruna. A final question for you. Budgets are political statements of priorities. So, what message do you think this budget is sending?
Aruna Sathanapally: In many ways this budget is really steady and consistent with what this government has prioritized over its term of. Yeah, over, over the four budgets. So, I think it’s, it’s probably better to see it and contextualize it across a set of budgets rather than in isolation. This governments clearly prioritized the transition to renewable energy, which is sensible, should be front and centre.
It’s the biggest economic transformation any of us will ever see. And we are running behind. You know, while there haven’t been big flashy announcements, we’ve seen a set of incremental announcements, again, following that, that path. This government’s had a big focus on tackling gender inequality in the workplace.
There are a number of things to be done there. Previous budgets have looked at domestic and family violence. This budget has a number of measures in relation to women’s health, which has been neglected. So that’s really good to see. But also measures around childcare wages and aged care worker wages to support a recalibration there.
Also, I think what from our discussion today is that big focus on health and the underinvestment in, in primary care. So, when you stitch the various budgets together, you can see that kind of consistency of direction. What we haven’t seen is anything big and radical.
And so that sort of remains to be seen whether in the next term of government we’ll see some of those bigger or more radical changes or whether it’ll be more of this kind of incremental steps in a broadly consistent policy direction.
if there was any kind of clear priority that we saw, it was a focus on cost of living yet again and indeed that seems to be the tone going into this election, but really we need to lift up from looking at the immediate pressures, the immediate cost of living, and start thinking about how we tackle the big challenges that face Australia and that we have to tackle in order to leave good living standards for the next generation. And we lay all of these out in the Grattan Institute’s Orange Book leading up to the next election. And that’s really what we need to see in this election campaign.
Kate Griffiths: Thank you both. That’s all we’ve got time for today. But no doubt we’ll continue the conversation on many of these themes through the election campaign and beyond. Thank you for sharing your expertise with us, Aruna and Peter. If you’d like to learn more about Gratin Institute’s research, all our work is freely available on our website at grattan.edu.au.
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