There’s a glint in his eye, but Chalmers won’t use the S word

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Jim Chalmers has a glint in his eye when he is asked about a budget surplus – and that’s because he is just about to forecast a stunning return to health in the nation’s finances.

The treasurer is not claiming a surplus. Not just yet, at least. But he is heading towards announcing one on Tuesday night.

Treasurer Jim Chalmers talks of the budget being “near balance”.Credit: Alex Ellinghausen

Asked in an interview whether he is aiming for a surplus, Chalmers chooses his words with care.

“I want to put the budget on a much more sustainable footing,” he says. “And putting the budget on a more sustainable footing is entirely consistent with our efforts and our objectives to align good social outcomes with good economic outcomes.”

He does not use the S word but talks instead of the budget being “near balance” because the government will bank, rather than spend, the tax revenue gain that is coming from the booming export prices for coal, gas, iron ore and rare metals.

Chalmers and his budget co-pilot, Finance Minister Katy Gallagher, are clearly relieved now they have come to the end of the budget planning phase. They were full of smiles during a candid moment with some of their staff in Parliament House on Wednesday. And why not? They have improved the budget bottom line while funding promises such as a pay rise for aged care workers.

The surplus is likely to be small and will be an estimate, not a reality. The final number is less important than the sheer scale of the turnaround from the deficit of $77.9 billion forecast just before the election last May. That is an astonishing improvement.

There is an essential political calculation here for Prime Minister Anthony Albanese as well as Chalmers because they both know the danger of promising a surplus and failing to deliver. That is what happened a decade ago when Chalmers worked as an adviser to then-treasurer Wayne Swan.

Swan famously began his budget speech in May 2012 with these words: “The four years of surpluses I announce tonight.” None of those surpluses were delivered because forces outside Swan’s control forced down record commodity prices, slashed the tax revenue estimates and shredded the Treasury paperwork. Fate conspired against him.

But there is another lesson from history. Josh Frydenberg forecast a surplus in his first budget in April 2019 after becoming treasurer the previous year. The surplus was meant to come in fiscal 2020 and was swept away by the coronavirus pandemic, but the budget deficit was only $690 million in 2019 – in other words, very close to balance. Frydenberg could only regret not doing more to turn that into a surplus.

Josh Frydenberg’s “back in black” surplus line in 2019 would haunt him when the pandemic hit in 2020. Credit: Alex Ellinghausen

The budget is likely to fall back into deficit very soon – possibly next year. The warning about this has been loud and clear to ministers who wanted approval for spending measures in 2025 and 2026. They have been told there is a brief period of good news in the bottom line and it is followed by a return to red ink.

This sets up an obvious line of attack for the Coalition if the deficits deepen because it can reprise John Howard’s line against Labor in the 1990s – that it delivered “five minutes of economic sunshine” before the storms came. Another key point is that the budget will remain in structural deficit until there is serious reform in taxes and expenditure.

That is why the political calculation this year is so interesting. Albanese and Chalmers want to deliver a surplus while they can. They have a chance to achieve what the Coalition could not do in its nine years in power. Despite the risk of a dud forecast, they will take that chance.

Cut through the noise of federal politics with news, views and expert analysis from Jacqueline Maley. Subscribers can sign up to our weekly Inside Politics newsletter here.

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