Understanding the budget cycle
Federal Treasurer Jim Chalmers recently delivered the new Labor Government's first budget. Despite a tough economic outlook, there’s a lot to like for the social purpose sector.
By Neil Pharaoh
The second version of the 2022/2023 Federal Budget has been released by the Labor government. While not usual to have two budgets for the same year, election timing and budget cycles combined this year for Labor.
Early hints were for a budget with substantial numbers of “re-allocations”, which means moving funds from one location to another as well as “cutting waste”, particularly a number of politicalised projects which look to have been cut – think carparks and pork barrelling in a number of electorates. So, what does this mean?
Across an electoral term, we can expect the following budget cycle – the first budget is typically where both cuts, increases in taxes or similar is undertaken. This is because it is furthest from the election, and politicians are hopeful that any cuts will be forgotten in two or three-years’ time when the next electoral cycle comes along. Add to that, the first budget of a new government also starts to show the priorities and focus of the government, typically by means of funding any election commitments they would have made, or at least starting funding for election commitments.
First budgets are also the chance for the government to reset some key measures - for instance, in this budget we saw a focus on wellbeing indicators, which the government will hope will improve over the coming few years. In prior Liberal/National first budgets we have seen a focus on debt, to try and align to their narrative around the Labor party.
In summary, we expected (and saw) three things in this first budget. First, cuts or higher taxes, though re-allocations or cutting waste. Second, some new measures aligned to election commitments, often with timelines across the next few years (known as forward estimates). Finally, new measures to help set the “tone” for the coming few years – al la, wellbeing and fee free education measures.
What happens if your organisation missed out on funding in the first new government budget?
Firstly, do not despair! Realistically, new spending is primarily directed to election commitments in the first budget of the cycle. Secondly, remember that there will be a budget in May next year, and the moment this budget is handed down, public servants will already be swinging into doing both a mid-year update around December or January, as well as preparing for a new budget next May. Yes, you read it right, the new budget process will commence almost immediately, with its crescendo going to the expenditure review commitment as a near final document around March next year. This means you need to start positioning now for next May’s federal (and state) budgets.
What will happen in the second budget of the election cycle?
This will be May 2023 for the 23/24 budget year, and this will return to a far more ‘normal’ budget.
Labor would have had a full financial year on treasury benches; it will hope some of its key measures start to turn position. For social purpose organisations, this means playing very close attention this year to the wellbeing measures, as I have a suspicion Labor will lean more into them in their second and third budgets, and fund projects which contribute towards them. Second year budgets are seen as the “blandest” of the cycle, a steady as she goes process to calibrate year one and set the groundwork for their third budget set for May 2024.
Remember our next election will need to be held before mid-2025, so the May 2024 budget will be the final full budget before the election. The timing of the election may mean we get a May 2025 budget – bought forward to March if I was a guessing person.
The May 2024 budget will very much set the tone for the government to move into election mode. There will be an increase of expenditure and key programs, and hopefully a remarkable story for the government around its new wellbeing measure – it is really important to remember these cycles when planning your next three years government engagement horizon.
Long and short, every budget cycle starts almost a year in advance, and governments think of their budgets across an electoral cycle. You need to map both budget cycles (pre-work, pre-budget, budget, post-budget) plus election cycles (first, second and final budget).
The key take outs for social purpose organisations is to actually have a read of the budget, understand the messaging and framing, see where the government is starting to frame priorities for the coming years, and then invest the time, with your leadership team or board to align what you do, with government agenda and priorities.
This article first appeared at Pro Bono Australia as part of Tanck's fortnightly column, Happenings on the Hill.
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