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Personal reflections by Gene Tunny, Director, Adept Economics

The 2024-25 federal budget is highly consequential, as I discussed in a 2024-25 federal budget review I co-authored with my colleague at the Centre for Independent Studies, Robert Carling. Incidentally, The Australian‘s Policy Editor Tom Dusevic mentioned our paper in his latest article: Bipartisanship will always trump narrow ideologies on the path to prosperity.

Treasurer Jim Chalmers is bringing to fruition his vision of the ‘mission economy’, a concept he has borrowed from London School of Economics Professor Mariana Mazzucato. The Treasurer is pulling all the levers of government at his disposal to achieve the government’s mission of rapidly moving the economy toward net zero greenhouse gas emissions. The budget includes billions of tax incentives for so-called green hydrogen and critical minerals development.

It also includes tens of billions of ‘off-budget’ funding, revealed in the net investment in financial assets for policy purposes line item of the cash flow statement (Figure 1). This off-budget funding does not directly or entirely impact the headline budget balance and, hence, can be controversial.  

Source: Australian Government 2024-25 Budget Paper no. 1, p. 357. 

This off-budget funding, among other destinations, goes to government financial corporations that make loans to finance various projects consistent with the government’s policy objectives. For example, $19 billion is available for the Clean Energy Finance Corporation to make loans under the Rewiring the Nation policy. Other financing organisations include the National Reconstruction Fund Corporation. 

Investments in financial assets for policy purposes include loans to or equity injections into government-owned corporations such as Snowy Hydro, which is receiving $4.5 billion in loans and around $2.9 billion in equity injections over 2023-24 to 2027-28 (see Budget Paper no. 1, Table 3.4, p. 102). Additionally, investments in financial assets for policy purposes would include any financial investments the Government makes through various policy funds, such as the Housing Australia Future Fund. 

The heavy use of off-budget funding illustrates the current federal government’s extensive policy agenda regarding the transition to net zero, among other priorities. In its last budget, the previous federal government planned smaller, though still significant, investments in financial assets for policy purposes: an annual average of $8.4 billion over 2022-23 to 2024-26, as revealed in Treasurer Frydenberg’s last budget, compared with the current government’s annual average of $19.4 billion over 2024-25 to 2027-28. 

While serving the government’s policy agenda, using off-budget or extra-budget funds is not without risks. It can potentially erode transparency and accountability and threaten the government’s balance sheet. The government’s investments or loans for policy purposes, in particular, carry the risk of not being commercially viable. The government may accumulate significant debt to finance off-budget uses, and there is a potential for future write-offs. The increasing use of off-budget funds, therefore, calls for rigorous monitoring to protect the interests of taxpayers.

Incidentally, the latest episode of my Economics Explored podcast focuses on the risks of activist industrial policy. Please listen to it and let me know what you think. 

Published on 5 June 2024, Adept Economics Director Gene Tunny prepared this article. For further information, please email us at contact@adepteconomics.com.au or call us at 1300 169 870.