By CRAIG HOUGH, DIRECTOR STRATEGY & POLICY, AUSTRALIAN DAIRY FARMERS
The federal Treasurer Jim Chalmers faces the challenge of balancing geopolitical tensions, global economic uncertainty, the inflated cost of living and reducing government debt when he delivers his second budget on May 9.
In the October 2022 budget, nominal gross domestic product (GDP) was forecast to grow 3.25 per cent in 2022-23, reflecting high commodity prices, growth in employment and rising household consumption.
This growth in GDP provided significant tax revenue of more than $100 billion to reduce the nation’s budget deficit from $78 billion in 2022-23, based on the March 2022 budget, to $36.9 billion.
Unfortunately, this gain was forecast to be eroded over the forward estimates with the deficit increasing each year to $49.6 billion in 2025-26. This meant that net debt was forecast to continue to grow over the forward estimates, from $572 billion in 2022-23 to $766 billion in 2025-26.
This situation – in the context of the lowest unemployment rate in 50 years, near record terms of trade, low household debt as a percentage of GDP, the lowest competitiveness ranking in 25 years and near-record-high inflation – validates the need to bring the budget back to surplus.
Time to back more election commitments
For most sectors of the economy, including agriculture, the October 2022 budget resulted in funding for election promises and critical issues, with cuts to help with fiscal sustainability.
For agriculture, this included funding for biosecurity ($134.1 million), climate change ($28.4 million), drought ($20.8 million), energy efficiency ($62.6 million), telecommunications ($757.7 million), trade ($25.3 million), workforce ($218.7 million) and one of the government’s flagship investments, the National Reconstruction Fund ($15 billion), of which a portion is dedicated to food manufacturing.
These investments were offset by savings of $22 billion to the agriculture department, Australian Agriculture Visa, International Freight Assistance Mechanism, water infrastructure projects and the purchase of 49.2 gigalitres of water across seven catchment areas to help deliver the Murray Darling Basin Plan.
Although reprioritisation and repositioning of a budget is standard practice for a change of government, such decisions should not incur a net loss for a productivity-driving sector like agriculture.
In December 2021, Australian Dairy Farmers (ADF) released a federal election policy statement. It wanted this government to support 38 initiatives to advance the dairy industry. These covered the areas of nutrition, labelling, trade, competition, workforce, energy, regional development, manufacturing, climate change, water, environment, biosecurity, telecommunications and research and development.
Since the election on May 27, 2022, the government has announced a level of support for most of these requests. Only the government’s commitment to water buybacks for the Murray Darling Basin Plan and its ban on live sheep exports are inconsistent with the ADF statement.
Turning policy support into action, growth
Next week’s budget is an opportunity for the government to translate policy support for the dairy industry into action, and, in doing so, grow the value of agricultural production.
The government has worked to protect the sector from the threats of foot-and-mouth disease and lumpy skin disease in Indonesia. Many of these efforts were urgent or immediate initiatives with time-limited funding. Now, the work needs to be consolidated with other parts of the National Biosecurity Strategy for delivery under a sustainable funding model.
In October 2022, the government announced Australia would sign the global methane pledge, seeking to reduce methane emissions by 30pc by 2030. The government needs to provide significant investment for the development, commercialisation and adoption of the abatement technologies, if Australia is to achieve this target.
The Minister for Agriculture’s Jobs Taskforce has been working on agriculture’s priorities for the government’s jobs white paper, scheduled for release in September. The urgency of dairy’s critical worker shortage demands that some of these priorities need to be announced in next week’s budget.
High dairy production input costs have offset high milk prices, meaning increased profitability has not been sufficient to stop the decline in milk production and farm numbers.
Electricity is one of the many increasing costs that must be tackled if inflation is to be brought under control. Providing relief in this area would benefit small businesses, as well as Australian households.
Above average rainfall in the past 12 months caused significant deterioration in roads in most dairy regions and led to reduced agricultural production – reaching far beyond dairy’s footprint. State and local governments require significant federal government funding to repair and upgrade these assets and mitigate the damage. Major dairy transport routes should be a priority.
A recent Productivity Commission report, Advancing Prosperity, demonstrated the need for the Australian economy to improve productivity to maintain international competitiveness and grow wealth across the nation. It acknowledged agriculture as a key driver of productivity. ADF strongly supports the implementation of the report’s recommendations contributing to an improvement in dairy productivity.
Australian agriculture has a bipartisan target of achieving $100 billion of production per year by 2030 (it is currently at $81 billion). How well the budget supports this vision will be its measure of success.