Governance Institute welcomes federal budget cybersecurity boost – but lack of action on climate change disappointing

A major cybersecurity boost of almost $9.9b announced in tonight’s federal budget has been welcomed by Governance Institute of Australia as a step forward in tackling an increasingly complex and growing threat.

The ‘cybersecurity and intelligence’ package will be rolled out over 10 years and will significantly add to Australia’s capacity to counter cyber threats.

It’s a welcome and much needed funding injection for an increasingly concerning issue, particularly as geopolitical tensions rise, Governance Institute of Australia CEO Megan Motto said tonight.

“Governance Institute welcomes this substantial funding towards combating cybersecurity,” Ms Motto said.

“It is essential that Australia keeps pace with the changing geopolitical situation in order to combat cyber threats.

While the budget’s focus on cybersecurity is welcomed, the lack of focus on climate change is surprising and the silence on a national anti-corruption watchdog is disappointing, Ms Motto said.

“It’s certainly a relief that the budget seems to no longer be in emergency response mode, instead casting forward and rebuilding. But with that forward planning there needs to remain a firm focus on climate change, particularly considering continuing natural disasters.”

We break down the key governance and risk announcements – and takeaways – from the 2022 federal budget:

Cybersecurity

A significant investment in strengthening Australia’s cybersecurity has been announced tonight, with $9.9b over 10 years earmarked.

The funding will double the size of Australia’s Signals Directorate and significantly increase its capability to combat cyber threats.

The key goals of the Signals Directorate will be to deliver a Resilience, Effects, Defence, Space, Intelligence, Cyber and Enablers package (REDSPICE).

The new package is also set to offer opportunities for employment and partnerships with educational institutions in the areas of data science and analysis, artificial intelligence, cyber security and ICT engineering.

“The geopolitical situation is changing and it’s critical that Australia is able to keep pace with global developments,” Ms Motto said.

Climate change

There was nothing substantive announced in tonight’s budget in relation to climate change, indicating a very clear lack of strong policy and funding direction on this increasingly imperative issue, Ms Motto said.

“We now have daily reminders of the detrimental impact climate change is having on our country so there is simply no further excuse for delays.”

Digital economy

The Federal Government has announced $130.1m over four years for the ongoing roll out of the Digital Economy Strategy.

To “drive digital transformation” this funding includes $38.4m over three years, plus $12.6m per year from 2025-26 to roll out initiatives related to the Inquiry into the Future Directions for the Consumer Data Right.

“Australia has taken some great strides recently on technology, finally moving into the 21st century on items such as electronic and hybrid AGMs. This will continue to keep up that digital focus,” Ms Motto said.

Deregulation and modernising business communications

Fees attached to registry services will be reformed with $480.5m funding for the Modernising Business Registers initiative.

The Federal Government says in the budget papers: “This will simplify registry compliance obligations, improve the currency and accuracy of registry information and promote transparency and counterparty trust in commercial activities.”

Privacy

Funding of $17m over two years has been announced for the Office of the Australian Information Commissioner “in undertaking its privacy and regulatory functions, including in relation to social media and other online platforms.”

Aged care

The Federal Government has announced $468.3m for further implementation of their response to the aged care royal commission. This adds to the $17.7b funding announced in last year’s budget.

“It is so important that this hard-hit sector receives the support and funding it so desperately requires,” Ms Motto said.

“The years ahead will be tough, even when the immediate impacts of the pandemic eventually subside.”

Commonwealth Integrity Commission

With integrity, transparency and accountability key tenets of good governance, there was a hope that this year’s budget would include long overdue funding for a Commonwealth Integrity Commission – but again, there has been no mention of this.

Draft legislation to establish the Commission remains stalled in a very long-term consultation process.

Governance Institute has made a submission advocating strongly for the establishment of a Commonwealth Integrity Commission. But all continues to remain very quiet on this front.

Workplace culture and diversity

Following the release of the Respect@Work report in 2020, which found sexual harassment to be a pervasive issue in Australian workplaces, the Federal Government implemented several changes to address this issue. This looks set to continue with tonight’s budget putting aside $4.1m to roll out recommendations from the report.

This includes $2.6m to establish an Office of Parliamentarian Staffing and Culture and preparatory work for an Independent Parliamentary Standards Commission.

Governance Institute recently lodged a submission discussing changes to the Sex Discrimination Act and the possible introduction of a specialist regulator.

“We welcome this evening’s announcement, despite the modest funding amount that has been earmarked and hope these initiatives will help keep the spotlight on these important issues,” Ms Motto said.

To delve further into the key issues and outlook this year, Governance Institute of Australia spoke to two leading economists, ANZ Research’s Senior Economist, Felicity Emmett and Bendigo and Adelaide Bank’s Head of Economic and Market Research, David Robertson.

Compared to previous federal budgets, what are the major changes we are seeing in this year’s budget and why?

Felicity: The Federal Government is shifting its fiscal strategy, breaking from the recent pattern where the fiscal improvement from the economic outlook has been ‘spent’ in various ways. In this budget, the government is largely allowing the stronger economic outlook to flow through to the bottom line, ‘banking’ more of the economic improvement and shifting the focus a little more towards fiscal repair.

That said, fiscal policy settings are still stimulatory for this stage of the economic cycle. And this is clearly a pre-election budget. In this respect, the government has attempted to address cost of living concerns, as global inflationary pressures hit household hip pockets.

While the government has one eye on fiscal repair, the budget does not represent a marked tightening in policy. Government spending as a share of GDP is set to stay well above the long-run average of 25% of GDP throughout the forecast period. This coincides with the unemployment rate currently at 4% and expected to drop into the threes imminently. On the surface, fiscal policy may appear to be tightening quite sharply, but the reality, given the strength of the economy, is this budget clearly represents stimulatory fiscal settings – just less so than before.

David: The primary difference between this year’s budget and the ’21 vintage is the improved fiscal position (thanks to a stronger economic outlook, and higher commodity prices) to the tune of almost $100b, and therefore lower projections for debt/ GDP. (See tables at end of article.)

Around $73b of this windfall has been ‘banked’ making our AAA credit rating secure and lower deficits over the forward estimates; but still no sign of a surplus for the foreseeable future. Of the windfall allocated to spending and policy announcements, the focus is on addressing higher living costs, skills shortages, housing affordability and a greater share of infrastructure spending for regional Australia.

There was also naturally an emphasis on defence, energy and health care, but the most tangible differentiator from last year was moving from a pandemic induced emergency response (with very high fiscal support) to stabilising and then reducing debt levels, as a ratio of GDP.

Are the main initiatives likely to have the desired outcomes?

Felicity: In a similar pattern to previous years, there have been extensive leaks of likely policy changes in the lead up to the budget. With the focus on cost-of-living relief, cuts in fuel excise and cash handouts for low-to-middle income earners and pensioners will all help ease household budget pressures at a time of record high petrol prices and rising food costs.

David: The budget appeared to achieve the aims of fiscal responsibility (banking a sufficient share of the economic and commodity windfall) while providing support to households in relief from rising living costs, via the six-month cut of the excise duty on petrol, the extension and increase of the middle to low-income tax offset, and other short-term measures, including the $250 one-off payment to pensioners and welfare recipients.

The success of the initiatives in addressing housing affordability, wages growth and lifting consumer confidence will take a while to be confirmed, but in balancing the need to return to a sustainable debt profile versus addressing short term inflation challenges the budget deserves a pass mark – albeit with the ambitious assumption that unemployment will remain below 4% for another two years.

A quick snapshot on how Australia is currently faring — and our outlook

Felicity: The Australian economy has bounced back well from the COVID-19 disruptions. On international comparisons Australia had a milder recession and has bounced back more strongly. Both fiscal policy and monetary policy has been very supportive, and as a result the economy is set to grow strongly through 2022.

Strong income support during the shutdowns has left households cashed up and ready to spend. Consumers are set to be a key driver of the strength in the economy over the next year or so, particularly given the build-up of savings. Household spending is currently underpinned by a very strong labour market, with unemployment already below pre-pandemic levels and set to fall to a 50-year low this year.

The key question for the period ahead is how households manage higher interest rates. With a large accumulation of savings, and a better outlook for wages growth than we’ve had for many years, we expect that consumers will be able to weather the increases in mortgage repayments quite well. There is a risk, however, that the lift in mortgage rates could weigh more heavily on discretionary consumer spending than we currently expect given that more than one million borrowers have never experienced a rate hike.

Looking further afield, geopolitical issues may also become a headwind. While the war in Ukraine is first and foremost a tragedy in terms of the human cost, there will also be economic costs. At this stage the main channel of transmission is through commodity prices, and on this front Australia has been fortunate to be a key exporter of many of the commodities where prices have lifted in the wake of the invasion. This will boost mining and agricultural profits and in turn lift government revenues, over time helping the effort of budget repair. At the same time, though, the rise in oil prices is pushing up costs for households and businesses and have the potential to weigh on spending.

David: The domestic economy is performing very strongly on jobs growth and demand but faces similar challenges to the rest of the world around rising inflation and input costs, and therefore rising interest rates through this year and next.

The unemployment rate is down to 4% and should be in the threes within a month or two, its lowest level since 1974 – and the combination of tight labour markets and elevated household savings should translate to strong domestic spending via retail activity and a rebound in tourism.

The challenge however comes from the likelihood that interest rates will be around 1.5% higher in a year from now, so to what degree this slows growth, business investment and (perhaps via the property market cycle) sees a fall in consumer confidence and perhaps a rise in unemployment later in 2023 is yet to be seen. Ahead of then we should experience GDP growth of 4 to 5% this year, and strong demand for labour.