Deloitte revises its federal budget estimate from deficit to surplus

Company and personal tax revenue is expected to produce a $14.5bn budget turnaround from the forecasts of last December, Deloitte Access Economics data predicts.

Deloitte Access Economics expects the government to report an underlying cash surplus of $13.5bn for the 2023-24 financial year.

Soaring company and personal tax revenue is expected to produce a $14.5bn budget turnaround from the mid-year economic forecasts of last December, according to the latest Budget Monitor by Deloitte Access Economics.

The consulting firm now expects the government to report an underlying cash surplus of $13.5bn for the 2023-24 financial year, compared to the $1.1bn deficit for the year forecast last ­December.

The firm expects that the company tax take will be $14.5bn larger than expected in the mid-year economic forecasts, where Treasury had already upgraded its company tax revenue forecast by $9.2bn.

“Company taxes are delivering windfalls because Treasury’s commodity price assumptions are once again proving too conservative,” it says.

“The resilience of the labour market means taxes on individuals have also outperformed forecasts.”

The firm expects revenue from personal taxes will come in $5.6bn higher than the mid-year economic forecast, where the Treasury had already upgraded its revenue expectations by $10.7bn.

Deloitte says these windfall gains will be offset by writedowns in other sectors, with taxes on superannuation funds and the petroleum resource rent tax ­“underperforming.”

Costs associated with new policy measures announced this year were expected to add another $6bn to the forward estimates.

The firm has called on the federal government to step up its focus on tax reform and spending control, particularly in the National Disability Insurance Scheme, in the budget.

It warns that the fiscal outlook beyond this year is “increasingly dire” and the government needs to do more than just bank the unexpected revenue surpluses.

With the budget expected to fall back into the red next year, Deloitte says there is a need for a “credible action plan” to rein in the “enormous cost of the NDIS” as well as a new look at the tax system to reduce its “heavy reliance on personal and company tax”.

“The current string of surpluses is very likely to stop at two,” Deloitte Access Economics partner and report co-author Cathryn Lee said.

“With revenue projected to go backwards in 2024-25 as the redesigned Stage 3 income tax cuts come into effect and cyclical headwinds hit company taxes, the budget will be back in the red next year even if spending holds steady as a share of GDP.”

Deloitte Access Economics partner and co-author Stephen Smith said the fiscal position looked “increasingly dire the further out one looks”.

“With a set of known spending challenges looming on the horizon – and the likelihood of plenty of currently unknown spending challenges, too – the budget needs reform on both the tax and spending side to shore up Australia’s fiscal health for the long term,” he said.

He said there was “still no credible action plan, for example, to suture the extraordinary growth in the cost of the National Disability Insurance Scheme, while the budget allocation earmarked for defence has swollen remarkably”.

He said the Australian tax system was “not fit for purpose”, largely because of its heavy reliance on personal and company income tax.

“Australians will need to pay more tax in the years ahead in order for governments to afford the raft of long-term spending promises made by both major political parties,” he said.

Originally published as Deloitte revises its federal budget estimate from deficit to surplus