Budget to get worse before it gets better, and with higher taxes, under Dutton plan

Opposition Leader Peter Dutton will go to Saturday’s election promising larger budget deficits over the next two years before a sharp turnaround in the nation’s finances driven by higher tax collections on vapes and workers, after revealing the full extent of the Coalition’s policy agenda.

While declaring the budget would be $13.9 billion better off over the next four years, with gross debt almost $41 billion lower than forecast by the government, shadow treasurer Angus Taylor and finance spokeswoman Jane Hume confirmed larger deficits in the coming financial year and 2026-27.

Shadow treasurer Angus Taylor and Coalition finance spokeswoman Jane Hume.Credit: Alex Ellinghausen

The deficit for 2025-26, which Treasurer Jim Chalmers forecast in March to hit $42.1 billion, would under the Coalition climb by $5.6 billion to $47.7 billion. The larger deficit is due mainly to the Coalition’s cut to fuel excise which will cost $7.4 billion next year.

In 2026-27, the deficit would be $2.3 billion worse than the March forecast.

The Coalition is expecting a major turnaround in 2027-28 with an improvement of $9.5 billion (on a forecast deficit of $37.2 billion) and then a $12.2 billion strengthening in 2028-29.

It estimates total gross government debt will be $40.8 billion lower over the next four years, but $3.4 billion worse off in the coming financial year. On either the government’s forecasts or the Coalition’s, gross debt will still be around $1.2 trillion by the end of the decade.

Taylor, pressed on whether the larger deficits in the near-term would add to inflation, said the Coalition’s policies would make Australians’ lifestyles more affordable in the short term while improving the overall budget over the longer term.

“It is important for inflation because a lot of what drives inflation is expectations. You will see substantial anti-inflationary measures in place,” he said.

Higher taxes will do much of the Coalition’s budget heavy lifting.

The forecast $12.2 billion improvement in 2028-29 alone includes $7.4 billion from not proceeding with the government’s planned personal income tax cut, the end of a fringe benefit tax concession on electric vehicles ($1.3 billion) and $1.2 billion from taxes on vapes.

Offsetting it will $2.4 billion in lower taxes on capital gains tax within large superannuation accounts, $710 million in savings for first home buyers who claim mortgage interest tax deduction and $907 million from a permanent 30 per cent instant asset write-off for small businesses.

Throughout the campaign, Dutton has attacked what he has called Labor’s “ute tax” – new fuel efficiency standards that begin from July 1. The Coalition will abolish these, and expects to collect almost $600 million in additional revenue by mid-2029 as drivers pay more fuel excise.

It forecasts an additional $361 million through higher passenger movement charges for people leaving the country.

The Coalition’s largest saving, of $17.2 billion over four years, comes from eliminating 41,000 workers from the federal public service.

Hume said this would no longer include voluntary redundancies, despite campaign spokesman James Paterson saying they were part of the plan last month.

Hume also opened the door to reducing the headcount outside Canberra despite Dutton’s claims that all jobs would come from the national capital’s workforce. She said the policy would be focused on Canberra but refused to rule out job losses in other states.

According to the Australian Public Service Commission, there were 69,438 employees based in Canberra in December 2024. Reducing that number by 41,000 would take the workforce to 28,438.

But Hume said there were about 110,000 employees.

“Without threatening essential services, without touching natural security and front-line services, we can reduce the size of the public service by 41,000 over five years, through natural attrition and a hiring freeze,” she said.

Foreign aid will be cut by $813 million, although spending on the Pacific, Timor-Leste and Indonesia will be ring-fenced.

The Coalition’s plan to cut permanent migration by 45,000 would cost the budget $4.2 billion, as skilled migrants pay more tax than they use in government benefits.

Cutting student numbers by 30,000 more than Labor would cost $389 million, offset by a cut in humanitarian visas by 6250 a year, which would deliver a budget gain of $1.5 billion.

Those policies, which are costed, relate to cutting about 81,250 visa places across the permanent and temporary intakes.

Taylor, when pressed on whether they left gaps in the Coalition’s promise to cut net migration by 100,000 more people than Labor, denied there were any shortfalls.

“The full impact of our plans, which we’ve been laying out over recent months, over a longer time period than that, are included in these numbers, across ... permanent migration, humanitarian, student visas, and that adds up to 100,000 [people] over the next 12 months,” Taylor said.

While the Coalition will wind up several government off-budget funds, including its $10 billion Housing Australia Future Fund, the opposition’s nuclear energy policy would require $36.4 billion in government debt by 2035 and a total of $118.2 billion by 2050.

Earlier this week, ratings agency S&P Global warned the nation’s AAA rating was at risk if election promises resulted in larger structural deficits and debt than expected.

Under the Coalition’s plans, cumulative deficits by mid-2029 would be about $138 billion. Under the government, which released its costings on Monday, cumulative deficits would be about $150 billion.

Chalmers immediately attacked the costing, labelling them a joke and a sham while noting the Coalition had attacked the government’s budget but was now promising larger deficits.

“They are a costings con job and what they show is if Peter Dutton wins the election on Saturday, Australians will pay higher taxes. There will be savage cuts to make people worse off, and they’ll still be bigger deficits over the next couple of years,” he said.

The Community and Public Sector Union said it would take a decade, based on the current attrition rate within the public service, for the Coalition to reduce the bureaucracy to its target.

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