Record $22b surplus to come from ‘war and inflation’

Treasurer Jim Chalmers will deliver Australia’s largest budget surplus, and the first since the introduction of the iPhone, off the back of strong commodity prices and high inflation, with signs the government could deliver a second windfall this financial year.

Final budget figures for 2022-2023 will be unveiled on Friday showing the government gained a surplus of $22.1 billion. The treasurer said the government had delivered the surplus while also providing billions in cost of living relief for households.

Treasurer Jim Chalmers, pictured on budget day earlier this year, will reveal a record surplus on Friday.Credit: Alex Ellinghausen

“Our responsible budget management has not just delivered the first surplus in 15 years, it has also taken pressure off inflation, interest rates and the cost of living,” Chalmers said.

It is an enormous turnaround from the $77.9 billion deficit forecast for 2022-23 in the pre-election fiscal outlook from May last year, and a significant improvement from this year’s May budget forecast of a $4.3 billion surplus.

Earlier finance data showed the budget improvements had come from increased revenue from higher commodity prices and income tax.

The federal government said the final budget figures would show it banked 95 per cent of that increased revenue to its budget. Chalmers said that strategy has been “exactly right for the times and suited to the challenges we confront”, but warned there were tougher times ahead.

“Despite the surplus for 2022-23, structural pressures are intensifying rather than easing on the budget, and these will take more than one year or one parliamentary term to address,” he said.

“The Albanese government remains focused on dealing with the immediate challenges Australians are facing, while at the same time building a stronger, more productive and more resilient budget and economy.”

The last surplus – which was $19.8 billion – was delivered by Liberal treasurer Peter Costello for the 2007-08 budget. Since then, there have been 14 budget deficits, worth a combined $612.7 billion.

This financial year’s expected deficit of $13.9 billion could also turn into a surplus. When Chalmers delivered the 2023-24 budget in May, it assumed the price of iron ore would fall from $US117 a tonne to an estimated $US60 a tonne in March next year. This week, iron ore was still above $US120 a tonne.

Independent economist Chris Richardson said the government was able to deliver a record surplus due to “war and inflation”.

He said Treasury had overly pessimistic forecasts for a collapse in commodity prices, which have instead stayed high, due in part to the war in Ukraine, and similarly underestimated the impact of inflation on tax paid by families.

“Inflation takes from the pockets of the punters, and lines those of the taxman,” he said.

Richardson said Labor’s election decisions had increased spending by $61 billion across the four years to 2025-26 and increased taxes by $27 billion over the same period, which overall worsened the budget bottom line to the tune of $34 billion.

“The budget came good despite our politicians, not because of them,” he said.

“The government has adopted very weak rules for the budget – essentially promising not to spend all of the windfalls it receives.

“But China’s slowdown says the next decade will see budget tailwinds turn into headwinds, meaning the great ‘age of budgetary windfalls’ is fast coming to an end. To date, Australia doesn’t have a plan – or rules in place – to handle that.”

Cut through the noise of federal politics with news, views and expert analysis from Jacqueline Maley. Subscribers can sign up to our weekly Inside Politics newsletter here.