One big cost that won’t be counted in mid-year budget update

A multi-billion dollar cost to the budget bottom line won’t be included in claims the Treasurer has banked 92 per cent of surging government tax collections.

New spending measures to help struggling households have been shunned in favour of fixing the budget bottom line as Treasurer Jim Chalmers looks to bank soaring government tax collections instead.

The mid-year budget update, to be released on Wednesday, is expected to show 92 per cent of revenue upgrades over the forward estimates will go towards paying down debt, rather than towards additional spending.

But the government’s decision to fund a 15 per cent wage increase for 250,000 aged care workers at a cost of $11.3bn won’t be included in measures of government spending, meaning the saving of upgraded revenue will ultimately be less than the Dr Chalmers will announce.

This is because the taxpayer funded pay rise that was awarded by the Fair Work Commission, after being strongly backed by the government, is treated as a “variation” under budget processes rather than the government’s own decision.

The federal treasurer will unveil the mid-year budget update on Wednesday, but one big cost won’t be counted in government expenditure. Picture: NCA NewsWire / Martin Ollman

Despite being ultimately accounted for in the budget bottom line, the cost of aged care pay rises will not be taken into account in Chalmers’ vow that 92 per cent of the revenue upgrades are being banked.

The upgrade in government revenue is thanks to a boom in the amount paid in company tax as commodity prices for iron ore and coal have been far higher than anticipated, and increased personal tax payments from a near-record number of people in work.

Cost of living relief set to be limited

The move to save, rather than spend, is set to prove controversial as households face an ongoing cost of living crunch and borrowers face soaring mortgage repayments after the Reserve Bank’s punishing round of rate hikes.

In the weeks leading up to the budget update, Dr Chalmers has fielded demands for additional cost of living relief, and in a rare sign of disunity, from backbenchers in his own party.

But the treasurer has hosed down any expectations of further support, pointing to the state of the budget which is, according to the MYEFO, still expected to record a deficit this financial year.

Without additional expenditure, Dr Chalmers said the budget wouldn’t add to inflation, which is running at 4.9 per cent on most recent measures.

“By returning the majority of revenue upgrades to the budget, we’re helping to take pressure off inflation, get debt on a better trajectory, and avoid billions of dollars in interest costs,” he said.

A 15 per cent pay rise to aged care workers over 4 years won’t be accounted for in measures attributed to government spending. Picture: Supplied

Rather than one-off support measures, a combination of lowering inflation and stronger wages growth appears to be the government’s preferred option to deal with the community’s cost of living concerns.

However, with price pressures expected to ease further in the months ahead as the delayed impact of rate hikes flow through the economy, Dr Chalmers has foreshadowed there is likely to be relief in the next budget, due May 2024.

“As we get closer to the budget in May, if there’s more that we can do, which is consistent with our budget constraints and is right for the economic conditions at the time, … we’re prepared to contemplate it,” Dr Chalmers told reporters in Canberra last week.

MYEFO is also set to show interest repayments will overtake the NDIS to become the fastest growing area of government spending and will balloon to $80bn more over the next decade than was forecast in the budget earlier this year.