Back-to-back surpluses a plus

In an economic climate of stubborn inflation and rising government debt, especially across the states, the Albanese government’s final budget outcome for 2023-24, to be released on Monday, is welcome. The full details of revenue and expenditure are yet to be seen, but they will show that Anthony Albanese and Jim Chalmers have achieved Australia’s first back-to-back budget surpluses in more than 15 years, since the Howard government’s budgets in 2006-07 and 2007-08. The final outcome of the 2023-24 budget will be a surplus of $15.8bn (0.6 per cent of GDP). It follows a $22.1bn surplus (0.9 per cent of GDP) in 2022-23.

At a time when the budget faces difficult economic headwinds – including a decline in revenue from resources exports – spending restraint, building surpluses and paying down debt are vital to future economic security. The value of revenue from resources and energy export returns peaked in 2022-23. But as economic conditions in China’s property and steelmaking sectors worsen, electric vehicle sales remain sluggish and markets are oversupplied with nickel and lithium, resources revenue is predicted to fall, the Department of Resources expects. Its September quarterly report, Geoff Chambers reports, forecasts resources revenue will fall from $415bn in 2023-24 to $372bn this financial year and to $354bn in 2025-26. Such factors make the budget more challenging when it is important to build up reserves to manage a future pandemic or financial crisis. In August last year, the Treasurer delivered his department’s Intergenerational Report. It pointed to hard choices ahead, with deficits projected to narrow into the 2030s, before expanding again from the 2040s onwards. The next generation of wage-earners, it warned, could face higher taxes to cater for an ageing population in a narrowing tax base unable to keep up with spending pressures.

The budget will also come under extra pressure as Australia’s worsening strategic situation demands much higher defence spending, which the government has back-end loaded to future years.

Governments must learn to live within their means, a reality that voters, accustomed to too many populist handouts and electoral sweeteners, will accept if the situation is explained properly. Successive budget surpluses are achievable, especially if other economic policy settings encourage productivity and growth. In the Howard years, despite heavy spending on family payments, Peter Costello delivered 10 surpluses from 12 budgets, providing for the establishment of the Future Fund.

To Dr Chalmers’ credit, the 2023-24 FBO is $72.3bn better than the $56.5bn deficit that was forecast for 2023-24 in the pre-election economic and fiscal outlook. It is also $6.4bn better than the $9.3bn surplus forecast in the May budget.

He attributes the improvement entirely to lower spending, over a period when the tax take has also been lower. That achievement matters and needs to be continued, by both major parties, regardless of which side wins the looming and subsequent elections. Given budgetary challenges, spending on public sector wages, aged care and childcare (including hefty wage subsidies from the public purse), and the National Disability Insurance Scheme need close scrutiny, with a view to reform.

For households and small businesses struggling to cope with elevated interest rates and the effect of inflation on the costs of goods and services, tight fiscal policy is one of the most constructive steps government can take in the fight against inflation. As Reserve Bank governor Michele Bullock said in June: “I think fiscal policy has been running a surplus for the last couple of years, so I’d say that has been helping.” In August, the bank also warned of “recent public spending announcements by federal and state and territory governments” fuelling demand. State borrowings are soaring, expected to reach more than $100bn this financial year, adding to the interest bills facing taxpayers. As well as putting its own spending in order, as the new FBO figures suggest, the Albanese government would do well to adopt effective federalism reforms to leverage spendthrift states to do the same.