Surplus of misery to unsettle Lucky Jim Chalmers

Jim Chalmers says the underlying cash surplus will now be bigger than forecast in May because of a stronger labour market and higher revenue. Picture: NCA NewsWire / Jeremy Piper

Canberra is saturated with revenue, thanks to inflation, surging commodity exports and a robust jobs market.

This is as good as it gets for Jim Chalmers: an underlying cash surplus for the current year, even fatter than the $4.2bn expected seven weeks ago when he delivered his second budget.

The story of that budget was an inflation-fuelled revenue bonanza fed by bracket creep on personal income tax and runaway company profits, especially among the earth extractors.

Since Josh Frydenberg’s pre-election cash splash in March last year, Treasury estimates the tax take will be $252bn higher across the four years.

The economy and inflation have worked their magic to bring in a surplus on Chalmers’ watch that will be more hefty than a rounding error.

But don’t be misled by the headline or the Treasurer’s spin about spending restraint.

Once you take out the current financial year, which reflects the end of crisis-era stimulus programs, spending grows by 1.8 per cent in real terms over the four years of forward estimates.

That’s a laudable effort given the excesses since the global financial crisis from both major political outfits. The Treasurer has banked a fair bit of the revenue upgrades, just enough for the ratings agency hard markers and more than the big spenders in Labor ranks wanted.

Still, the capital’s footprint will keep expanding, as deficits are embedded in the fiscal profile once the effects of the export super-cycle wash through.

There are vast commitments laminated into the federal budget because of population ageing, a more demanding electorate, post-Covid social forays, the green-energy transition and the slow boil of global insecurity.

The economy will lose momentum over the course of this year due to the Reserve Bank’s brutal monetary assault.

Treasury expects growth in gross domestic product in the financial year that begins this Saturday to be 1.5 per cent, less than half of the expansion in each of the two years we’ve just been through, putting us at the tail end of the pack in our region

The budget’s bottom line will steadily get worse, thus exposing the structural defects in the way we tax and the long-term commitments made on temporary revenues.

Naturally, the political pressure will intensify on the Albanese government to ease the pain, particularly on younger families coming off low-cost fixed mortgages, and as rising unemployment hits Labor’s traditional support base.

Parts of the economy are probably in recession already, pockets of retail and regions bypassed by local tourism; discretionary spending will dry up as mortgage costs soon eat up a record share of income.

Building up fiscal buffers for the next crisis is the clarion call from international monetary authorities.

Trumpeting a surplus, as rare as that has been in these debt-heavy times around the planet, is unlikely to get much traction in the Aussie heartland as the misery spreads this winter.