$20bn budget bonanza to pressure PM on cost-of-living

The final surplus for 2022-23 could be five times higher than that predicted in the May budget, independent economist says.

Federal Treasurer Jim Chalmers says the government is largely banking extra revenues. Picture: Dan Peled / NCA NewsWire

The budget surplus is on track to hit about $20bn for the past financial year after official government figures revealed a “spectacular” improvement in the commonwealth’s bottom line weeks after Jim Chalmers’ May budget.

Independent economist Chris Richardson said the final surplus for 2022-23 could be as much as five times higher than the $4.2bn predicted in the May budget.

This would amount to a ­remarkable $52bn turnaround from the underlying cash deficit of $32bn recorded in the previous ­financial year.

As Australians brace for massive increases to power bills and as the prices of many essentials climb at double-digit rates, the ­Albanese government is likely to come under increasing pressure to spend the extra cash on cost-of-living relief, despite the Treasurer this week pouring cold water on further household assistance.

Mr Richardson’s prediction came after government financial statements released on Friday showed commonwealth revenues running $19bn ahead of spending in the 11 months to May, thanks to a flood of tax receipts from a booming jobs market and elevated commodity prices.

The result was $11.5bn ahead of expectations when Dr Chalmers handed down the budget on May 9. The federal budget is handed down in early May with the latest economic data available, and Treasury predicts the outcome of the final two months of the financial year. The figures for the entire 2022-23 financial year will be released in the coming months.

On Wednesday, Dr Chalmers said the surplus at the end of the ­financial year would be “significantly” higher than expected when the government handed down the budget, but he declined to release a new figure.

Finance Minister Katy Gallagher said on Friday the latest update revealed that the nation’s finances would be in the black for the first time in 15 years.

“With one more month of data to come in, the monthly financial statements show that we’re tracking towards a stronger surplus than forecast in the May budget thanks to the responsible, methodical approach we’ve taken to managing the budget,” Senator Gallagher said.

“This will help us to take some of the heat out of the inflation challenge in our economy, rebuild our fiscal buffers and clean up the mess left to us by the Coalition.”

Opposition Treasury spokesman Angus Taylor said Labor had inherited a rapidly rebounding economy, and the latest fiscal improvement could be explained by conservative forecasting.

“A drover’s dog could have delivered a surplus this year,” Mr Taylor said.

“The challenge for Labor is whether it can deliver a path to surplus over the forward estimates. Labor’s only plan is to drive the budget back into deficit.”

The $11.5bn improvement in the financial year to date was off the back of tax receipts coming in $8.5bn higher than expected, at $580bn in the financial year to May. Government payments came in $3bn below forecasts at $561bn, the Finance Department statements showed.

If a $20bn surplus is realised, it would be equivalent in dollar terms to the $19.7bn surplus in 2007-08 – the nation’s last – albeit it would be smaller as a share of a bigger economy.

Mr Richardson said the fiscal update “blasts apart the (May 9) budget in just a handful of weeks”.

Such a large variation in such a short period of time did not reflect a vastly different set of economic circumstances, he said.

Instead, it showed the Albanese government had been determined to avoid embarrassment and ensure the projected surplus came to pass. “You always knew that they had wriggle room, but it’s pretty clear now that it’s spectacular wriggle room,” Mr Richardson said.

He said the official update showed “absolutely barn-burning revenues”, as personal and company tax revenues surged to record highs.

“In the grand scheme of things it doesn't change the narrative of ‘good now and challenging later’. But it does mean that the ‘good now’ is spectacularly good.”

Speaking in Melbourne on Friday ahead of the figures being released, Anthony Albanese said his government’s fiscal prudence helped deliver a budget surplus. “A turnaround from a projected $78bn deficit one year previously, to a surplus in excess of the $4.2bn we projected last month, is an extraordinary achievement in the face of $1 trillion of debt inherited from the last government,” the Prime Minister said.

Despite making a virtue of banking extra revenue, the Albanese government this month announced $2bn in new money for the states and territories to boost social housing, in an ultimately unsuccessful concession to gain the Greens’ support for Labor’s $10bn Housing Australia Future Fund legislation.

A vote on the HAFF legislation has been delayed until parliament returns in October.

With bigger surpluses, Australia’s liabilities are also set to come in substantially below the levels outlined in the recent budget.

Net debt was $517bn as at the end of May, already well below the $549bn estimate for June 30 and, with a larger surplus in sight, likely to come in lower again in the final accounting.

Mr Richardson said it was time for Labor to ditch its repeated and “embarrassing” rhetoric around the “$1 trillion” gross debt figure it had inherited from the former government.

Treasury has projected the budget will slip back into the red in the coming financial year, with an estimated deficit of $13.9bn in 2023-24.

ANZ senior economist Adelaide Timbrell said “while a surplus in the recent financial year is a great result for the government, there are going to be a fair amount of headwinds in the next financial year”. The impact of the most aggressive Reserve Bank rate hike cycle in a generation will crush spending and cut into GST collections, she said.

Those structural pressures may prove more intense than suggested in the May budget, particularly if the $74bn in projected savings from slowing runaway growth in the cost of the National Disability Insurance Scheme is not achieved.