MYEFO: Soaring taxes to slash the national deficit, deliver second straight budget surplus
Australia is poised to record a second straight budget surplus, with the mid-year budget update revealing taxes on workers and companies will cut the deficit to just $1.1bn.
Australia is poised to record a second straight budget surplus, with the mid-year budget update revealing soaring taxes on workers and companies will slash the national deficit to just $1.1bn in this financial year.
The mid-year economic and fiscal outlook documents revealed a $12.8bn improvement in the projected bottom line for 2023-24 as part of a $40bn improvement in the nation’s financial position over the four-year forward estimates period.
As Jim Chalmers bats away calls to extend cost of living relief to struggling household, the Treasurer claimed credit for banking about 90 per cent of windfall revenue gains since the May budget.
The better news extends into the following financial year, with the expected deficit almost halved, from $35.1bn to $18.8bn, before blowing back out to deficits of $35.1b and $19.5bn in 2025-26 and 2026-27, respectively.
Treasury expects economic growth to slow sharply in this financial year, before a rebound in the 2024-25 as consumption recovers, in part thanks to an anticipated rate cut in the back half of next year.
“The Australian economy has shown resilience in the face of elevated inflation, higher interest rates and the volatile international environment, and is well positioned to grow more than all major advanced economies over the forecast period,” the MYEFO documents said.
The fiscal update extends an extraordinary budget turnaround over the past 18 months, as sky-high commodity prices, the breakneck pace of migration and booming jobs market have swelled government coffers.
The MYEFO papers reveal a $211bn cumulative improvement in the underlying cash budget measure since the pre-election outlook, reflecting actual and anticipated upgrades over the five years to 2026-27.
Lower deficits mean the government will borrow less, with net debt more than $80bn lower in 2023-24 at $491bn, or at 18.4 per cent as a share of the economy, versus a previous estimate of 22.3 per cent.
Net debt will rise to $624bn by mid-2027, or 21 per cent of GDP, against the May budget forecast of $703bn and 24 per cent.
Treasury said the recent national cabinet decision to extend the GST no worse-off guarantee will cost the commonwealth an extra $11.bn over three years from 2027-28, but did not include estimates of the additional expense from federal funding commitments to the states on health and hospitals.
The mid-year budget papers reflect Dr Chalmers’ insistence that a much hotter than anticipated September inflation report had not materially changed Treasury’s outlook for consumer price pressures, even as the Reserve Bank responded with a 13th rate hike on Melbourne Cup Day.
Treasury’s forecast for inflation to drop from 4.9 per cent most recently to 2.75 per cent by mid-2025 is substantially below the RBA’s forecast for a drop to 3.3 per cent over the same time frame, and assumes rate cuts in the second half of next year.
The budget predicts consumer price growth will slow even further to 2.5 per cent by June 2026 – the midpoint of the RBA’s 2-3 per cent target range.
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