Second budget surplus ‘within striking distance’

With the commonwealth squirrelling away tens of billions thanks to the booming jobs market and high commodity prices, Jim Chalmers flagged the potential for further cost of living relief.

Jim Chalmers says the government’s economic management is reducing the pressure on inflation.

Soaring tax from workers and companies has pushed the nation “within striking distance” of a second straight surplus, Jim Chalmers says, after the mid-year budget update revealed a wafer-thin deficit of just $1.1bn expected for this ­financial year.

As the Treasurer claimed credit for banking about 90 per cent of windfall revenue gains since the May budget, the mid-year fiscal and economic outlook predicted a $12.8bn improvement in the projected bottom line for 2023-24 as part of a $40bn improvement in the nation’s financial position across four financial years.

With the commonwealth squirrelling away tens of billions thanks to the booming jobs market and high commodity prices, Dr Chalmers did not rule out further relief for households struggling with high inflation and punishing Reserve Bank rate interest rate hikes. “We will consider the budget … and economic conditions between now and the May budget to see whether we will provide more cost-of-living help,” he said.

“But I say to every Australian under cost-of-living pressure right now, one of the best ways that we can get downward pressure on inflation, which is smashing household budgets, is to provide the type of responsible economic management which is a feature of this budget update.”

The better budget news extends into the next 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.

MYEFO listed $5.3bn in extra net spending over four years as a result of policy decisions taken since the May budget, with the government claiming almost all of that increase was due to “unavoidable” spending.

These included an extra $492m in 2024-25 for the National Disability Insurance Agency, $161m over four years to clear visa backlogs, and $1.5bn in lost income tax revenue as a result of fewer foreign workers following the cancellation of the pandemic event visa.

With no major policy announcements, Dr Chalmers said “this update is effectively a stocktake rather than a long list of brand new measures”.

There was, however, a surprise 15 per cent hike to passport fees from the middle of next year, expected to raise $349m over three years, as well as $500m in extra revenue over four years from a decision to not let individuals claim interest charged on debts owed to the Taxation Office.

That allowed Treasury to let 88 per cent of the $44.8bn in budget improvements from economic factors such as higher tax receipts – so-called “parameter variations” – to fall to the bottom line.

Ai Group chief executive Innes Willox said the rapid improvement in the outlook for debt and deficits had cleared the way for the government to “honour its promise” and deliver the legislated stage three tax cuts from mid-next year.

He said despite upcoming tax relief, Treasury was still predicting a substantially higher income tax take over the four-year forward estimates period, and easing the income tax burden on workers would provide a much-needed boost to growth through 2024-25.

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.

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 extra expense from federal funding commitments to the states on health and hospitals.

Beyond the substantial near-term fiscal improvement, the longer term picture remains one of recurrent deficits virtually unchanged from the May budget, underlining the challenge ahead for this and future governments.

The structural deficit is slightly wider, at 0.3 per cent as a share of the economy, versus 0.1 per cent estimated six months earlier.

Deloitte Access Economics partner Pradeep Philip applauded the decision to bank windfall tax gains but said a challenging medium-term outlook meant “government must put the foot down on the reform accelerator”.