Budget strength fails to deliver interest rate relief

Australia’s budget surplus is one of the best in the world, but it’s not all good news for the economy.

Back-to-back budget surpluses sees Australia climb international rankings. Picture: NewsWire / Martin Ollman

Australia’s budget outlook has been given a tick by the International Monetary Fund, ranking third in the world as a share of GDP.

This comes off the back of an underlying cash surplus of $15.8bn (0.6 per cent of GDP) for 2023-24 followed by the $22.1bn (0.9 per cent of GDP) surplus delivered in 2022-23. 

In dollar terms, these were the biggest back-to-back surpluses on record, meaning the Albanese government has delivered the largest nominal improvement in the budget position in a parliamentary term.  

According to the Albanese government “the budget position has improved by $172.3bn across the past two years compared to what we inherited from our predecessors.” 

“The government’s budget strategy strikes the right balance between fighting inflation, rolling out responsible cost-of-living relief, supporting growth in our economy and strengthening public finances.”

The Albanese government said the IMF’s Fiscal Monitor released on Thursday shows its economic plan is all about easing the cost of living and fighting inflation at the same time the foundations for a stronger economy are laid.

“Back-to-back budget surpluses help on each of these fronts,” the government said.

Budget strength sees Australia rank third in the world. Picture: NewsWire / Martin Ollman

But, another outlook also released by the IMF on Wednesday said Australia’s cost of living will spike with the consumer price index forecast from 2.8 to 3.6 per cent for 2025.

This is as government subsidies, especially to help with power and energy bills, are rolled back in late 2025.

In contrast Treasury forecasts in May showed inflation would fall to 2.75 per cent by mid-2025.

Australia’s economic outlook has been downgraded to 1.2 per cent this year down from 1.5 per cent in April.

While the budget is in a strong position, Australia’s cost of living is set to rise. Picture: NewsWire / Valeriu Campan

The IMF forecast puts Australia in second place behind Slovakia, and a full percentage point above New Zealand, the UK, the US, Japan and Singapore.

New Zealand, the UK and the US also had higher interest rates respectively which helped bring down inflation faster.

Opposition Leader Peter Dutton said the IMF’s projections had “rung the alarm bell”, saying they showed Australians are “paying the price for bad economic decisions by the Albanese government”.

Shadow treasurer Angus Taylor said Treasurer Jim Chalmers had handed down “three failed budgets”.

“He thinks the answer to an inflation problem is to throw money at it, but we know from history, if you throw money at it, you make it worse,” Mr Taylor told the ABC.

“Sixteen per cent growth in spending in two years, red tape being wrapped around all of our businesses around Australia, a government that’s had its energy policies wrong.

“All of these things in combination, are putting us in a situation where our home grown inflation is amongst the very worst in the world.

“We’re at the back of the pack, and as I say, Australians know that because they see it every

time they buy anything right now.”

Originally published as Budget strength fails to deliver interest rate relief