Surging revenues could deliver largest budget surplus on record

The Albanese government could end up delivering the largest budget surplus on record as soaring tax revenue and reduced spending help take inflation pressures out of the economy.

The monthly budget figures, released by the Finance Department on Friday, show that at the end of May, the budget was in surplus to the tune of $19 billion.

Treasurer Jim Chalmers and Finance Minister Katy Gallagher on budget day in May. The government could deliver the largest surplus in history.Credit: Alex Ellinghausen

The largest surplus on record was 2007-08 at $19.8 billion. That was also the last time the federal government’s bottom line was in the black, just before the global financial crisis.

Treasurer Jim Chalmers revealed this week that the surplus, forecast in the May budget to be $4.2 billion for the 2022-23 financial year, would be “significantly” better than expected.

The figures, however, show that in May alone the budget ran a surplus for that month of $24 billion.

According to the Finance Department, total receipts are $8.5 billion better than forecast in May while spending is $3 billion lower than projected.

Company tax collections are running $7.2 billion ahead of expectations, largely due to the continuing high price for key exports such as iron ore.

Spending on health and education is running slightly lower than expected.

There is some late spending that has to be accounted for, including $2 billion to boost social housing, while expenditure in communication and transport – largely provided through grants to the states and territories – is also running behind forecasts.

The improved budget bottom line is keeping a lid on government borrowings and net debt.

In May, the government was expecting net debt to have reached $548.6 billion by the end of 2022-23. But instead, it had fallen to $516.7 billion.

The Australian Office of Financial Management, the agency which oversees government debt, on Friday revealed that because of a stronger-than-expected surplus for this financial year, less debt would need to be sold in 2023-24.

Finance Minister Katy Gallagher said the figures showed the budget would be in a stronger position than expected.

She said this would help put downward pressure on inflation.

AMP’s Shane Oliver says the strong end to the budget year could result in a second surplus in 2023-24.

“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,” she said.

The strong end to the financial year should help improve the bottom line for 2023-24. In May, Chalmers forecast a deficit of $13.9 billion.

AMP Capital chief economist Shane Oliver said the government could feasibly consider a surplus next year, but much would hinge on how it reacted to current inflationary pressures.

“Given the far better starting point it could potentially set up a surplus for the next financial year – although the risk is high that weaker than forecast jobs data and somewhat lower commodity prices work against that,” he said.

“There is also the risk that the surplus may embolden the government to undertake more cost-of-living support measures which could make life harder for the Reserve Bank.”

Independent economist Chris Richardson said the budget was being supported by “barn-burning” revenue flows.

“The figures are a reminder of how lucky the lucky country has been – conditions have thrown money at the taxman,” he said.

“Partly that’s as war drove up commodity prices and partly it’s as inflation took money from the punters and placed it into the pockets of the government and of business.”

Shadow treasurer Angus Taylor said the surplus was being driven by conservative forecasts, higher tax receipts and lower unemployment.

“In other words, Australians working harder to make ends meet in Labor’s cost of living crisis,” he said.

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