Budget $5 billion better off thanks to bigger tax scoop

Australians paying more income tax than expected last month have helped deliver a $5 billion improvement to the federal budget’s bottom line as the government looks to wrangle the nation’s finances into a better position.

The latest monthly financial statements, released by Finance Minister Katy Gallagher on Friday, showed the budget remained in a $19.2 billion deficit – but was better placed in the 12 months to April than the $24 billion deficit projected for the same period at the federal budget.

Finance Minister Katy Gallagher and Treasurer Jim Chalmers have said they will prioritise responsible economic management.Credit: Louie Douvis

Treasurer Jim Chalmers said in March that the budget would be in deficit for the next decade after delivering surpluses in the two prior years, drawing ire from the Coalition even though the opposition’s costings revealed towards the end of the campaign that its policies would sink the bottom line by $7.9 billion more in the first two years.

But after winning an overwhelming majority at the election, Labor is under pressure to make difficult decisions aimed at bolstering the budget as the country faces structural issues such as an ageing population that will require further spending in health and aged care.

The latest improvement to the budget since March was driven by a $3.9 billion larger tax collection than anticipated and about $850 million less in payments made by the government.

The government’s coffers were topped up by about $3 billion in additional company tax, $1 billion in additional superannuation fund taxes and more than $1 billion in additional tax collected from individuals. This was partly offset by lower collections of some other taxes, including excise duty, luxury car tax and the wine equalisation tax.

Higher income tax collections were likely driven by higher wages and company profits. Wages rose 3.4 per cent in the 12 months to the March quarter, according to the Australian Bureau of Statistics, outpacing price growth, which increased 2.4 per cent.

Outlays from the government also came in smaller than expected, driven by about $300 million less in payments made for grants and subsidies, $1.5 billion less paid for goods and services associated with the government’s operations, and a $100 million smaller interest bill. This was partly offset by increases in other payments such as $300 million more in personal benefit payments such as the age pension, JobSeeker and disability support pension.

The latest improvement in the budget comes after monthly figures released last month for the nine months to the end of March suggested the budget was more than $12 billion ahead of expectations.

However, with red ink still marking its budget over the next decade, the government will be looking at ways to boost its revenue and cut back on expenses.

Chalmers earlier this month, in a podcast with The Conversation, said while the budget was “in better nick” than most countries around the world, the government’s new super tax – which applies to about people with super balances over $3 million – would help bolster its finances.

“[It] will help us fund our priorities, whether it’s Medicare, the tax cuts and other priorities in budget repair,” he said.

Labor expects the new super tax will raise about $2.7 billion in revenue in its first year, but will need to secure the support of the Greens when it is introduced to parliament in July.

Cut through the noise of federal politics with news, views and expert analysis. Subscribers can sign up to our weekly Inside Politics newsletter.