Everything you need to know about MYEFO in five charts

Figures released by Treasurer Jim Chalmers on Wednesday revealed some of the biggest pressures facing the government and Australian taxpayers, reflected in a $22 billion blowout in budget deficits for the coming years.

The mid-year economics and fiscal outlook (MYEFO) sheds light on how the government sees the economy tracking over the next few years, and how much it intends to spend, but can also give an insight into the state of the government’s books.

Treasurer Jim Chalmers’ mid-year budget update on Wednesday predicts Australia falling into deficit for years to come.Credit: Alex Ellinghausen

Here’s a guide to help you see through the sea of red unveiled by the treasurer and what the government is thinking when it comes to taxes and payments.

How is the economy tracking?

Looking into the crystal ball, the government has tempered its expectations for several key measures including GDP, household consumption and wages growth compared to its forecasts at the budget this year.

It sees GDP growing at about 1.75 per cent in 2024-25 rather than 2 per cent as previously expected, as one of the economy’s major drivers – household consumption – is forecast to grow 1 per cent rather than 2 per cent as thought at the last budget.

While real household disposable income – the amount households have left after taxes – will still be growing as wages rise 3 per cent (slightly slower than expected at the last budget), there’s uncertainty about how quickly people will spend or save this additional money.

There were no changes in the government’s expectations for inflation which it sees coming in at 2.75 per cent in 2024-25 and unemployment at 4.5 per cent, but it is banking on an uplift in business investment from 1 per cent to 1.5 per cent.

What’s happening to our taxes?

Receipts from tobacco excise will continue to dwindle, expected to clock in at about $8.8 billion, substantially lower than the $11.6 billion expected at the last budget.

Company tax receipts, which the government reckons will amount to about $132.5 billion, are lower than the $139.1 billion expected earlier in the year. That’s largely because of weaker mining sector profits, lower export volumes and an assumption that oil prices will be lower.

The goods and services tax is set to bring in $2.1 billion more than expected thanks to consumers spending more and investing more in private dwellings.

Tax from individuals is expected to surf in at $335.4 billion, about $9 billion higher than expected in May due to a strong labour market delivering more overall income, and stronger-than-expected capital gains tax receipts.

How are payments such as the pension changing?

Labor has overseen some major increases in government payments, with age support payments expected to increase by $487 million in 2024-25. A higher-than-projected rate of indexation for the age pension is a key driver of this rise.

Higher indexation for disability support pensions and JobSeeker payments will also push up government spending. The figures also reveal an increase in the projected number of people on the disability pension.

Why has the budget sunk further into the red?

After two years of surplus, a step-up in government spending paired with ongoing revenue pressures has pushed the government’s budget into deficit.

Among the major spending increases are those in aged care, which will rise by $808 million (mostly to cover higher wages after the Fair Work Commission’s ruling on residential aged care), early childhood educator pay rises which will cost $3.6 billion over four years, and payments to see through a bipartisan deal to offer ongoing support to Western Australia which will cost the budget an extra $1.4 billion.

At the same time, a key source of government revenue – tobacco excise – has collapsed, along with its expected tax receipts from companies.

How is it looking when we account for inflation and economic growth?

The underlying cash balance shows the net result from cash inflows and outflows, excluding cash flows from investments in projects that deliver public value or financial return to taxpayers.

While the underlying cash balance is set to improve by about $1.7 billion to a $26.9 billion deficit in 2024-25, projections for the following three years show substantial increases in deficits compared to previous budget forecasts. As a proportion of the economy, the underlying cash balance is set to follow the same path for the next three years, coming in higher than forecast in the budget.

There are some wins in the MYEFO update including higher payments for DSP recipients and pensioners, but with government debt forecast to crack the $1 trillion mark in the coming year, taxpayers look to be staring into budget deficits for the next four years.

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