Extra tax boosts bottom line, but spending leaves budget in the red

The strong jobs market and growing returns for the nation’s superannuation funds are delivering billions of extra revenue to Treasurer Jim Chalmers, but not enough to drag the federal budget back into a surprise election-year surplus.

Figures released on Friday by the Finance Department show personal income tax collections – the single largest source of federal revenue – are on track to surpass the record $344.3 billion forecast in the December mid-year budget update.

The federal budget is improving from where Jim Chalmers had expected, but it is still on track to end up in the red.Credit: Alex Ellinghausen

Chalmers is due to deliver an early budget on March 25, but government MPs expect Prime Minister Anthony Albanese to call an election in late February for April 12.

While going to an April election would avoid Chalmers confirming a budget deficit, the federal government’s budget bottom line will still be exposed in the pre-election fiscal outlook that is released by the Treasury and Finance departments.

In his mid-year update, Chalmers revised down the expected deficit for the current financial year to $26.9 billion from his May forecast of $28.3 billion. But deficits for the next three years were forecast to balloon by more than $23 billion.

In the first six months of 2024-25, the government collected $155.4 billion in personal income tax. In December, Chalmers upgraded his full-year forecasts for personal income tax collections by $8.7 billion. Between June and December, an extra $7.3 billion landed in Canberra’s coffers.

The biggest improvement has been in superannuation taxes, driven by the strong performance of equity markets.

By December, the government had collected $16.2 billion in superannuation taxes, or three-quarters of the amount it had pencilled in for the entire year.

Company tax collections are broadly in line with the $135.5 billion expected to be raised from the corporate sector.

While Chalmers is looking at an upside revenue surprise, the same figures also show the struggle to control spending.

Through the first half of the financial year, spending on social security and welfare – forecast at $270 billion the single largest expense in the budget – was already at $140 billion.

There are several areas where government spending will sharply increase through the second half.

Only $3 billion of the forecast $10 billion budget for housing and community amenities has been spent so far, along with just 22 per cent of the $16 billion transport and communications budget and a third of the $20.1 billion allocated for the fuel and energy sector.

Independent economist Chris Richardson said spending had grown by 6.7 per cent over the past 12 months, while revenue had lifted by just 3.6 per cent.

“Those closing jaws mean the budget balance is worsening,” he said.

This week, Chalmers – who delivered budget surpluses in the past two years – played down suggestions from some experts that another was on the way.

“There hasn’t been anything yet that we have seen which would make us think that there would be a substantial difference to the budget bottom line than what we forecast in December in the mid‑year budget update,” he said.

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