Government spending takes $35 billion chunk out of the budget

Spending decisions made by the government since December have delivered a $35 billion blow to its final budget before the election as Labor looks to win over voters while spruiking its fiscal responsibility.

As he plans to spend the most by any government in four decades – outside the pandemic – Treasurer Jim Chalmers announced several new policies aimed at easing cost-of-living pressures, including $17 billion in tax cuts as Australians prepare for the election to be called within days.

“In a tight budget, we’ve made room to boost our defences, strengthen Medicare, help people doing it tough, build more homes and invest in the future,” Chalmers said. “We’ve done all this at the same time as we’ve overseen the biggest ever fiscal improvement in a single term of government.”

The government’s policy decisions amount to a $21 billion increase in payments over five years from 2024-25 while reducing its revenue, including from taxation changes, by $14 billion, denting its bottom line by $35 billion.

It takes government spending as a share of the economy to 27 per cent: the highest level outside the pandemic years of 2020 and 2021, since 1985-86.

But combined with revisions to expected expenses and revenue tied to external conditions such as forecast interest rates, there was a $1.5 billion improvement to its bottom line over the five years from 2024-25 compared with forecasts made late last year.

Ahead of the budget, shadow treasurer Angus Taylor said the government had “thrown out the fiscal guardrails” and needed to rein in the budget deficit.

“We need to see a budget where the economy grows faster than spending,” he said on Tuesday morning. “We’ve opposed over $100 billion of spending since Labor came into power.”

­­­The single biggest drag on the government’s finances is a series of new tax cuts.

The second-largest spending increase since the mid-year budget update is a boost aimed at increasing bulk-billing rates, at a cost of $8.4 billion over the five years from 2024-25.

Additional road and rail infrastructure projects including the ­­­­­$7.2 billion pledged to upgrading the Bruce Highway in Queensland, and new and amended listings on the Pharmaceutical Benefits Scheme, will cost a further $1.8 billion each over the same time.

But other transport works are expected to cost taxpayers $4.6 billion less over the five years to 2028-29 because of delays that will push back payments to the states for reaching key milestones.

Meanwhile, one of the government’s biggest expenses – the National Disability Insurance Scheme – should cost less than forecast, with payments related to the scheme estimated to plunge by $950 million in 2025-26 compared with expectations. In the five years to 2028-29, the government expects NDIS payments to fall by nearly $4 billion in contrast to forecasts, even as its cost continues to grow.

A fall in global interest rates has translated into a lower interest bill on the government’s mounting debt. Lower rates will save the budget $424 million in interest next financial year and $3.3 billion over the next five years.

That’s despite an $11 billion uptick in net debt compared to its latest estimate in December, taking the government’s total to $620 billion in 2025-26.

Higher expected payments related to aged care have hit the budget bottom line by $3.1 billion over the next five years, while growth in the number of people receiving the disability support pension is also expected to cost an additional $2.4 billion.

“Off-budget” expenses – which do not affect the bottom line because they are considered financial investments which will increase in value and deliver a return to the government – have blown out from $89.6 billion to $103.9 billion over the next four years.

The increase was driven by a $6 billion blowout in costs associated with Housing Australia, a fund that channels money into a range of housing programs.

There was also a $1.9 billion lift in costs associated with the Clean Energy Finance Corporation – a government organisation set up to sink money into renewable energy projects – because of revisions to the timelines for major projects.

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