Despite the Mid-Year Economic and Fiscal Outlook (MYEFO) reporting a $1.1 billion deficit, a strong labour market and rising commodity prices mean the eventual result will likely be a second surplus for the Albanese Labor government.
Commonwealth Bank expects the eventual result will be close to a $20 billion surplus, almost matching the $22.1 billion surplus banks, almost matching the $22.1 billion recorded for the previous financial year.
Compared with the May 2023 budget, there has been a $12.8 billion improvement to the balance sheet for the current financial year.
Expectations are that there will be a total of $39.5 billion more over the four years to 2026-27. The government says it has banked 92 percent of revenue improvements since the budget.
The improved figures will likely lead to calls for more cost-of-living relief in the form of tax reductions or direct payments, but Treasurer Jim Chalmers has already hosed down expectations.
“By returning the majority of revenue upgrades to the budget, we’re helping to take pressure off inflation, get debt on a better trajectory, and avoid billions of dollars in interest costs’, he said on Dec. 12.
Not Much for Taxpayers or Beneficiaries
The treasurer has faced pressure from Labor backbenchers to boost support for households, but the MYEFO adds only a net $5.3 billion in spending, none of it targeting individuals or families.“We know people are still under pressure but inflation is moderating, wages are growing and unemployment is low,” Mr. Chalmers said.
The government says it has identified another $9.8 billion in “savings and reprioritisations,” the majority being $7.4 billion cut from 50 infrastructure projects over the next four years.
It says it has cut a total of $72.7 billion across total spending since it was elected.
Reducing Interest Payments a Priority
Rising interest payments are a priority for the government since, at an average rise of 11.7 percent a year over the next decade, they will exceed the 10.1 percent spending growth projected for the National Disability and Insurance Scheme (NDIS), 6.5 percent for hospitals, and 6.3 percent for defence.Mr. Chalmers claimed that banking the majority of additional revenue would save Australia $145 billion in interest costs on debt over 12 years to 2033-34.
The MYEFO forecasted a slowing national economy in the current year, with GDP growth falling to 1.75 percent due to “higher interest rates, high but moderating inflation, and global pressures.”
It is then expected to grow by 2.25 percent in 2024-25 as “inflation subsides following its peak in 2022 and household disposable incomes improve.”
Inflation is projected to be 3.75 percent in 2023-24, falling to 2.75 percent by the June quarter of 2025. This would be a return to the Reserve Bank’s target range of 2 to 3 percent, which would likely bring to an end the cycle of 13 interest rate rises since May 2022.
The shadow treasurer, Angus Taylor, said Labor had ignored households but did not argue that they should receive further cost of living relief.
Instead, he said the government’s priority should be to “get inflation down.”
