Labor Says Budget in Better State Than Expected, Deficit Falls to $10 Billion

Opposition brands the claim ’spin,' saying bracket creep and windfalls, not discipline, drove the result.

Australia's Treasurer Jim Chalmers (Front R) and Finance Minister Katy Gallagher (Front L) arrive for the budget lock-up at Parliament House in Canberra, Australia on May 14, 2024. Tracey Nearmy/Getty Images

Treasury has declared the nation’s finances are in far better shape than projected, pointing to the latest Final Budget Outcome (FBO) for 2024–25.

The report shows an underlying cash deficit of just under $10 billion (US$6.6 billion), or 0.4 percent of GDP. That compares with a forecast of $27.9 billion in the 2025 pre-election economic and fiscal outlook (PEFO) and $47.1 billion in the 2022 PEFO.

Treasurer Jim Chalmers and Finance Minister Katy Gallagher said the result highlighted the turnaround since Labor came to office.

“This outcome means the fiscal position is $209 billion better over the three years to 2024–25 than the one we inherited,” they said in a joint statement.

Added together, Labor’s three final budget outcomes delivered a cumulative cash balance of $28 billion, compared with deficits totalling more than $181 billion under the Coalition.

Treasury also noted gross debt in 2024–25 was $188 billion lower than projected, avoiding $60 billion in interest payments over the decade ahead.

The government credited higher employment and wages for lifting revenues, with receipts coming in $13 billion above forecast in 2024–25.

“A stronger labour market with more Australians working more and earning more is among the biggest factors for the improved outlook,” Chalmers and Gallagher said.

Payments were $4.9 billion lower than forecast in the 2025 PEFO, reducing the government’s spending share of the economy to 26.2 percent.

Labor also argued it had shown fiscal discipline by returning 70 percent of all tax receipt upgrades to the budget bottom line, compared with about 40 percent under its predecessors.

The ministers said reforms to the National Disability Insurance Scheme and aged care system were underway to deal with long-term spending pressures.

Coalition Accuses Labor of Spin

Opposition figures dismissed the government’s celebration of the budget outcome as misleading.

Liberal Senator Jane Hume said the improvement was not the result of Labor’s management.

“If you can spin a positive … on a deficit, well, I’ve got a bit of swampland that I’d like to sell you,” she told Sky News Australia.

“A deficit at a time when we have full employment, when we have increasing inflation, this is simply bracket creep. It’s bracket creep and high commodity prices … and now they’re saying a higher deficit is good news,,” Hume added.

Deputy Opposition Leader and Shadow Treasurer Ted O’Brien also criticised the treasurer, accusing him of benefiting from an extraordinary revenue windfall rather than sound policy.

“This is utterly false, and the treasurer’s own budget papers say so in black and white,” he said. “Crediting the treasurer with this windfall is like crediting a punter for winning the lotto.”

O’Brien argued that record terms of trade had boosted the budget.

“Had the treasurer simply sat on his hands and allowed this windfall to pay down debt, it would have fallen by $241 billion,” he said.

Instead, he claimed debt was only $147 billion lower than forecast.

“So roughly $100 billion has gone missing. Where did it go?” he said.

According to O’Brien, budget papers show three-quarters of that figure went to additional on-budget decisions and one-quarter to higher off-budget spending.

“Budgets are about choices. And this government chose to spend and tax you more,” O’Brien said.

He accused Labor of abandoning fiscal rules and presiding over spending growth “from 24 percent to 27 percent of GDP—the highest level outside of recession since 1986.”

IMF Warning on Fiscal Stimulus

The International Monetary Fund (IMF) has also urged Australia to tighten fiscal policy to avoid fuelling inflation, warning that well-intentioned cost-of-living relief could have broader economic side effects.

In its annual assessment of the economy released in late 2024, the IMF noted that tax cuts announced by the Albanese government last year will lift disposable incomes for 13.6 million Australians.

While this could ease immediate household pressures, the Fund cautioned the move may also drive demand.

“The move could potentially boost demand, but it remains unclear whether this will lead to increased spending or savings,” it said.

The IMF further observed that state and territory budgets have been more expansionary than expected, with new spending on cost-of-living measures and infrastructure adding to fiscal stimulus.

It recommended Canberra pursue restraint to help tame inflation while balancing household support with long-term budget sustainability.