Budget to confirm a surplus this year, but bigger deficits for the next three years

Budget to confirm a surplus this year, but bigger deficits for the next three years
  • PublishedMay 14, 2024

Today’s federal budget will deliver a $9.3 billion surplus for the current financial year ending in June.

It’s the second consecutive budget surplus – where revenue exceeds spending – in nearly two decades.

But the next three financial years will each have higher deficits than the government had expected as recently as December, owing to what it calls “unavoidable spending”.

The size of those deficits is not yet known, but the December estimates were $18.8 billion, $35.1 billion and $19.5 billion, respectively.

The figures for the upcoming financial year, 2024-25, will be watched particularly closely in the context of inflation.

Join us live from 2pm AEST for all the latest ahead of tonight’s federal budget.

The Reserve Bank of Australia (RBA) last week revised its forecasts to predict higher inflation for the rest of the year, but the government revealed on Sunday that Treasury had shifted its own forecasts in the opposite direction.

That means the RBA is now more pessimistic about inflation than the government, a reversal from earlier in the year. The RBA has indicated it is monitoring inflation carefully and leaving its options open on interest rates.

RBA governor Michele Bullock also said she would watch federal, state and territory budgets carefully to determine whether any significant spending was contributing to inflation, though she added she believed the federal government had “inflation on its mind” in its budgeting.

Treasurer Jim Chalmers said the budget would “ease cost-of-living pressures, not add to them … The forecasted surplus has come on top, not at the expense, of helping those doing it tough”.

But the government has flagged a number of areas of new spending, including a multi-billion-dollar commitment to increase aged care and child care wages, over $3 billion in new defence spending, and some form of welfare increase.

At the same time, this year, it redesigned tax cuts due to start on July 1, leaving their magnitude roughly unchanged.

But Finance Minister Katy Gallagher said the government had also found new savings and had either saved or offset $77 billion since coming to office.

“We understand that there are still pressures on the budget, including spending on the NDIS, aged care, hospitals, Medicare and debt interest,” she said.

“That’s why we’ve put a premium on responsible economic management that strikes the right balance between strengthening the budget and funding our priorities.”

The budget will also be helped by $25 billion in revenue upgrades, though this is a smaller figure than in previous years.

The government has previously touted its record of banking most of its revenue upgrades, a major reason why it has delivered two surpluses.

For example, it confirmed on Monday that 96 per cent of the more than $100 billion in revenue upgrades in 2023-24 have been banked.

It has not revealed what that figure will be for the 2024-25 year, but Mr Chalmers suggested last month it would not be as high as in previous years.

This suggests that overall, the government’s third budget is expected to follow the pattern of its first two, with its own policy decisions detracting from the budget balance and adding to economic activity.

On Sunday, Shadow Treasurer Angus Taylor said the government should be “restrained in spending … We’ve seen a government that loves to spend, it’s their natural instinct”.

He criticised the government for discarding fiscal “rules” established by former Liberal treasurer Peter Costello during the Howard government and retained in principle by successive governments.

Those rules include a requirement that any new spending be offset by an equivalent spending reduction in the same portfolio area.

While those rules have often been aspirational rather than literal, Mr Taylor said they could “ensure that governments, when they’re putting together their budgets, have a process where they do exercise restraint … We’re proposing to put those back in”.

But the government has argued its own budgets have improved by $200 billion over six years compared to the Coalition’s own plans, in large part because of the enormous revenue upgrades that have been banked since that time

“We’re not taking lectures from the same Liberal and National clown show which left us … more debt and much bigger deficits,” Mr Chalmers said.


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