Australia to reveal huge budget rebound, pledge restraint in response | Inquirer Business

Australia to reveal huge budget rebound, pledge restraint in response

/ 12:12 PM May 01, 2023

SYDNEY  – Australia’s Labor government is set to reveal a vast improvement in the budget bottom line next week as its coffers bulge with tax windfalls, yet the outlook will be a sober one as fiscal challenges loom large.

Treasurer Jim Chalmers has spent weeks using “restraint” and “responsible” to describe his second budget since coming to power in May last year.

There will be some money to offset cost of living pressures, particularly on energy prices, and perhaps a long-delayed rise in unemployment benefits. Chalmers has flagged more support for renewable projects and a ramp up in defense spending with an eye to China’s expanding influence in the region.

Article continues after this advertisement

Yet, he is well aware that too much fiscal largesse could stoke inflation just when the Reserve Bank of Australia (RBA) has aggressively lifted interest rates to fight it.

FEATURED STORIES

Instead, the aim is to bank any budget savings, and there are plenty to go around. High prices for Australia’s commodity exports have delivered a windfall from mining profits, while job gains boosted income tax and lowered welfare payments.

As recently as October, Chalmers had forecast a deficit of almost A$37 billion ($24.47 billion) for the year to end June 2023. Now, analysts expect it to be closer to A$5 billion.

Article continues after this advertisement

Indeed, the running 12 month total is actually in surplus, a big deal for a budget that has not been in the black since 2008.

Article continues after this advertisement

The previous Liberal National government had “Back in Black” mugs made in 2019 when it came within a whisker of a surplus, only for emergency pandemic spending to blow a record-breaking hole in the accounts.

Article continues after this advertisement

Any surplus would be fleeting, however, given resource prices are well off their peaks and the domestic economy is slowing in the face of decade-high interest rates. The latter have also sharply raised the cost of funding the government’s near-A$1 trillion in debt.

Labor has also promised to honor a commitment by the previous government to slash income taxes from 2024/25, cuts that are projected to cost a budget-busting A$254 billion over the first 10 years.

Article continues after this advertisement

The cuts are not especially popular with the public given the vast majority go to the higher paid, but Labor is loath to break an election promise and seems boxed-in.

More money is needed for healthcare, particularly to fund a national disability scheme, and there are election pledges on childcare and infrastructure.

Defense is set for the biggest increase since World War Two amid plans to spend A$368 billion out to the 2050’s on nuclear powered submarines from the UK and United States.

“Spending on interest payments, pensions, medical benefits, defense, aged care and hospitals are all expected to rise consistently above the rate of inflation,” said Stephen Halmarick, chief economist at CBA.

“To place the budget on a more sustainable footing over the medium-term will require an increase in revenue flow and/or more spending discipline.”

In short, Australia, like most developed economies with aging populations, is finding deficits are the new normal.

RELATED STORIES:

https://business.inquirer.net/393441/australias-key-financial-regulators-to-review-global-banking-turmoil

https://business.inquirer.net/396719/australia-central-bank-to-get-new-rate-setting-board-under-review-recommendations

Your subscription could not be saved. Please try again.
Your subscription has been successful.

Subscribe to our daily newsletter

By providing an email address. I agree to the Terms of Use and acknowledge that I have read the Privacy Policy.

https://business.inquirer.net/391628/australia-report-calls-for-tax-migration-reforms-as-productivity-stalls

TAGS: Australia, Budget, fiscal, spending, taxes

Your subscription could not be saved. Please try again.
Your subscription has been successful.

Subscribe to our newsletter!

By providing an email address. I agree to the Terms of Use and acknowledge that I have read the Privacy Policy.

© Copyright 1997-2024 INQUIRER.net | All Rights Reserved

This is an information message

We use cookies to enhance your experience. By continuing, you agree to our use of cookies. Learn more here.