5 hours Ago By Jackson Hewett
Treasury forecasts the full year budget will record a deficit of $26.9 billion, $1.3 billion better off than originally forecast in May, but new spending and higher indexed payments are expected to blow out next year’s budget to a deficit of almost $50b.
The Mid-Year Economic and Fiscal Outlook (MYEFO) confirms the end of consecutive surpluses, but Labor is expected to highlight the improved deficit as evidence of fiscal responsibility. “These figures show an improvement in the bottom line for this year since the Budget, and a big improvement to the bottom line since the election,” Treasurer Jim Chalmers said. “The deficit for this year is now $1.
3b smaller in this budget update, and almost half the $47.1b deficit we inherited for this year from our predecessors. “The Albanese Labor Government has delivered the biggest-ever budget turnaround in a parliamentary term due to a combination of limiting real spending growth, identifying savings and banking the majority of revenue upgrades since we came to office.
” The overall deficit is smaller than the $33.5b forecast by Deloitte Access Economics. While the last four budgets benefited from average revenue upgrades of $80b, this year’s company tax receipts have been revised down by $6.
6b in 2024–25 and $8.5b over the forward estimates. “For the first time since the 2020–21 Budget, company tax receipts have been revised downwards, reflecting weaker commodity volumes amid emerging challenges in the Chinese economy,” the budget papers said.
Individual taxpayers will be slugged an extra $8.7 billion in 2024–25 and $21.5 billion over the four years to 2027–28, primarily as a result of bracket creep.
MYEFO shows a deterioration in both deficits and government debt over the next four years. Deficits are projected to increase by $23.2b to 2027–28, a 25 per cent rise, driven by $4.
4b in additional payments and $32b in new spending. The deficit is expected to widen by $4.1b next year, peaking at $46.
9b in 2025–26 (1.6 per cent of GDP), before moderating. Treasury assumes GDP growth will reach at least 5 per cent between 2026 and 2028.
Among the new spending initiatives are an extra $3.6b for wages for early childcare workers, $2.5b for new drugs on the Pharmaceutical Benefits Scheme, and $1b for the energy transition.
A further $25b in previously unbudgeted spending over the next five years will come from “payments from parameter and other variations,” including $9.5b for wage rises for aged care workers, $4b for age pension indexation, and $3.7b for an anticipated uplift in childcare subsidies due to increased demand.
Dr Chalmers defended the additional payments as essential for cost-of-living relief and dismissed claims they would fuel inflation. “You can see over time, even with a little bit of slippage in the later years, those two surpluses and the smaller deficit this year are making a substantial difference to the amount of debt that the budget is carrying, and making room for our priorities, including that cost‐of‐living help,” he told Sky News . “There are some areas, as we’ve been saying through the course of the week, where spending is going up; Medicare’s a good example, the PBS and medicines is another good example, supporting veterans, there’s some extra money for natural disaster responses, about an extra $1.
8b.” Gross government debt is now forecast to be $49b higher over the forward estimates, reaching 36.7 per cent of GDP by 2027–28, up from 34 per cent this year.
As a percentage of GDP, it remains less than half the debt levels of most advanced economies, which average 105 per cent of GDP. Debt remains 8.2 percentage points lower than its 2022 Pre-Election Fiscal Outlook peak.
“The budget is still $200b stronger than what we inherited,” Dr Chalmers told Sky News . “That $200b improvement in the budget since we were elected means $177b less debt and $70b less interest on that debt.” According to the budget papers however, interest payment on debt will be the largest single drain on the budget over the next ten years, expected to grow by 11 per cent annually.
The next highest spend is the NDIS, which is forecast to grow more than 8 per cent annually, with defence and hospitals growing more than 6 per cent annually through to 2035-35. Nicola Smith.
