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02-05-2023
Bureau Report + Agencies
CANBERRA/ MELBOURNE: Australia’s Labor government is set to reveal a vast improvement in the budget’s bottom line next week as its coffers bulge with tax windfalls, yet the outlook will be a sober one as fiscal challenges still loom large.
Treasurer Jim Chalmers has spent weeks using “restraint” and “responsible” to describe his second budget since taking office 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 defence spending with an eye on China’s expanding influence in the region.
Yet he is well aware that too much fiscal largesse could stoke inflation just when the Reserve Bank of Australia has aggressively lifted interest rates to fight it.
Instead, the aim is to bank any budget savings, and there is plenty to go around. High prices for Australia’s commodity exports have delivered a windfall from mining profits while job gains have boosted income tax revenues and lowered welfare payments.
As recently as October, Chalmers had forecast a deficit of almost 37 billion Australian dollars ($24.5bn) for the year to the end of June 2023. Now, analysts expect it to be closer to 5 billion Australian dollars ($3.3bn).
Indeed, the current 12-month total is actually in surplus for a budget that has not been in the black since 2008.
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.
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 governments near AU$1 trillion ($662bn) in debt.
Labor has also promised to honor a commitment by the previous government to slash income taxes starting next year, cuts that are projected to cost a budget-busting 254 billion Australian dollars ($168bn) over the first 10 years.
