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Budget for 2023/24 due on May 9
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Deficit to shrink sharply, almost near surplus
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But red ink ahead from spending pressure, tax cuts
By Wayne Cole
SYDNEY, May 1 (Reuters) - 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 defence spending with an eye
to 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 (RBA)
has aggressively lifted interest rates to fight it.
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.
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.
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 government's
near-A$1 trillion in debt.
Labor has also promised to honour 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.
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.
Defence 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,
defence, 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.
($1 = 1.5119 Australian dollars)
(Reporting by Wayne Cole; Editing by Sam Holmes)
