Revenue rains for Chalmers in tepid budget

Treasurer Jim Chalmers has opted to modestly grow spending in his first budget, as surging tax revenue helps cut the federal government’s deficit.

Mr Chalmers projected a $36.9 billion underlying deficit for the year to June 2023.

That’s down from the $78 billion forecast by his predecessor Josh Frydenberg only seven months ago.

The dramatic improvement was driven by rising revenue, which will be $60 billion higher in this financial year alone than what was forecast in March.

Across the four years of forward projections contained in the budget, Mr Chalmers will have $158 billion more cash flowing into treasury coffers than was expected in March.

Higher commodity prices and the strong job market have helped deliver the big revenue boost, the budget papers said.

To put that in context, unemployment has been near 50-year lows this year, and was 3.5 per cent nationally in September.

The Treasury warned the good times would not last, however, with the boost to moderate over the next four years.

As with any new treasurer, Mr Chalmers had plenty of cash for his party’s election commitments.

On the list was $20 billion to transition the power grid, $7.5 billion for cost of living relief, and a bold plan to build 1 million more houses.

Spending was to be $22 billion higher than projected in March, at more than $650 billion.

Over four years, payments were up an eye-watering $125 billion, with about three quarters not driven by policy decisions, according to the budget.

Higher wages would cost $34 billion, and rising borrowing costs $12 billion.

Mr Chalmers said it was a solid and sensible budget suited to the conditions.

“The global economy teeters again, on the edge – with a war that isn’t ending, a global energy crisis that is escalating, inflationary pressures persisting, and economies slowing – some of them already in reverse,” Mr Chalmers said in his first budget speech as Treasurer.

He said the government was “pleased and proud” that exports were strong and unemployment low.

Speaking on ABC television after delivering the budget, he said he had allowed the extra revenue to flow through to the budget bottom line.

Committee for Economic Development of Australia chief economist Jarrod Ball said it was a prudent budget.

It had begun a reset to fight inflation and cut inefficient spending,

But more would be needed.

“It is pleasing to see that the government has banked over 90 per cent of major tax windfalls to the budget over the next four years,” Mr Ball said.    

“But for now the government has delayed the more fundamental reform needed to sustainably shore up the nation’s finances.”

CPA Australia said the government had taken a “steady as she goes” approach but had not yet delivered a full plan to overcome economic challenges.

“Overall, we give the budget a thumbs up,” CPA senior manager business policy Gavan Ord said. 

“It is broadly what we expected, but leaves open the question, ‘where to next?’.”

“The government made it clear this is a two-part budget. 

“That said, we were hoping they would provide us with a north star to light the way forward. 

“This steady, no surprises approach is a good option during these turbulent times. 

“We agree this isn’t the right time to entirely change course.”

Cost of living

Inflation will peak at 7.75 per cent, later this year, the government projects.

The sharp shock rise in inflation has severely dented wages in real terms for most Australians.

“Wages are growing faster now than they were before the election, but that welcome news is tempered by rising electricity prices and grocery bills eating into pay packets,” Mr Chalmers said.

“When that inflation moderates, real wages are expected to start growing again in 2024.”

In his speech, Mr Chalmers said the government had supported a lift in the minimum wage and award wages, and would back an increase in wages for aged care workers.

The government’s strategy now would be to reduce the cost of child care, improve training, invest in industries to create secure and well-paid jobs, and change the enterprise bargaining system, he said.

Spending

About $649 million was trimmed from the Department of Climate Change Energy the Environment and Water through a savings audit.

Cutting back on outsourcing, advertising, travel and legal expenses would save $643 million across the government, and $507 million was to be saved from the federal industry department.

Spending for the National Disability Insurance Scheme is set to rocket.

From about $30 billion in the year to June 2022, it will rise to nearly $52 billion by the 2026 financial year.