Key Takeaways
- The federal budget’s bottom line is expected to improve by over $8 billion over the next four years compared to earlier forecasts.
- The 2025-26 budget deficit is now due to reach $36.8 billion, which is $5.3 billion lower than was forecast at the election.
- Economists are calling on Labor to rein in spending or find more sources of revenue to cover unavoidable costs such as veteran and pension payments.
- The government has opted to save on average 70 per cent of the unexpected revenue upgrades rather than spend it.
- The budget update will include an extra $6.3 billion in spending on natural disasters, $3 billion in aged pension costs, $2.1 billion for military superannuation schemes, and $1.3 billion for veterans’ entitlements.
Introduction to the Budget Update
The Australian government’s Mid-Year Economic and Fiscal Outlook (MYEFO) is set to reveal a significant improvement in the federal budget’s bottom line, with a projected increase of over $8 billion over the next four years. This improvement is attributed to a combination of savings and higher tax takes from stronger employment and wages, as well as net higher commodity prices. Treasurer Jim Chalmers will declare that the federal government has made substantial progress in repairing the budget when he hands down the MYEFO in Canberra.
The Government’s Approach to Budget Management
The Albanese government has taken a cautious approach to budget management, opting to save on average 70 per cent of the unexpected revenue upgrades rather than spend it. Finance Minister Katy Gallagher stated that the government’s approach is to make "every dollar count" by reviewing spending and prioritizing what matters. This approach has resulted in the government finding more savings, restraining spending, and banking revenue, which has improved the budget’s bottom line. However, economists are calling on the government to do more to offset the additional costs of demand-driven programs such as veteran payments and the National Disability Insurance Scheme (NDIS).
Economists’ Calls for More Savings or Revenue Measures
Independent economist Saul Eslake has cautioned that the government’s $20 billion in savings over the next four years represents only a 0.6 per cent cut of the total $3.2 trillion the government planned to spend in that time. Eslake urged the government to find more savings or raise new revenue to offset the additional costs of demand-driven programs. He also warned against focusing exclusively on the underlying cash rate, which does not capture off-budget spending such as student debt relief or "handouts" to various heavy industries struggling with energy costs. Instead, Eslake emphasized the importance of looking at the headline rate, which takes into account the amount being spent off-budget.
The Budget Update’s Key Spending Measures
The budget update will include several key spending measures, including an extra $6.3 billion in spending on natural disasters, $3 billion in aged pension costs, $2.1 billion for military superannuation schemes, and $1.3 billion for veterans’ entitlements. These measures are expected to put pressure on the budget, and economists are calling on the government to find more savings or raise new revenue to offset these costs. The government has also confirmed that it will not be extending the $75 a quarter electricity rebate for households and small businesses, which Eslake said was the right decision given the uptick in inflation recently.
The Government’s Unfinished Business
The Albanese government has been criticized for having unfinished business, particularly when it comes to reforming the budget. The level of the prime minister’s reform appetite has been discussed and debated since the election, and the government’s approach to budget management has been cautious. However, the government has made progress in repairing the budget, and the MYEFO is expected to show that there has been a significant improvement in the budget’s bottom line. Despite this progress, economists are urging the government to do more to offset the additional costs of demand-driven programs and to find more savings or raise new revenue to ensure the long-term sustainability of the budget.
Conclusion and Future Outlook
In conclusion, the federal budget’s bottom line is expected to improve by over $8 billion over the next four years, and the government has made significant progress in repairing the budget. However, economists are calling on the government to do more to offset the additional costs of demand-driven programs and to find more savings or raise new revenue to ensure the long-term sustainability of the budget. The government’s approach to budget management will be closely watched in the coming months, and the MYEFO is expected to provide a clear indication of the government’s priorities and commitments to responsible economic management. As the government continues to navigate the complexities of budget management, it will be important to balance the need for fiscal restraint with the need to invest in essential services and support for vulnerable members of the community.