Key Takeaways
- The federal government has increased short-term spending but decreased it overall, with a budget update revealing a $2.2 billion improvement to the bottom line over four years.
- The government’s decisions will increase spending by $1.8 billion this financial year, with the largest savings coming from the public service.
- The budget has been aided by a higher tax take, with $41.3 billion more expected in receipts over the next four years.
- Inflation forecasts have been upgraded for the next two years, with Treasury suggesting that increases in prices for services and new homes will be "more persistent".
- New spending includes housing and rollover of social programs, with a $1.1 billion outlay for mental health and $10 billion over eight years for the government’s election promise to support the construction of 100,000 new homes.
Introduction to the Budget Update
The mid-year budget update has been released, revealing the current state of the nation’s finances. Treasurer Jim Chalmers and Finance Minister Katy Gallagher delivered the update, which shows that the government’s own decisions have improved the bottom line by $2.2 billion over four years. Despite the watering down of its super tax plans, which has wiped $3.8 billion off revenue, the government’s decisions will increase spending by $1.8 billion this financial year. The largest savings come from the public service, where $6.8 billion will be saved over four years by further reducing reliance on consultants and cutting down on travel and non-staffing expenses.
Impact of Inflation on the Budget
The budget has been aided by a higher tax take, with $41.3 billion more expected in receipts over the next four years. This has been propelled by higher-than-expected inflation, which results in more income tax, and by a boom in private investment. Inflation has also pushed up government payments, which are $35.1 billion higher overall. The budget bottom line is better in each year, with an underlying cash deficit of $36.8 billion in the current financial year compared to $42.2 billion estimated at the pre-election update. Much of the change in this year is driven by the higher tax take. However, inflation forecasts have been upgraded for the next two years, with Treasury suggesting that some of the uptick in inflation is temporary, but increases in prices for services and new homes will be "more persistent".
New Spending Initiatives
The update includes new spending initiatives, such as a $1.1 billion outlay for mental health, including new youth specialist centres and upgrades to existing Medicare and Headspace services. Additionally, $233 million has been allocated for science agency CSIRO. The government has also committed to supporting the construction of 100,000 new homes reserved for first home buyers, with $10 billion allocated over eight years. This money will be placed in a fund, which means it does not count towards the usual measure of the budget bottom line. The government has also had to substantially expand its liability for the social and affordable homes it is funding under the Housing Australia Future Fund, stretching the Commonwealth’s commitment from $26 billion to $44 billion.
Savings and Revenue Measures
The government has implemented several savings and revenue measures, including changing the rules around "deeming", which will achieve a saving of $1.8 billion by reducing the payments of some recipients through the means-testing system. The government will also raise $720 million over four years by increasing international student visa charges to $2,000, an election promise. However, the tobacco excise continues to fall, with a 23 per cent decrease in revenue expected this financial year and a 29 per cent decrease next year. Expected revenue from the petroleum resources and rent tax has also decreased by 23 per cent this year and by 17 per cent next year.
Conclusion and Future Outlook
The budget update reveals a complex picture of the nation’s finances, with both positive and negative developments. While the government’s decisions have improved the bottom line, the increase in inflation and decrease in certain revenue streams pose challenges for the future. The government will need to continue to make difficult decisions to manage the budget and ensure that progress continues in strengthening the budget. As Treasurer Jim Chalmers noted, "The main task… has been to make room for pressure on spending, to make room for our election commitments in a way that we could still ensure that this progress continues in strengthening the budget." The future outlook remains uncertain, with growth forecasts for China and the US revised down, and the estimate of Australia’s real economic output in this financial year also revised down. However, the government remains committed to its election promises and will continue to work towards supporting the construction of new homes and implementing new spending initiatives.