Labor’s two years of “budgetary sunshine” will slide back into deficit days as Treasurer Jim Chalmers juggles falling commodity prices, weaker economic growth, higher spending and the need to fund pre-election household relief.
After repeatedly this year celebrating the Albanese government turning “two big Liberal deficits into two big Labor surpluses”, Mr Chalmers will confirm a string of shortfalls this financial year and in 2025-26.
Analysts predict Wednesday’s mid-year budget update will show deficits that more than eclipse the surplus years, underscoring the structural weakness of the nation’s finances.
The Albanese government posted surpluses in 2022-23 and 2023-24 of $22.1 billion and $15.8 billion respectively.
Independent economist Chris Richardson predicts the budget will show those surpluses swinging back to deficits of $33 billion and $46 billion in 2024-25 and 2025-26.
Expressed in terms of the economy, that’s the equivalent of swapping combined surpluses over two years of 1.5 per cent of GDP with deficits to the tune of 2.8 per cent of GDP over the next two years.
“It’s been more than 5 minutes of budgetary sunshine, and it’s been brilliant,” Mr Richardson told the ABC. “But it’s also been luck. And the luck is starting to run out.”
Expected to be released at 10:30am AEDT, the mid-year budget is expected to include major revenue writedowns caused by falling global commodity prices and weaker Chinese demand for iron ore, as well as rising spending commitments that Labor says are “unavoidable”.
Chalmers invokes the history books
Despite the darkening budget outlook, Mr Chalmers will today seek to burnish and contrast Labor’s economic oversight against the former government’s record.
He will portray the overall budget position as being $200 billion better off over the six years to 2027-28 compared to what had been predicted in the Pre-Election Economic and Fiscal Outlook in April 2022.
That performance — which sets the baseline for comparison to a time when the nation was still to shake off the negative budget fallout caused by the high-spending pandemic response — means gross debt is $177 billion lower this year than was forecast almost three years ago.
That has avoided around $70 billion in interest costs “over the decade”, according to government calculations.
“The budget position is cumulatively $200 billion better than what we inherited, even with some slippage as a result of global uncertainty and unavoidable spending on things like veterans’ payments and Medicare,” said Mr Chalmers overnight.
“Despite growing pressures on the budget, the mid-year update will show a big improvement in the bottom line since the election.”
The update is expected to confirm budget deficits for the foreseeable future. (ABC News: Simon Beardsell)
“In only two and a half years, we’ve turned two big Liberal deficits into two Labor surpluses, we’ve overseen the biggest turnaround in the budget in history and paid off billions of dollars of Liberal Party debt.”
Challenged on Tuesday at a press conference over whether he would take political ownership of the coming years of deficits — and call them “Labor” shortfalls — Mr Chalmers defended comparing his performance to the previous government.
“The reason we compare the budget that we inherited with the budgets and updates that we’ve been delivering is because the country’s made remarkable progress cleaning up the mess that we inherited”.
The comparisons are likely to be contested by economists and budget experts, who point out that federal spending during the COVID-19 crisis propelled the economy in its aftermath and effectively helped generate the surpluses that followed.
However, Mr Chalmers said that did not explain “all of the deficits that our political opponents handed down before that”.
“They delivered no surpluses.”
Structural problems remain
Wednesday’s document is expected to show the nation’s structural budget balance — a measure that strips out “cyclical” factors that temporarily affect tax receipts and spending — will continue through most of the coming decade.
Deloitte Access Economics budget expert Pradeep Philip said the structural deficit was widening as revenue from the “gravy train” of global commodity demand came to an end.
Pradeep Philip said the budget was poorly positioned to handle coming spending pressures. (ABC News)
“Some of the spending is on good things, some of the spending changes reflect lower unemployment and higher inflation, but given our revenue base, the spending is unsustainable,” he said.
“There are big legitimate spending challenges on the horizon: defence and national security, financing the energy transition, building more houses and kickstarting an investment boom.”
With an election due by mid-May, chances of another budget before the prime minister triggers the campaign are increasingly seen as slight.
Mr Chalmers downplayed suggestions the government would seek to fill Wednesday’s economic statement with a series of “hollow logs” for future announcements during the campaign.
“It won’t be particularly unusual compared to earlier budgets and updates.”
Mr Richardson said the timing of when governments release the Mid-Year Economic and Fiscal Outlook (MYEFO) “is a function of the news in it”.
“If governments have a good news story to sell, MYEFO is in November and early December.
“If there’s stuff they prefer Australians not to notice, it gets squeezed up close to Christmas. And here we are.”
