Since the Abbott government, Treasury has largely underestimated the prices of key commodities.
The 2024-25 budget was based on an assumed decline in prices for iron ore, metallurgical and thermal coal plus LNG. All have remained stronger than forecast. Iron ore alone, expected to gradually ease to $US60 a tonne, remains above $US100 a tonne with a low point of $US94.50 a tonne.
Chalmers said the figures reinforced the government’s commitment to responsible economic management, pulling together the surpluses of 2022-23 and 2023-24 with the more recent deficit.
Since coming to office, the government has run a cumulative surplus of $28 billion compared to a forecast cumulative deficit of $181 billion.
“In dollar terms, we’ve made more progress on the budget in three years than any government in history,” he said.
“We’ve turned two big Liberal deficits into two substantial Labor surpluses in our first two years, significantly reduced the deficit in our third year, and continued to pay down debt.”
Although still in deficit, the better than expected result for 2024-25 points to Chalmers’ forecast that the deficit for the current financial year will come in lower than tipped just before the start of the federal election campaign.
Much stronger than expected jobs growth, on top of a lift in wages growth, have underpinned the improvement in the budget bottom line.Credit: Louise Kennerley
In March, Chalmers forecast a string of deficits including $35.7 billion in 2026-27 and $37.2 billion the following year. Gross debt is expected to surpass $1 trillion for the first time on record this financial year.
The coming deficit years include the government’s back-to-back modest personal income tax cuts that start from the middle of next year.
Instead, the stronger starting point, the large number of people in employment and better commodity prices should feed into smaller deficits and lower debt.
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Despite the improvement, government spending as a share of the economy is still about 27 per cent of GDP, just short of the levels reached during the COVID pandemic. Tax as a share of the economy is on track to reach 23.5 per cent this financial year.
The tax-to-GDP ratio has been above 23 per cent since 2021-22 and it is expected to remain there for the rest of the decade. That would be the longest stretch of years at such an elevated level since the Howard government.
Finance Minister Katy Gallagher said the improved budget position had not happened by accident. She said the government had banked the majority of stronger revenue and found more than $100 billion in savings.
“At the same time as revenue has strengthened, we’ve delivered cost-of-living relief, tax cuts for every taxpayer, cheaper childcare, energy bill relief and record investments in Medicare,” she said.
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