Australia’s Deficit to Be $22 Billion Worse Off Than Originally Predicted

Australian Labor Treasurer Jim Chalmers, Finance Minister Katy Gallagher (C), and Prime Minister Anthony Albanese speak to the media during a press conference at Parliament House in Canberra, Australia on Nov. 29, 2024. AAP Image/Lukas Coch

New figures reveal Australia’s financial position to be heading in a worse position than originally predicted.

The forecasted deficit for the current financial year is $26.9 billion, an improvement of $1.3 billion. However, over the next four years, the combined deficit will reach $143.9 billion—$21.8 billion worse than originally predicted.

Treasurer Jim Chalmers released the latest figures for Australia’s Mid‑Year Economic and Fiscal Outlook, which also revealed the country’s muted economic growth.

Treasury is now revising its growth forecast from 2 percent to 1.75 percent for the current financial year, while wage growth has been downgraded from 3.25 percent to 3 percent.

Household spending is now projected to grow by just 1 percent, compared to the earlier forecast of 2 percent.

“The economy has slowed more than we expected,” Chalmers said. “This is due to higher interest rates, cost-of-living pressures, and global uncertainty.”

The forecast for unemployment remains low with the government revising its employment growth forecast to 1.75 percent, an increase from the previous 0.75 percent prediction. However, this may also be attributed to high migration figures.

Treasurer Points to Cost Savings

Treasurer Chalmers did point to a $200 billion (US$126 billion) improvement in Australia’s financial situation to 2027-28, compared to figures in the Pre-Election Fiscal Outlook.

While the budget remains in deficit for the next four years, the government says it has secured $14.6 billion in savings in the most recent update, and $92 billion in savings since the 2022 election.

Chalmers described the update as a responsible reflection of the government’s progress, noting the $1.3 billion reduction in the current year’s deficit.

“This is a responsible set of books,” Chalmers said, adding that fiscal discipline has resulted in $177 billion less debt, and $70 billion less in interest repayments over the next decade.

Chalmers and Finance Minister Katy Gallagher remained optimistic about Australia’s economic trajectory, asserting that the economy is on track for a “soft landing” amid slower growth and global uncertainties.

Spending to Increase by $25 Billion

Despite deficits, there will be an additional $16.3 billion in “automatic” spending increases through indexation and extra payments into pensions, veteran support, and disaster relief funding.

Another $8.8 billion will go to “unavoidable increases” for the Pharmaceutical Benefits Scheme, infrastructure cost blowouts, and pay increases for childcare workers.

Much of the government’s new spending measures were underpinned from higher tax receipts from sending mining exports to China.

Overall company tax receipts were downgraded from $8.5 billion over the four-year budget cycle, the first since 2020-21.

Meanwhile, the Labor government has also allocated $1.2 billion for energy transmission infrastructure, $448 million for new mental health initiatives, and ongoing support for domestic violence and social services.

“We’ve found room to invest in critical areas while maintaining fiscal responsibility,” Gallagher said.

“This includes urgent infrastructure needs and continued support for services like Medicare and domestic violence programs.”

Nationals Senator Matt Canavan criticised the use of the term “unavoidable” to describe spending.

“Their own table shows that their policy decisions have increased spending by $17 billion!” Canavan wrote on X. “All this extra spending keeps inflation and interest rates higher for longer.”

Future Election ‘War Chest’

The budget update also reveals a “war chest” of unannounced spending, with $5.5 billion in spending set to be unveiled in the lead-up to the next federal election.

Chalmers said this figure is smaller than the government’s previous election war chest, indicating a more cautious approach ahead of the 2024 election.

However, these funds will likely be allocated to address emerging issues and further invest in key sectors such as healthcare, infrastructure, and social services.

Opposition Warns of Economic Fallout Under Labor

Opposition Leader Peter Dutton criticised the government’s economic management

“I don’t think Australians can afford another three years of Anthony Albanese and Labor,” Dutton told reporters in Adelaide.

Shadow Treasurer Angus Taylor added that the government’s Outlook results were an “absolute shocker.”

“They have absolutely lost control on this because they think that spin is the way to get through a cost-of-living crisis,” he said on Sky News on Dec. 17.

Taylor pointed to seven consecutive quarters of GDP per person going backwards, and seven quarters of household recession, saying the economy was going “off a cliff.”

He also noted the Coalition’s opposition to over $110 billion in spending in parliament but did not provide specifics on where his party would cut expenses if elected in 2025.

“It’s the aggregate level of spending that matters,” he said.