Economics forecasters Deloitte are warning that December’s update to the federal budget will reveal a $5.2 billion (US$3.4 billion) gap that appeared in the forecasts presented by Treasurer Jim Chalmers in May.
Deloitte Access Economics Budget Monitor predicts a deficit of $33.5 billion for the current financial year, rather than the $28.3 billion that the budget forecast.
If its deficit forecast is correct, this would represent a deterioration in the budget bottom line of more than $49.3 billion, following the $15.8 billion surplus achieved in 2023/24.
It attributes the worsening fiscal outlook to several factors, including the flat economy, lower-than-expected company tax revenues, continued spending pressures, and the volatile overseas situation—particularly problems in Beijing’s economy.
Deloitte also said Australia’s budget “will not be immune” to the Trump administration’s intention to impose tariffs on all imports. Lower sales to both the United States and China—particularly of commodities—will further reduce the amount of company tax the government receives.
Commodity Prices The Main Problem
The drop in global commodity prices is forecast to cut $18 billion off company tax receipts over the next four years. But while the big end of town will be paying less, workers will be making up some of the shortfall, with persistent inflation driving income tax receipts to $8.2 billion higher.
“While Australia appears to have achieved the much-vaunted soft economic landing that policymakers had been seeking, the federal fiscal position is returning to earth with a thud,” Deloitte said.
“That stunning turnaround in Australia’s fiscal fortunes would be the largest nominal contraction in the underlying cash balance on record, excluding the pandemic-hit budget of 2019/20.
“Worryingly, there is little to suggest that the situation will right itself in the years to come.”
The firm says the country needs a more sustainable fiscal strategy.
Changes to Future Fund Not Justified: Deloitte
Last week, Chalmers said the Future Fund should prioritise investments in housing, the renewable energy transition, and infrastructure where that was consistent with its requirements in relation to returns and risk.However, Deloitte questioned the change to the Fund’s mandate, saying, “The changes raise more questions than they answer.”
“If having regard to these national priorities can be consistent with maximising returns, why has the Future Fund not invested more in these areas in the past?” it asked.
“Equally, if the new investment mandate doesn’t change the benchmark risk or return and doesn’t strictly require investment in a specific area—in other words if it changes nothing—then why was it published?”
It said the government needs to build broad support for the changes by explaining why the fund requires “refreshing.”
Deloitte also criticised the lack of substantial economic reform over the last more than two decades.
“That has resulted in a coddled and cosseted economy bereft of competitiveness and dynamism,” it said.
“Economic and productivity growth are moribund, and real incomes are declining, while income, wealth, and intergenerational inequality have morphed into a broader schism through Australian society.”
Chalmers responded to the report by saying the government had “warned for some time that pressures on the budget are building, not easing, and this is consistent with that.
“Our budget position in the mid-year update will be a bit weaker than the Treasury forecast in May, but it will still be much stronger than what we inherited. Deloitte’s report shows that global economic uncertainty, like the slowdown in China, is a key factor weighing heavily on the budget right now,” he said.
