Last year’s federal budget deficit was less than half the $80bn projected in March, aided mostly by a surprise jump in commodity prices, the treasurer, Jim Chalmers, has said.
In an update on Tuesday, five weeks before the Albanese government releases its first budget, Chalmers said the bottom line for the 2021-22 fiscal year would boast an improvement of almost $50bn from what was expected six months ago.
The “substantial but temporary lift in taxes” came in large part from higher than expected revenues as a jump in commodity prices boosted Australia’s returns from its mineral exports.
The fiscal ledger would also benefit from $20bn in “far lower-than-budgeted” tax payments, in part because the previous Morrison government had not managed to spend as it had proposed for items such as Covid vaccines. Supply issues had also delayed some infrastructure outlays.
The turnaround compared with a projected $79.8bn deficit projected in March by then treasurer Josh Frydenberg, but would still leave a gap “north of $30bn”.
Chalmers and the finance minister, Katy Gallagher, told a media conference that calculations of further deficits – the existing budget predicted a $78bn shortfall this year and $56.5bn for 2023-24 – were still being finalised.
“This substantial improvement is welcome,” Chalmers said. “But the bulk of it is driven by temporary factors.”
The rolling two-week iron ore price, for instance, was already about one-fifth below its level at the end of June, while the price of coking coal used in steelmaking was off more than a quarter.
A lower-than-forecast take-up of Covid-related business support measures would have the effect of improving the budget’s position last year but would see revenues lowered this year as deductions for companies accumulate, Chalmers said.
The treasurer described the coming budget, scheduled for 25 October, as a “bread and butter” one, that would have to deal with “difficult” spending challenges.
The government is wary about increasing spending that would run counter to the efforts of the Reserve Bank of Australia to cool demand in the economy and inflation by hiking its key interest rate.
The 225-basis-point increase in the RBA’s cash rate is already the most in one spurt since 1994 and the bank governor, Phil Lowe, last week flagged another rate rise in October. That would make it the sixth in as many months, a record sequence of increases.
The government was cautious about making any promises, such as whether it would abolish the $1.9bn in subsidies for the Beetaloo Basin gas projects and others.
“You’ll have to wait and see,” Gallagher said.
Among the extra spending burdens on the budget were the extra $1.4bn for aged care support announced on Monday, and $2bn to cover flood-related costs, she said. The budget would also have to assign funds for “a couple of hundred terminating measures”, from digitising health records and closing the gap Indigenous programs, that would need spending commitments.
“Clearly, under the previous government, there were decisions taken where ongoing programmes were not funded in an ongoing sense, and that is creating pressure in those forward estimate views as well,” Gallagher said.
One change that is certain will be next week’s end to the halving of the fuel excise introduced as a six-month cost-of-living relief measure by the Morrison government as it prepared for the May federal election.
Chalmers said the ample storage of fuel in service stations around the country meant that motorists should not see the full 23 cent per litre rise in fuel prices when the excise is restored late on Tuesday night.
There were “700m reasons” why the price should not immediately rise, he said, adding that at least fuel prices were down about 50 cents from their most recent peaks in some parts of the country.
The rate of price increases will be clearer next week, with the Australian Bureau of Statistics saying on Tuesday it will bring forward by about four weeks to 29 September the release of its July and August monthly consumer price index figures.
Those numbers may reveal annual inflation is running at about 7% on the way to a peak of 7.75% by December, at least on current RBA and Treasury forecasts.
The full September quarter CPI figures, though, will not land until 26 October, or a day after the government’s first budget.
