Budget $5.4b better off as Chalmers tightens the belt
Finance Minister Jim Chalmers will announce a $5.4 billion improvement in the federal budget this fiscal year, despite the deficit falling to its worst level in five years.
Dr Chalmers will praise the government’s responsible management of the economy, cleverly using words such as “sensible” and “restraint” as he announces his mid-year budget update on Wednesday.
And there’s more than just spin to support this.
For the first time in eight years, he can honestly say that the government’s decisions have improved the profitability of the budget.
The figures, which veteran budget watchdog Chris Richardson calls a “truth table”, will show the net impact of policy decisions that reduced cumulative deficits by $2.2 billion, based on four-year forward estimates.
As a result, previous improvements were entirely due to parameter changes (factors beyond the government’s control) and government decisions worsening the budget outcome.
In last year’s mid-year update, the total impact of policy decisions on forward forecasts amounted to a $17.5 billion deterioration in profit.
In this year’s March budget, government decisions weakened the underlying cash balance by a further $34.9 billion over four years.
But while the parameter changes increased the profitability of the March budget by more than $36 billion, the effect of good fortune on the mid-year update was more limited.
Over the four-year forecast horizon, the underlying cash balance increased by only $8.4 billion; $6.2 billion of this was due to parameter changes.
Mr Richardson said the large upward revisions to personal tax, company tax and GST seen in previous years were a thing of the past and he predicted only minor outperformance.
He called for extra restraint from the treasurer to cut spending and help the Reserve Bank control inflation.
Dr Chalmers said the budget deficit for the current financial year, at $36.8 billion, was forecast to be $5.4 billion better than the pre-election fiscal outlook, and forecasts going forward would get better each year because “we have managed the budget sensitively and responsibly.”
“This is the biggest improvement to the budget in a single parliamentary term and is a strong demonstration of Labour’s responsible approach to the country’s finances,” he said.
“By saving more and restricting spending and banking revenues, the budget is in much better shape than it was when we came into government and has even improved since the last election.”
Dr Chalmers said Labor had to adjust to the budget despite a $35 billion increase in spending forecasts.
Finance Minister Katy Gallagher said responsible financial management means the government ensures essential services such as veterans’ support, disaster recovery and aged pensions remain “robust and responsive to the needs of society”.
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