Treasurer ‘making room’ in budget as programs blow out
The federal government is supporting Australians to reduce spending elsewhere in the budget to make room for the inevitable payment boom.
In next week’s mid-year budget, Chancellor of the Exchequer Jim Chalmers will announce an unforeseen $6.3 billion increase in natural disaster relief, an extra $3 billion in age pensions, a $2.1 billion increase in defense force pension benefits and a $1.3 billion increase in veterans’ benefits.
Since the four programs are demand-driven, the upward revisions since the March budget are not the result of government decisions.
But Dr Chalmers signaled the government will need to tighten its belt to ensure the budget balance does not weaken, which is expected to run an even deeper deficit this financial year.
“The biggest challenge in the mid-year update was to make room for the inevitable prints and payments without significant deterioration in the bottom line,” he said.
“Although we have achieved significant improvement in the outcome, differences in forecasts in various areas are putting significant pressure on the budget.
“Our predecessors underfunded services and shamefully short-changed veterans, but we take our responsibility to these people very seriously and will always make room in our budget for these Australians to do the right thing.”
Dr Chalmers has previously said the government will need to make “difficult decisions” in its mid-year budget.
“There will be savings because there are savings in all our budgets and all our updates, and the cabinet has come to a particularly difficult decision today,” he said earlier this week when announcing that energy rebates would not be extended beyond 2025.
This electricity bill reduction, which cost the Commonwealth almost $7 billion over three rounds, would have been stopped anyway and would not be factored into the budget.
The revisions announced Friday would take a $12.7 billion hit to the budget over the four-year forward forecast period if additional savings are not achieved.
Default rates, which the government uses to assess retirees’ eligibility for Social Security payments, are expected to rise for the second time since September after the government froze rates at record lows during the COVID-19 pandemic.
The controversial increase, which was decided by an independent panel and will be implemented in March, will offset the budget savings.
The coalition accused Labor of an irresponsible “spending spree” that was worsening Australia’s financial health and fueling inflation.
However, recent data shows that the private sector has replaced the public sector as the driving force of the economy.
A sharp increase in government-funded roles such as aged care, health and education has led to job creation in recent years.
But HSBC chief economist Paul Bloxham said labor force figures showed the slowdown in non-market job creation was reducing pressure on the labor market.
“Last year, 36 per cent of job creation was from non-market sector jobs, up from 80 per cent the year before,” he said of jobs data released by the Australian Bureau of Statistics on Thursday.
“Overall, the increase in private sector job creation was not sufficient to offset publicly funded job creation, resulting in overall employment growth slowing.”
With labor demand and supply falling, his assessment was that the labor market was gradually loosening but remaining fairly tight.
Mr Bloxham said on the margin this was positive for the Reserve Bank’s hopes of containing inflation and would reduce the chances of a rate hike in the near term.
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