Budget Preview – Deficit To Halve But Deteriorating Outlook

The first budget for Australia’s new government is to be delivered tonight at 1930AEDT. Its focus is to establish Labor’s budgetary credentials while delivering on its election promises. Economic projections are to be downgraded while showing that Australia should avoid a recession. Treasurer Chalmers has been managing expectations and stating that the budget won’t add to inflation pressures.

• Treasury’s forecasts should show economic growth of 3.25% for 2022-23 (revised down 0.25pp) but 1.5% in 2023-24 due to higher inflation and rates, and slower global growth (compared with the RBA’s current 1.8% forecast). Wage growth is expected to remain below inflation, and the unemployment rate should rise to 4.5% in 2023-24. Inflation is forecast to end 2022 at 7.75% (consistent with the RBA). (The Australian)
• The budget is likely to show A$100bn revenue boost over the next four years, front loaded in the first 2 years, driven by commodities and tax revenue. Therefore, this year’s deficit is due to halve to $36.9bn (about 1.5% of GDP) but it deteriorates in the years following as structural spending rises. (The Australian)
• A$22bn of spending cuts are also likely to be announced, according to The Australian, and Finance Minister Gallagher said that there’ll be further cuts going forward.
• Additional budgetary pressures are expected from increased interest on the debt, although gross debt should trend down. An extra A$33bn is needed for the higher indexation of welfare payments, A$1.4bn for flood relief, A$900mn for the Pacific, and an additional A$10bn for aged-care and health.
• The Australian reports that the budget will forecast an almost 30% rise in power costs next year and that relief measures could be announced in the budget.