Increased Spending In October Budget But Savings Needed Too

On October 25, the new Australian government will hand down its first budget but trends reported by the Australian suggest that not only will there be new spending but savings/increased taxes are also possibly on the agenda. Without savings/revenue, fiscal policy would put pressure on the RBA to tighten beyond their current thinking.

• According to CBA research, government spending as a share of the real economy is now close to a record of 28% after decades around 23%, as spending significantly outpaced the economy since the onset of Covid. Tax as a share of household income has also risen to 15.5% in Q2 2022 from 13%.
• The Albanese government announced a further $1.4bn for Covid measures and is expected to spend a further $5.4bn on cheaper childcare. Additional expenditure on other social services is also expected in the budget. But as spending continues to rise, there is mounting pressure to make the public finances more sustainable, and so savings and additional revenue will probably also be a part of the budget, despite the windfall from mining.