- Treasury budget update reveals larger deficits
Anthony Albanese’s pre-election spending spree could be preventing Australians from getting a rate cut.
The Treasury’s mid-year economic and fiscal outlook, published on Wednesday, revealed that public debt levels and income tax receipts had increased since the May budget.
Government spending as a proportion of gross domestic product is also at the highest level in almost four decades, outside of the pandemic, which will also mean larger budget deficits in the coming years.
This is happening as Labor goes on a spending spree: $16 billion will be spent on debt relief for university fees and another $5 billion will be spent on childcare.
But before the figures were released, Treasurer Jim Chalmers denied Australia had a spending problem, despite concerns from economists about “spending surge”.
“The Reserve Bank Governor herself has said that public spending is not the main game when it comes to our inflation challenge,” he told Sunrise on Wednesday morning.
“We have made a lot of progress on inflation, we still have a little further to go, but the budget position is a very responsible budget position.”
Reserve Bank of Australia Governor Michele Bullock said in August that “public demand is not the main game”, but in November added “I must emphasize here that it is not just the federal governments, but also the state governments.” those that are helping to keep inflation high. .
Anthony Albanese government’s pre-election spending spree could be preventing Australians from getting a rate cut
The budget update projected a deficit of $46.9 billion for 2025-26, down from the $42.8 billion figure projected in the May budget.
The budget update projected a deficit of $46.9 billion for 2025-26, down from the $42.8 billion figure projected in the May budget.
Gross public debt in the next financial year is also expected to rise to $1.028 trillion, up from the $1.007 trillion level forecast in May and representing 36 percent of gross domestic product.
The Reserve Bank of Australia has refused to cut interest rates in 2024 and its cash rate of 4.35 per cent is now higher than the equivalent policy rates in Canada and New Zealand.
This is happening even though those nations have cut interest rates this year, along with the United States, the United Kingdom and the European Union.
Cathryn Lee, partner at Deloitte Access Economics, said: “The federal budget bottom line is deteriorating under the weight of increased spending and Australia’s economic challenges.”
Fellow candidate Stephen Smith said the government was too reliant on income tax and spending too much on superannuation concessions and a 50 per cent discount on capital gains tax, a policy change Labor scrapped after losing the 2019 elections.
“Australia’s tax setup is increasingly unfair,” he said.
‘Nearly half of all revenue collected by the federal government comes from taxes on individuals.
“At the same time, major tax expenditures, such as favorable taxes on contributions and retirement gains, and the capital gains tax rebate, disproportionately benefit the wealthiest Australians.”
The Treasury’s Tax and Spending Statement released on Tuesday showed the government would lose $24.2 billion in revenue in 2024-25 by taxing retirement earnings at 15 per cent during the accumulation phase, but not taxing them at all during the retirement.
Treasurer Jim Chalmers denied Australia had a spending problem