BUDGET IN THE BLACK BUT COSTS PILE UP

Budget stays in the black but spending commitments mount up

Treasurer Jim Chalmers has chalked up a second successive annual budget surplus, with the Federal Government set to end the 2023-24 year with a $9.3 billion budget surplus. From 2024-25 onwards, however, the budget outcome is less rosy, as big-spending commitments including in Defence and the National Disability Insurance Scheme contribute to higher public outlays. Dr Chalmers has forecast that in the next financial year, Australia will return to budget deficits, starting with a $28.3 billion deficit in 2024-25 and rising to $42.8 billion deficit in 2025-26, before subsiding in following years. Personal income tax and corporate tax receipts have been revised upwards over the forward estimates, while GST receipts and superannuation fund taxes have been revised downwards, according to budget papers. This year’s budget surplus is a major turnaround on the budget outcome forecast in May 2023, when the 2023-24 Budget Paper No 1 forecast a $13.9 billion deficit for 2023-24.

Bullish outlook on inflation

While acknowledging that cost-of-living pressures persist in the economy, the Federal Government has provided an upbeat outlook on inflation, tipping that the Consumer Price Index (CPI) will fall from 3.5 per cent into the target range of 2-3 per cent in 2024-25. Budget papers forecast that CPI-measured inflation will ease to 2.75 per cent next year, and slide further to 2.5 per cent by 2027-28. Over the next three years, the Federal Government has also forecast that the rate of unemployment will rise from four per cent to 4.5 per cent, while annual economic growth is predicted to edge upwards, from two per cent in real gross domestic product in 2024-25 to 2.75 per cent in 2027-28. The Government says that its cost-of-living measures, such as energy bill relief, are estimated to directly reduce inflation by 0.5 of a percentage point.

Public debt position tipped to stabilise at trillion dollar mark

Federal gross debt is forecast to hit the trillion dollar level by 2025-26, at $1,007 billion, or around 35 per cent of gross domestic product. Net debt – which takes selected financial assets into account – is projected to rise to 552.5 billion in 2024-25, rising to almost $700 billion, or 21.9 per cent of GDP, in 2027-28. According to budget papers, debt levels are forecast to stabilise and subside by 2034-35, to 30.2 per cent of GDP (gross debt) and to 18.7 per cent of GDP (net debt) over the next 10 years.

Budget powers up Future Made in Australia plan by $22.7 billion

The Federal Government has allocated $22.7 billion over the next decade to support its new Future Made in Australia program. In the Federal Budget, it has nominated five industries to be aligned with its national interest framework to assess private investment proposals. Renewable hydrogen, critical minerals processing, green metals, low carbon liquid fuels, and clean energy manufacturing will be targeted to assist net zero transformation and to enhance economic security and resilience. The Government said Australia’s renewable energy resources had the nation well-placed to produce green hydrogen, while global demand for critical minerals (including domestic lithium, cobalt and rare earths) was expected to increase by 350 per cent by 2040, under the 2050 net zero emissions scenario.

International education faces tougher rules, student number caps

Education Minister Jason Clare has announced reforms to crack down on the international education sector, including capping the number of new international student enrolments. Under proposed legislation, the Education Minister will set providers an allocation on enrolments, with vocational education allocations based on advice from the Skills and Training Minister. Under the legislation, education providers will be banned from owning education agent businesses, while applications for registration from new international education providers will be paused by up to 12 months. New providers would also be required to demonstrate a track record of quality education delivery to domestic students before they are allowed to recruit international students. According to the Federal Department of Education, in the year-to-date at February this year, there were more than 700,000 enrolments by international students, compared with almost 579,000 in the same period (pre-Covid) of 2019.

Emily MinsonLunik