More jobs, higher commodity prices, and stronger population growth are set to swell the government’s coffers ahead of the federal election.
Independent economist Chris Richardson has crunched the numbers and reckons the government’s cash balance will be $11 billion (US$6.9 billion) better off than Treasury predicted in its mid-year budget update in December.
That’s the result of a $13 billion (US$8.2 billion) increase to the tax take this financial year, with more people in work resulting in higher personal income tax payments.
Company taxes are also expected to outperform thanks to prices of Australia’s key exports again falling slower than Treasury’s conservative estimates and a weaker Australian dollar boosting mining profits.
But indirect taxes, like the ones we charge on spending, are tipped to be $1.5 billion (US$0.95 billion) less than forecast.
“Once again a key reason is that we don’t enforce our tobacco taxes, for reasons found in the dictionary under the word ’stupid’,” Richardson said.
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Despite the fiscal improvement, the budget is still expected to be in the red to the tune of $16 billion (US$10.1 billion) in 2024/25.
Including off-budget spending, which the government labels as an investment but still limits its fiscal capacity, that makes a headline deficit of $37 billion (US$23.4 billion).
Looking further down the track, the news is notably worse, with Richardson predicting a $10 billion (US$6.3 billion) downgrade to the deficit in 2027/28, with spending promises accelerating but neither side of politics offering a solution of how to pay for the increased outlay.
Labor has maintained it is preparing to go ahead with a pre-election budget, which is scheduled to be delivered on March 25 but could be substituted with an economic update if an early election is called.
Either option would allow the government to promote the boost to the economic outlook.
Upward revisions to the tax take since Labor came to office contributed $102 billion (US$64.4 billion) extra to the budget in 2023-24.
If Richardson’s predictions are borne out, that would allow Treasury to revise this year’s windfall from $71 billion (US$44.8 billion) to more than $80 billion (US$50.5 billion).
But he cautioned none of that improvement was due to the government’s handiwork.
“The bottom line is that the bottom line is improving, but not because of any decision by any politician,” he said.
“Many migrants meant more people to tax. Wars pushed up the price of what Australia sells to the world, and we got tax windfalls from that. And inflation took money from families and handed it to the taxman.”
