Treasurer’s Mid-Year Economic and Fiscal Outlook Projects a Reduction in Budget Deficit
SYDNEY – Australia’s government anticipates a significantly improved budget bottom line for the current year, as revenues surpass initial projections. However, calls for further cost-of-living handouts are being resisted to prevent exacerbating inflationary pressures. Labor Treasurer, Jim Chalmers, unveiled the mid-year economic and fiscal outlook (MYEFO), revealing a budget deficit of only A$1.1 billion ($721.4 million) by June 2024. This figure represents a notable reduction from the previously forecasted A$13.9 billion in May.
Notably, the Labor government achieved its first budget surplus in 15 years during the 2022/23 fiscal year. This remarkable outcome was driven by the boom in the country’s vast mining sector and unexpectedly strong employment figures. With the assumption of iron ore prices falling to $60 per tonne, analysts speculate that another surplus may be on the horizon for the current year. Chalmers stated, “By restraining spending and returning most of the tax upgrades to the budget, the Government continues to ensure fiscal and monetary policy settings are aligned, and helps ease inflationary pressures.”
Government Cautious on Cost-of-Living Handouts to Manage Inflation
The Reserve Bank of Australia (RBA) was compelled to raise interest rates to a 12-year high of 4.35% to counter inflation, which reached 5.4% in the third quarter. This level significantly surpasses the central bank’s target range of 2-3%. In May, Chalmers announced A$23 billion in targeted cost-of-living relief. However, amidst the need to control inflation, he has since resisted pressure for further expenditure.
The government’s outlook is more optimistic than the RBA’s projections. They expect consumer price inflation to decelerate to 3.75% by mid-next year and further decline to 2.75% by mid-2025, placing it back within the RBA’s target range. Conversely, the central bank predicts inflation to slow to 3.3% by mid-2025, only returning to within the target band at year-end.
Projecting Economic Growth and Rising Unemployment Rates
The MYEFO projects economic growth to slow to 1.75% in the current fiscal year before rebounding to 2.25% in the following year. Additionally, the unemployment rate, which dropped to a five-decade low of 3.4% last year, is projected to rise to 4.25% this year and peak at 4.5%.
Chalmers acknowledged the challenges faced by the economy and the struggles of individuals, affirming the government’s commitment to both providing assistance and improving the state of the budget. The government’s popularity has waned due to soaring housing prices and record-breaking migration, which have taken a toll on public sentiment. Net migration reached an all-time high of 510,000 in 2022/23 and is expected to slow to 375,000 this year. Nevertheless, this figure still exceeds the May forecast by 60,000.
Earlier this week, the government announced its intention to tighten visa regulations for international students and low-skilled workers. This policy change could result in a 50% reduction in the country’s migrant intake over the next two years.