A responsible Budget in uncertain times
The Albanese Labor Government is putting a premium on Budget restraint and economic resilience.
The best defence against growing global uncertainty is responsible Budget management at home – and that’s what this Budget delivers.
The Budget substantially downgrades the outlook for many of the world’s major economies – reflecting the impact of Russia’s illegal war in Ukraine, a global energy crisis and inflationary pressures, and unprecedented synchronised global monetary tightening.
In this difficult environment, we have plenty going for us – including low unemployment, strong prices for exports, and a growing economy.
Real GDP is forecast to grow by 3 ¼ per cent in 2022-23, before slowing to 1 ½ per cent growth in 2023-24 – as global challenges, high inflation and rising interest rates weigh on domestic consumption.
Inflation is still forecast to peak at 7 ¾ per cent in the December quarter this year, but is expected to be more persistent – largely due to higher energy prices, turbocharged by Russia’s war in Ukraine and exacerbated by the previous decade of energy policy chaos.
The October floods will also add further to inflation, partly offsetting lower-than-expected fuel prices relative to the Ministerial Statement in July.
Inflation is forecast to gradually ease to 3 ½ per cent by 2023-24, and return to be within the Reserve Bank’s inflation target band by 2024-25.
Unemployment is forecast to be 4 ½ per cent through 2023-24 and 2024-25 – below the pre-pandemic level of around five per cent.
Wages growth is expected to pick up – forecast at 3 ¾ per cent in 2022-23. As inflation moderates, real wages are expected to begin growing again in 2024.
Responsible Budget management and the fiscal outlook
The Government’s responsible Budget management includes:
- Limiting growth in spending, especially while inflation is high.
- Returning almost all tax receipt upgrades to the Budget.
- Focusing new spending on initiatives that grow the capacity of the economy.
New policies have been largely offset over the next two years, to avoid adding to inflation.
Almost all tax receipt upgrades have been returned to the Budget:
- 99 per cent over the next two years.
- 92 per cent over the forward estimates.
As a result of our spending discipline:
- Payments will fall in real terms over the next two years.
- Real spending growth averages just 0.3 per cent over the forward estimates.
The underlying cash balance for 2022-23 is expected to be - $36.9 billion – an improvement of $41.1 billion compared to the Pre-election and Economic Fiscal Outlook (PEFO).
The Government inherited a trillion dollars of debt without an economic dividend to show for it – with gross debt as a share of GDP at its highest level in more than 70 years.
Our responsible Budget management means gross debt-to-GDP will be 37.3 per cent in 2022-23. Gross debt will remain lower over the forward estimates compared to PEFO – that’s less debt than the previous government, but with more to show for it.
The Government’s Budget repair package delivers $28.5 billion in improvements over the next four years, including:
- $22 billion in savings from the Government’s Spending Audit.
- $4.7 billion from making sure multinationals pay their fair share of tax in Australia and extending successful ATO tax compliance programs.
This is a responsible Budget that is right for the times and readies Australia for the future.