Global Courant 2023-05-09 16:00:00
SYDNEY — Australia’s Labor government boasted its first budget surplus in 15 years on Tuesday, as strong job growth and huge mining profits boosted its coffers, but it will soon be swallowed up by spending on everything from health to energy and defence.
In his second budget since taking office in May last year, Treasurer Jim Chalmers also announced billions in cost-of-living relief aimed at cutting energy bills and consumer prices as a helping hand in the fight against the Reserve Bank of Australia (RBA) against inflation.
“Providing responsible, targeted aid is the number one priority in our budget,” Mr Chalmers told lawmakers, while also praising the improvement in budget outcomes.
“With this budget, we’ve returned 82 percent of the additional revenue pullback that came largely from lower unemployment, stronger job and wage growth and higher prices for key exports.”
The high point was an expected surplus of A$4.2 billion (S$3.77 billion) for the year to June 2023, the first since 2007/08 and a huge reversal from the A$37 billion deficit last October .
The former Liberal National government came tantalizingly close to a surplus in 2019, only for Covid-19 to punch a pandemic hole in the accounts and push the deficit to a record A$134 billion.
The latest improvement is largely due to a surprisingly strong labor market, which has reduced unemployment to near-50-year lows of 3.5 percent and raised income taxes while benefits have slowed.
High prices for Australian commodity exports have also boosted mining profits, and thus tax revenues, although prices are now well off their peak.
The government also increased its long-term budgetary commodity price assumptions, which are expected to contribute billions of dollars in additional revenue.
“The government’s commitment to fiscal discipline, such as saving revenue increases, remains critical to our AAA rating for Australia as long-term challenges persist,” said Mr. Anthony Walker, a director at S&P Global Ratings. .
Mr. Walker believed that the revised commodity price forecasts were still conservative.
“A sharp slowdown in economic activity that weakens the general government budget, driving up debt and maintenance costs, could put pressure on the AAA rating,” he added.
Mr Chalmers also expects the domestic economy to slow to just 1.25 per cent in 2023/24 from 3.25 per cent this fiscal year, largely due to a painful 375 basis point rate hike from the RBA.
That tightening should have the desired impact on inflation, which Mr Chalmers sees slowing to 3.25 percent by mid-2024, below the current blistering rate of 7.0 percent.
The Treasury estimates that the energy bill-only lighting package will save 0.75 percentage points from consumer price inflation in 2023/24.
However, higher interest rates have sharply increased the cost of financing the government’s nearly A$1 trillion in debt, with debt service being the fastest growing expense in the bills.
