Jim Chalmers Announces $50 Billion Improvement in Federal Budget Compared to March Projections | Australian economy

Last year’s federal budget deficit was less than half of the $80 billion projected in March, helped mostly by a surprising rise in commodity prices, treasurer Jim Chalmers said.

In an update on Tuesday, five weeks before the Albanian government releases its first budget, Chalmers said the result for fiscal year 2021-22 would represent an improvement of nearly $50 billion from what was expected six months ago.

The “substantial but temporary tax hike” came largely from higher-than-expected revenues, as a jump in commodity prices boosted Australia’s returns on mineral exports.

The fiscal ledger would also benefit from $20 billion in tax payments that were “far below budget,” in part because the previous Morrison administration had failed to spend as it had proposed on items such as Covid vaccines. Delivery issues had also delayed some infrastructure spending.

The turnaround compared to an expected $79.8 billion deficit projected in March by then-treasurer Josh Frydenberg but would still leave a gap “north of $30 billion.”

Chalmers and Treasury Secretary Katy Gallagher told a media conference that calculations of further deficits – the existing budget projected a deficit of $78 billion this year and $56.5 billion for 2023-24 – were still being finalized.

“This substantial improvement is welcome,” Chalmers said. “But most of it is driven by temporary factors.”

For example, the advancing price of iron ore was already about a fifth below its level for two weeks at the end of June, while the price of coking coal for steel production fell more than a quarter.

A lower-than-expected take-up of Covid-related business support measures would lead to an improvement in the budget position last year but would lower revenues this year as corporate deductions increase, Chalmers said.

The treasurer described the upcoming budget, scheduled for October 25, as a “bread and butter” budget, which would have to deal with “difficult” spending challenges.

The government is wary of increasing spending that would conflict with the Reserve Bank of Australia’s efforts to cool demand in the economy and inflation by raising its key interest rate.

The 225 basis point rise in the RBA’s spot rate is already the most in one spurt since 1994, and bank governor Phil Lowe signaled another rate hike in October last week. That would make it the sixth in as many months, a record number of increases.

The government has been cautious about making promises, such as whether it would abolish the $1.9 billion in subsidies for the Beetaloo Basin gas projects and others.

“You’ll have to wait and see,” Gallagher said.

Among the additional spending pressures on the budget were the additional $1.4 billion to support elderly care announced Monday, and $2 billion to cover flood-related costs, she said. The budget should also allocate funds for “a few hundred terminating measures,” from digitizing medical records and closing the gap for Indigenous programs, which require spending commitments.

“It’s clear that decisions were made under the previous administration that did not permanently fund ongoing programs, and that also puts pressure on those expectations for the future,” Gallagher said.

One change that is certain will be the end of next week from the fuel tax halving introduced by the Morrison government as a measure to ease the cost of living for six months as it prepared for federal elections in May.

Chalmers said the ample storage of fuel at service stations across the country meant motorists would not see the full 23 cents per liter increase in fuel prices when excise duties are reinstated late Tuesday night.

There were “700 million reasons” why the price shouldn’t rise immediately, he said, adding that fuel prices had fallen at least about 50 cents from their most recent peaks in some parts of the country.

The pace of price increases will be clearer next week, with the Australian Bureau of Statistics on Tuesday saying it will bring forward the release of monthly consumer price indices for July and August by about four weeks to September 29.

Those numbers may reveal that annual inflation is about 7% headed for a peak of 7.75% in December, at least according to current RBA and Treasury forecasts.

However, full CPI figures for the September quarter will not be released until October 26, or a day after the government’s first budget.

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