The nation’s strong jobs market and high-priced commodities are rapidly improving the federal budget, which was $13.6 billion ahead of expectations at the end of January.
Data from the Finance Department released on Friday showed higher than expected revenue and a shortfall in planned spending brought the deficit down to $28.4 billion. It had been forecast to be $42 billion at the end of last month, before narrowing over the next five months.
Treasurer Jim Chalmers and Finance Minister Katy Gallagher selling the October budget.Credit:Martin Ollman
In his October budget, Treasurer Jim Chalmers forecast a deficit of $36.9 billion for 2022-23, with a larger deficit of $44 billion expected next financial year. The deficit in 2021-22 was $32 billion.
The widening deficits were predicated on a sharp fall in the price of key commodities such as iron ore, liquefied natural gas, oil and coal.
Friday’s data showed both personal tax and company tax collections were $3.6 billion ahead of forecasts while indirect taxes were $2 billion stronger than anticipated.
The jobs market, with unemployment at 3.7 per cent, has remained resilient in the face of higher interest rates, which are expected to push up the jobless rate over the coming 18 months.
The October budget’s forecasts for company tax relied on an assumption that commodity prices would slip towards their long-run averages. However, all have remained elevated in part due to the war in Ukraine.
Higher inflation has also pushed up prices for retail goods, lifting indirect taxes such as the GST and customs duties.
Reduced spending has also contributed to the better bottom line, although expenditure in some areas continues to lag expectations.
The government was expecting to spend $15.4 billion this year on telecommunications and transport but has so far spent only $4.3 billion. In this area, Canberra often has to deal with state and territory governments to sign off on major infrastructure projects.
It is also a little behind on spending in housing and community amenities, another area where contracts can be tied up due to negotiations with other levels of government.
Over the 12 months to the end of January, the federal budget was $9.1 billion. It had been at $9.4 billion for the 12 months to the end of December.
Independent economist Chris Richardson said while the budget was still well ahead of what had been forecast, there were signs of a slowdown.
“To be clear, we’re still on track to comfortably better the official October budget forecast for this year’s deficit of a cash underlying deficit of $36.9 billion,” he said.
“But the surge for surplus is running out of steam as cyclical positives such as commodity prices, inflation and jobs start to ease.”
The Reserve Bank is forecasting economic growth to slow to just 1.5 per cent this year and next, a rate that would normally translate into a slowdown in company and personal income tax collections.
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