The federal budget is $11.5 billion better off than was anticipated just a few months ago thanks to a stronger tax take and a boost in export revenue, while spending shortfalls and higher inflation have also helped reduce debt.
Figures released by the Finance Department on Friday show the federal government is already $5.5 billion ahead in tax collection this financial year, helping to reduce the budget deficit in the six months to December to $14.7 billion.
That actual deficit for the first half of the 2022-23 financial year is $11.5 billion lower than the $26.2 billion forecast in the October budget.
In the Treasury Department’s forecasts in October, the deficit would balloon by another $10.7 billion to $36.9 billion by the end of June.
Even if the deficit is in line with Treasury’s $10.7 billion forecast for the next six months, Treasurer Jim Chalmers and Finance Minister Katy Gallagher would be on track to deliver a much-improved bottom line in their next budget in May.
Gallagher said last year’s budget, which included $22 billion in reprioritised funding and savings, was the first step in the government’s plan to repair the budget.
“Work on the 2023-24 budget is under way and in line with the fiscal strategy we set out in October, we are continuing the work on budget repair including how to restrain spending growth, ensuring the quality of current spending and making sensible savings where we can,” she said.
The December financial statement shows the government brought in an extra $5.3 billion in income tax over the second half of last year than was forecast in the October budget, including an additional $2.8 billion in company tax.
While inflation – which reached 7.8 per cent in December – has caused cost-of-living pain for Australian households and put pressure on businesses, it also helped the budget bottom line.
The government also pulled in nearly $800 million extra in GST in the last six months. GST is added at a rate of 10 per cent on a wide variety of goods and services subject to surging inflation in recent months.
But the report shows the government is also behind on spending.
While the government has spent roughly half the full financial year forecasts for major programs including social security and welfare, its outlay in programs including mining, agriculture, transport and communication, fuel and housing were behind. Many programs required contracts signed with state governments.
Independent economist Chris Richardson said the boost to the government’s bottom line was a windfall, not a solution.
“Better-than-budgeted outcomes are the norm around the world right now. And that’s NOT because governments are taking hard decisions. It’s because inflation is doing the heavy lifting,” he said.
“Inflation boosts the tax take more than it boosts government spending.”
Richardson said the Australian budget gets added help from the fact the country is a big exporter of food and importantly, commodities including coal and iron ore.
“The price of those rose on Putin’s invasion of Ukraine, providing an extra boost to the tax take,” he said.
“The upshot is that the boost to revenues is bigger in Australia than elsewhere, and the boost to national income is bigger in Australia than elsewhere.”
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