Record $20b surplus on the cards, but no more cost-of-living relief for now

A forecast record surplus of $20 billion or more opened the door for the federal government to provide more cost-of-living relief in the next budget, Treasurer Jim Chalmers said, as he ruled out any additional top-ups or tax breaks in this financial year.

Surging windfalls from income and company taxes will increase pressure on the government from the crossbench and interest groups to do more to help struggling households and boost investment in some areas.

This big: The final budget figures for last financial year will be confirmed in the coming weeks, but Treasurer Jim Chalmers said the surplus was likely to be just above  billion.

Paul Harris

But economists said the treasurer must stick to his plan of banking some of the savings and using part of them to pay down the government’s debt interest bill if it wanted to keep downward pressure on inflation.

Chalmers warned households not to expect additional support from the 2022-23 surplus, as the government was focused on rolling out measures announced previously, but he said the stronger budget position would give the government greater flexibility in future.

“We’re not currently working on a new package of cost-of-living relief. We’re focused on rolling out billions of dollars in cost-of-living relief that we have already announced,” he said.

“But what a much better budget position allows for is it gives you the flexibility down the track in future budgets.”

The government faces scrutiny from both the Coalition and the Greens over its handling of the surplus.

Shadow treasurer Angus Taylor said the surplus was driven by conservative forecasts and a greater tax take thanks to more Australians working harder to make ends meet. He said the best way for the government to ease those cost-of-living pressures was to get inflation down.

“The government wants a pat on the back for conservative forecasts, but we’d prefer if it was conservative with its spending,” he said.

“The challenge of inflation is that spending more only makes it worse. The government must address the source of inflation, not just the symptoms.”

But Greens finance spokeswoman Barbara Pocock said the government could surely find some room in the surplus to fund an additional $2.5 billion of public housing and increase the rate of JobSeeker as a top priority.

“It’s clearly wrong to be banking a surplus of that size when ordinary Australians are struggling with extraordinary cost-of-living pressures,” she said.

Chalmers said the government would use part of the surplus to “take some of the edge” off the federal government’s debt interest bill.

He also said it was important to set aside a large chunk for the future as the economic outlook remained uncertain.

“Even though the budget is in much better nick in the near term, we’ve still got those longer-term intensifying pressures,” he said.

Independent economist Nicki Hutley said much hinged on Wednesday’s inflation figures, which will be a key factor in the Reserve Bank board’s decision to either keep interest rates at 4.1 per cent or lift them at its next meeting on August 1.

Hutley said even if inflation continued to ease as expected, there was still a long way to go to get it back to the bank’s target of 2 to 3 per cent, and handing out more cash should be the last thing the government wanted to do.

“Banking most of the surplus is sensible,” she said.

“I think that’s very sensible, as long as they’re keeping fiscal policy tight by not giving in to the temptation to splurge. I know people are doing it tough, but that is just going to make it tougher.”

Economist Chris Richardson said further cost-of-living relief would be unhelpful.

“If inflation improves, it reduces the need for cost-of-living relief,” he said. “There is no case for the government to inject further money into the economy.”

The final budget figures for last financial year will be confirmed in the coming weeks, but Chalmers said the surplus was likely to be just above $20 billion. Australia’s largest surplus to date was $19.8 billion in 2007-08.

In May, Chalmers forecast a $4.2 billion surplus for 2022-23 – the first in 15 years – but since then, higher income tax receipts and increased company tax due to commodity price rises have helped deliver about $16 billion more in revenue than had been expected.

On Monday, the treasurer also announced Chris Barrett would be the next chair of the Productivity Commission, taking over from Michael Brennan in September.

Chalmers said Barrett has been tasked with renewing the commission as part of the government’s shake-up of the country’s major economic institutions.

But the appointment will be heavily scrutinised by the Coalition, with shadow treasurer Angus Taylor saying the Coalition was not consulted.

Barrett has been a deputy secretary for Victoria’s Treasury and Finance Department since January 2021, was Australia’s OECD ambassador in 2011 and was chief of staff to former Labor treasurer Wayne Swan.

Chalmers said the commission would remain “fiercely independent”.

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