The Australian government is expected to post another surplus in its annual budget due on Tuesday, thanks to strong employment and high commodity prices, allowing it to provide more cost-of-living relief and incentive measures in favor of the industry.
On the eve of his third budget since the centre-left Labor government took power in 2022, Treasurer Jim Chalmers predicted that inflation could fall back into the 2-3% range set by the central bank of by the end of the year, thanks to measures that Canberra plans to put in place to slow prices.
This would be a pleasant surprise for the Reserve Bank of Australia (RBA), which does not expect inflation to return to its target level before the end of 2025.
“I think this is a cost-of-living relief that should bring inflation down,” said Shane Oliver, chief economist at AMP. “They don’t take into account that people might spend more because of this relief. Technically that might be correct, but it risks ignoring the effect of spending.”
The centerpiece of the budget would be an income tax cut already enshrined in law for every Australian taxpayer, worth A$395 billion ($260.58 billion) over 10 years. Mr Chalmers is also likely to renew energy rebates that were due to expire this year.
The budget will include tax incentives for Labor’s Future Made in Australia subsidy program to help domestic industries compete globally, as well as increased defense funding and measures to reduce the costs of higher education.
Mr Chalmers is under pressure to cut spending to avoid stoking inflation, but he has defended the measures as “inevitable” and “justified”. Australians are expected to go to the polls again early next year.
Three of Australia’s big four banks expect the government to record a consecutive surplus in the fiscal year ending June 30, a feat not achieved since the early 2000s.
ANZ forecasts a small surplus of A$4.5 billion for the 12 months ending June this year, while Commonwealth Bank of Australia forecasts a surplus of A$15 billion.
“The Budget will focus on targeted cost of living support and securing Australia’s economic and strategic future,” Westpac senior economist Pat Bustamante said.
“The price to pay is such that the cumulative fiscal position will deteriorate and the budget will fall into the red.
Westpac expects a surplus of A$9.4 billion this year, but that figure is expected to rise to a deficit of A$10.1 billion in 2024/25, partly due to rising borrowing costs past.
($1 = 1.5158 Australian dollars) (Reporting by Stella Qiu and Wayne Cole; Editing by Sam Holmes)
