Why Jim Chalmers Can’t Stop Smiling About His Budget Update Because of ‘Invisible’ Costs Plaguing YOU – And It’s Not Interest Rates
- Budget closer to a new surplus thanks to the abolition of the tax credit
Labor’s budget update has revealed that the removal of tax relief has delivered a revenue windfall for the government.
Treasurer Jim Chalmers is all but guaranteed to produce back-to-back surpluses, reducing the federal budget deficit to just $1.1 billion for this budget year.
The Mid-Year Economic and Fiscal Outlook update showed a staggering improvement of $12.8 billion for the 2023-2024 period compared to the May budget.
Should revenues improve, Labor could increase its $22.1 billion surplus for 2022-23, the first in 15 years and the first for a federal Labor government since 1989.
Labor’s first consecutive surpluses since the late 1980s also coincided with Prime Minister Anthony Albanese’s decision to end the previous government’s low- and middle-income tax offset, which provided relief of up to $1,500 for those earning $48,000 to $90,000 deserved.
In an effort to alleviate inflationary pressures, the treasurer will rake in huge revenue windfalls instead of spending them.
Rising commodity prices and low unemployment generated huge tax revenues, as did the elimination of the Lower and Middle Income Tax Offset (LMITO), and ‘bracke creep’, where workers get bigger pay increases but are pushed into higher tax brackets.
Treasurer Jim Chalmers is all but guaranteed to deliver back-to-back surpluses, with the federal budget deficit forecast for this budget year cut to just $1.1 billion
In May, Dr. Chalmers predicted a deficit of $13.9 billion for the current budget year.
But the razor-thin deficit will likely put more pressure on Treasurer Jim Chalmers to provide additional cost-of-living relief in the next budget, scheduled for May 2023.
In recent weeks, the Treasurer has fielded demands from aggrieved government constituents and community organizations for more support as households suffer from high inflation and rising interest rates.
Government tax collections are skyrocketing
Total revenues were $17.1 billion higher than expected in the May budget, exceeding increases in government spending that rose by $4.3 billion.
Income taxes have been revised upward by nearly $9 billion this fiscal year to above $360 billion as a combination of low unemployment and wage growth, which pushes workers into higher tax brackets, adds to government revenues.
Meanwhile, tax revenues from mining and other non-mining companies rose to a record $137.9 billion, supported by rising prices for key raw materials including iron ore, coal and gas.
The Finance Ministry has advanced its forecast that iron ore will reach a value of $60 per tonne in the September 2024 quarter. In the May budget, officials had expected prices for the commodity to fall to this level in March.
Rising prices for raw materials such as iron ore have increased taxation on companies. Photo: AFP / Amy Coopes
However, iron ore prices have risen to $135 per tonne in recent months – more than double forecasts – raising questions about whether the revised forecasts will be accurate.
Federal and state finance officials have a track record of underestimating commodity prices during boom periods, allowing governments to benefit from higher-than-expected prices.
According to the budget update, tax revenue as a share of the economy will reach 23.7 percent this fiscal year, the highest level since 2008.
The mid-year update also states that 92 percent of revenue upgrades will be booked over the four-year forecast period.
However, this Treasury estimate does not take into account the $13.2 billion spent on the 15 percent pay increase awarded to aged care workers and other off-budget funds worth nearly $50 billion.
Despite the large revenue windfalls, budget deficits are projected to persist, peaking at $35.1 billion in 2025-2026 before falling to $19.5 billion in 2026-2027.