A modest tax cut for all Australians was the only real surprise in Australian Treasurer Jim Chalmers’ fourth Federal Budget delivered Tuesday night Australian time. The annual financial statement sets the economic frame for the Albanese Government’s pitch for a second term, with an election just weeks away.
The fact that most measures had already been announced and Chalmers’ desire to emphasise both fiscal caution and promote spending measures resulted in somewhat mixed messages from an electoral perspective. It is also clear the government is holding back some additional stimulus measures to unveil during the election campaign.
The Opposition immediately derided the tax cuts as a “cruel hoax,” highlighting they failed to counter the fact that inflation and wages growth have taken most Australians into higher tax brackets. And the dollar amounts are small. The tax cut equates to the price of cup of coffee once a week in 2026, and a cheap beer at the local pub in 2027.
After back-to-back surpluses in recent years, the budget projects a deficit of A$27.6 billion (1.0% of GDP) in 2024-25, rising to a deficit of A$42.1 billion (1.5% GDP) in 2025–26. The underlying cash deficit is then expected to improve to A$36.9 billion (1.1 per cent of GDP) in 2028–29. Structural budget deficits are forecast out to 2035-36.
The Coalition will make much of all that red ink, but it will still need to fund spending measures and presumably their own tax cuts when Opposition Leader Peter Dutton makes his Budget Reply speech on Thursday night.
The Budget projections reflect only modest economic growth in the years ahead. Over the term of the next Parliament, Treasury forecasts GDP to grow by 1½ per cent in 2024–25, 2¼ per cent in 2025–26 and 2½ per cent in 2026–27.
Inflation – critical to determining interest payments on Australians’ mortgages – is expected to remain within the Reserve Bank’s targeted range, setting the scene for additional interest rate cuts in the months ahead. Consumer prices are expected to rise 2½ per cent through the year to 30 June, ¼ of a percentage point lower than the 2024–25 Mid-Year Economic and Fiscal Outlook forecast.
With geo-political concerns, escalating trade tensions in the global economy and volatility in markets, the Budget forecasts are seen as having a higher than usual margin of error.
Key Budget Measures
In addition to Labor’s big-ticket changes already announced, including $8.5 billion to extend Australians’ access to free doctor consultations, $700 million to extend subsidies on medicines, and a $150 rebate off all Australians’ energy bills at a cost of $1.8 billion, the Government highlighted major Budget measures including:
- Investing more than $3 billion to support local green metals production to help build a Future Made in Australia.
- Unlocking an expected $6 billion of additional private investment in renewable energy and low emissions technologies through a $2 billion expansion of the Clean Energy Finance Corporation.
- Support for small businesses, including extending energy bill relief for around one million small businesses and cracking down on unfair trading practices.
- $7.1 million over two years to strengthen enforcement of the Franchising Code.
- $165 million in tax relief for hospitality venues, brewers, distillers and wine producers including a two-year freeze on the indexation on draught beer excise.
- Supporting local businesses including $20 million to encourage consumers to buy Australian made products through the Buy Australian campaign.
- $17.1 billion over 10 years for road and rail projects to improve the productivity and resilience, liveability and sustainability of our cities, regions and communities.
- Up to $3 billion to complete the National Broadband Network to deliver access to faster and more reliable broadband services to a further 622,000 premises nationwide.
Among reforms announced in the Budget was a ban on non-compete clauses to enable low and middle-income earners to move more freely between employers – a move business groups immediately opposed.
The Government is forecasting a continued fall in net overseas migration from post-Covid highs to 225,000, a move it says will ease pressures on the housing market.
Reaction
The Opposition, which will formally respond to the budget on Thursday evening, said it would not support the tax changes “that do nothing to address the collapse in living standards under Labor.” Shadow Treasurer Angus Taylor said the cuts amounted to only 70 cents a day, and were “not going to help address the financial stress Australian families are currently under.
The Business Council of Australia said it was troubled by the forecast for persistent deficits and an increase in inflation next year to 3 per cent, which it said provided little fiscal buffer in uncertain global times. It welcomed personal income tax cuts and the improved economic outlook, though called on all sides of politics to undertake substantial economic reform to drive private sector growth.
Summary
This was a Budget most observers did not expect to be delivered, with expectations high Prime Minister Anthony Albanese would have already called the election and suspended the Parliament. With most of the major policy initiatives released prior to last night’s speech, and other measures clearly being held over to announce during the campaign, public reaction to the Budget is likely to be muted.
It sets the scene for Albanese to visit the Governor-General as early as this weekend, with the election to be held on May 3, 10 or 17.
Parliamentarians, candidates and their campaign teams – and it seems many Australians tiring of election timing speculation – are keen for the earliest of these dates.
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