Australian Budget Outlook Improves, But Economists Urge Further Restraint
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The Australian federal budget is projected to see a significant improvement of over $8 billion over the next four years, according to new forecasts, as the Labor government emphasizes fiscal responsibility amidst calls for greater spending discipline.
Treasurer Jim Chalmers is set to announce the government’s progress in repairing the budget when he delivers the Mid-Year Economic and Fiscal Outlook (MYEFO) in Canberra on Wednesday. The updated figures indicate a 2025-26 budget deficit of $36.8 billion – a $5.3 billion reduction from previous election forecasts.
Overall, the government anticipates a $8.4 billion improvement in the budget position between now and 2028-29, driven by a combination of cost savings, increased tax revenue from a strengthening labor market and wage growth, and favorable commodity prices. However, with inflation remaining a concern, economists are advising the government to either curtail spending or identify new revenue streams to cover essential expenditures like veteran and pension payments.
“MYEFO is all about responsible economic management,” Chalmers stated. “By finding more savings, restraining spending and banking revenue, the budget is in much better nick than it was when we came to government, and it’s even improved since the last election.” He acknowledged that further work is needed to fully repair the budget but highlighted the “lot of progress” already made.
The Albanese government has consistently prioritized saving a substantial portion of unexpected revenue increases. Over the past three budgets, Labor has allocated approximately 70% of such upgrades to savings rather than new spending initiatives. Finance Minister Katy Gallagher affirmed the government’s commitment to “make every dollar count” through careful spending reviews and prioritization of essential services.
“Every budget update is an opportunity to deliver smarter savings and invest in the future,” Gallagher said. “Through responsible financial management, we’re not only improving the bottom line but also ensuring that essential services, like support for veterans, disaster recovery, and the aged pension, remain robust and responsive to community needs.”
Savings Offset by Rising Demand
The government has already announced $20 billion in savings planned over the next four years. However, independent economist Saul Eslake cautioned that this represents a modest 0.6% reduction of the government’s planned $3.2 trillion in total spending over the same period.
The MYEFO update will also detail increased spending commitments, including an additional $6.3 billion for natural disaster relief, $3 billion for aged pension costs, $2.1 billion for military superannuation schemes, and $1.3 billion for veterans’ entitlements. While Eslake acknowledged the necessity of increased funding for demand-driven programs like veteran support and the National Disability Insurance Scheme (NDIS), he urged the government to implement further measures to offset these additional costs.
“I would expect the government to find savings or raise new revenue,” Eslake said. “The government needs to be making net policy decisions that reduce the deficit.”
Scrutiny of “Off-Budget” Spending
Eslake also raised concerns about the government’s increasing reliance on “off-budget” spending, such as student debt relief and industry support packages related to energy costs. He argued that focusing solely on the underlying cash rate provides an incomplete picture of the government’s overall fiscal position. Instead, he emphasized the importance of examining the headline rate, as spending through funds like the Future Made in Australia Fund and the National Reconstruction Fund has “grown substantially” under the current administration.
The government’s decision to discontinue the $75 per quarter electricity rebate for households and small businesses was praised by Eslake as a prudent move, given the recent increase in inflation. “When those rebates were introduced, households were under serious pressure from a whole raft of things, not just electricity prices,” he explained. “Now that situation has changed, real wages are rising… income tax is a bit less. Households are still struggling with cost of living, but far fewer than when these rebates were introduced.”
