Australia’s budget deficit is set to halve on commodity boom

AUSTRALIA’S budget deficit in fiscal 2023 is set to be less than half the level anticipated by the previous administration in March, bolstered by windfall revenue from surging commodity prices.

The underlying cash deficit in the 12 months through June 2023 will be A$36.9 billion (S$33.2 billion), figures released prior to Tuesday’s (Oct 25) announcement showed. That compares with A$78 billion forecast by the former conservative government when it laid out its plan for the fiscal year almost seven months ago.

Treasurer Jim Chalmers will deliver his budget speech to Parliament at 7.30 pm, setting out an economic blueprint that puts a premium on “restraint and resilience” in the face of a rapidly deteriorating global outlook

Chalmers said Tuesday morning that accelerating inflation was the “primary influence” on the budget. “In a time of extreme global uncertainty, our best defence is a responsible budget at home,” he said.

Chalmers has sought to downplay expectations of significant cost-of-living relief as Australians struggle with elevated inflation and rising interest rates. The budget is expected to include some infrastructure spending, support for childcare and funding for renewable energy projects that were part of Labour’s May election manifesto.

The government is trying to ensure the budget doesn’t further fuel inflation and drive borrowing costs even higher. Chalmers is expected to announce more than A$21 billion in savings over four years as part of his economic blueprint, a combination of cuts to some programmes and delays to others.

He told Bloomberg in an interview on Sunday that the government had decided to return the majority of a more than A$100 billion windfall from high commodity prices to the fiscal coffers rather than spending it.

“We can’t assume that that revenue will be there forever,” he said.

Australia’s budget update comes as central banks worldwide are rapidly tightening policy to try to gain control of inflation and cool wage growth. Europe and the US are widely expected to tip into recession and Australia’s key trading partner, China, is struggling with a housing downturn and fallout from its Covid-zero policy.

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The budget will show inflation is set to linger at a higher level for longer after peaking at 7.75 per cent this quarter.

Economic growth is seen slowing to 1.5 per cent in fiscal 2024, weighed down by weaker household spending because of higher borrowing costs. Unemployment is expected to climb to 4.5 per cent in the same period, up from 3.5 per cent at present. BLOOMBERG