Balancing a revenue windfall, election promises, structural spending demands & inflation pressures….

The Government has implemented its election policies and expects lower budget deficits this year and next thanks to another revenue windfall and various savings. Future years show a significant deterioration though as structural spending pressures, higher interest rates and lower productivity growth impact. As the Treasurer foreshadowed, this is largely a “bread and butter” budget though with significant reform left for next year’s budget.

Key points

– Yet another revenue windfall and the offsetting of new spending with savings has resulted in sharply lower budget deficits this year and next, with the deficit this year expected to be $36.9bn (down from $78bn in March).

– This avoids adding to inflation and pressure on the RBA.

– Key measures include more on childcare, health, the aged, housing and the NDIS.

– Budget deficit projections are now worse beyond 2024-25 and will need to be addressed in next May’s budget.

Key budget measures

Key measures in the Budget mainly reflect election promises:

• Increasing the childcare subsidy rate and expanding eligibility.
• Extending paid parental leave to 6 months with widened eligibility.
• More for Medicare, aged care, health, the NDIS and defence.
• Cheaper PBS drugs by cutting the co-payment to $30 from $42.50.
• Tax incentives for electric cars.
• Reinvigorating workplace bargaining to lift wages in low-income jobs
• Increased spending on TAFE and more university places.
• Increased infrastructure spending although this had already largely been budgeted with some funds “re-profiled”.
• Increased aid for the Pacific and South-East Asian countries.
• Various housing support measures – setting up a new Housing Accord to build 1 million new homes over 5 years, a Help to Buy equity scheme for 10,000 first home buyers, super concessions for downsizers over 55, the establishment of a National Housing Supply and Affordability Council, $350m in Federal Funding to help incentivise institutional (including super fund) investment in delivering an extra 10,000 affordable homes.
• The start-up of various “off budget funds” – a $10bn fund to build 30,000 affordable homes, a $20bn fund to boost renewable electricity infrastructure and a $15bn National Reconstruction Fund.

Budget savings include the following:

• A cut in public sector spending on consultants, travel & labour hire.
• Cuts to regional infrastructure funds & community grants.
• A crackdown on tax avoidance.
• Increased tax on multinationals.

The Government has deferred any decision on the Stage 3 2024 tax cuts.

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