Australia’s Economic Outlook Revealed: Mid-Year Budget Update Exposes Soaring Inflation and Spending Cuts
- Treasury upgrades inflation forecast, warning of sustained price hikes in services and new homes
- Government decisions add $1.8 billion to spending this financial year, but save $2.2 billion over four years
- Public service cuts and higher tax take boost budget, but tobacco excise revenue plummets
In a move that’s set to impact Australian households, Treasurer Jim Chalmers and Finance Minister Katy Gallagher have delivered the mid-year budget update, revealing a mixed bag of economic trends and indicators.
At the forefront of the update is the Treasury’s warning of sustained inflation, with prices for services and new homes expected to rise. “The main task… has been to make room for pressure on spending, to make room for our election commitments in a way that we could still ensure that this progress continues in strengthening the budget,” Mr Chalmers explained.
However, the government’s own decisions have improved the bottom line by $2.2 billion over four years, with the largest savings coming from the public service. A whopping $6.8 billion will be saved over four years by reducing reliance on consultants, cutting down on travel, and non-staffing expenses.
A higher tax take has also boosted the budget, with $41.3 billion more expected in receipts over the next four years. This is driven by higher-than-expected inflation, resulting in more income tax, and a boom in private investment.
But not all the news is good. The tobacco excise has continued its downward spiral, with a 23 per cent decrease in revenue this financial year and a 29 per cent drop next year. The petroleum resources and rent tax (PRRT) has also taken a hit, with expected revenue decreasing by 23 per cent this year and 17 per cent next year.
On a positive note, the government has allocated new funding for various initiatives, including $1.1 billion for mental health services and $233 million for the science agency CSIRO. A $10 billion fund has also been established to support the construction of 100,000 new homes for first home buyers.
The update also reveals that 21,000 first home buyers have taken advantage of the expanded 5 per cent deposit scheme since its introduction in October. However, the government has had to substantially expand its liability for social and affordable homes, stretching the Commonwealth’s commitment from $26 billion to $44 billion.
In a bid to save $1.8 billion, the government has changed the rules around “deeming”, the process that estimates how much pensioners and other welfare recipients earn from their investments. International student visa charges will also increase to $2,000, raising $720 million over four years.