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Budget already doing $70 billion better as commodity prices remain high

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The October budget, like previous budgets, is based on an assumption that key commodity prices return to their long-term average over the following six months.

Budget watcher Chris Richardson says despite a rapid improvement in the nation’s finances, there were still growing pressures that need to be addressed.Credit:Louise Kennerley

Treasury estimated if that decline is pushed back by just three months, then tax receipts this financial year will be $2.5 billion higher than forecast while they will be $6.5 billion better in 2023-24.

Coal prices alone were forecast to reach $US60 a tonne by March. They are still around $US380 a tonne.

Some costs are also down on expectations; interest rates on government debt have fallen over the past six weeks, in part due to growing concerns of a major economic slowdown in 2023.

So large is the flow of cash that Richardson said the budget could be balanced in 2022 after showing a deficit of $186 billion in calendar year 2020 and $56 billion in 2021.

But he cautioned while the budget could be close to balance, it would likely be only temporary due to long-term cost pressures on the nation’s finances.

He said the stage 3 personal income tax cuts, forecast to cost $254 billion over a decade, were expensive while the budget would also be hit by growing expenditure in areas such as the NDIS, health and defence.

“So the balanced budget likely this calendar year will be as good as it gets, with a slide back into deficit, which I forecast to be back at $39 billion in 2025-26,” he said.

Chalmers and Finance Minister Katy Gallagher have already started preliminary work on the 2023-24 budget that will be handed down in May next year.

Ratings’ agency Fitch, which at the weekend re-affirmed Australia’s AAA credit rating, said the next budget would be handed down in the midst of challenging economic conditions caused in part by the tightening of monetary policy by the world’s central banks.

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Fitch said the most recent budget showed financial restraint and, like Richardson, expects the nation’s finances to improve more rapidly because of high commodity prices.

“We expect a slightly narrower federal deficit due in part to our higher commodity price forecasts. The budget did not provide additional cost-of-living offsets, unlike the April 2022 pre-election budget, as the government is seeking to keep spending contained to avoid exacerbating inflation risks,” it said.

Chalmers said the Fitch decision to re-affirm the AAA credit rating confirmed the government’s economic plan.

“This is a strong endorsement of the government’s economic management. It shows that our budget was defined by the times and designed for the times, and we got the fiscal settings right,” he said.

But shadow treasurer Angus Taylor said the government’s only economic plan was to increase debt.

“As Australian homeowners tighten their belts in the lead up to Christmas, it is imperative the government rein in its plans for bigger spending to put downward pressure on inflation,” he said.

Cut through the noise of federal politics with news, views and expert analysis from Jacqueline Maley. Subscribers can sign up to our weekly Inside Politics newsletter here.

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