$4bn surplus budget announced, with $14 billion to ease cost of living pressures

The Australian Federal Government announced a projected $4 billion budget surplus, which would be the first surplus in 15 years.

The Australian Federal Government announced a projected $4 billion budget surplus, which would be the first surplus in 15 years.

This is a surprise result, especially given the projected $78bn deficit in the Coalition’s 2022 budget, and $143 billion better than the 4-year forecast of that same budget handed down in March last year. 

Treasurer Jim Chalmers has stated the budget surplus is largely due to higher commodity prices, low unemployment and wage growth.

Other big revenue items will come from tax hikes, particularly a $3.3 billion increase in tobacco tax, a $2.4 billion increase to the Petroleum Resources Rent Tax and a doubling of the 15 per cent tax on superannuation accounts above $3 million.

As part of this surplus, Anthony Albanese’s Government promised to pledge $14.6 billion towards cost-of-living relief for families and businesses, spread out over the next four years.

This will include a $1.9 billion boost to welfare payments for single parents, receiving an extra $176.90 a fortnight.

The plan is designed to directly ease price pressures, with inflation still sitting near 30-year highs of 7.0%.

In his statement on Monday, Chalmers said the cost-of-living relief was “the centerpiece of the budget” that “doesn’t add to inflation.”

Indeed inflation was front of mind for the Labor Government, with Prime Minister, Anthony Albanese stating, “inflation is a tax on the poor which is why it is a Labor principle to be fiscally responsible.”

The government’s $3 billion in one-off energy bill discounts, eligible from April 2023, adds to its intention to reduce the net effect of inflation, which included a 12-month cap on coal and gas prices announced in December last year. Forecasts had estimated a 0.7% decrease in CPI for 2023-24 as a result of both measures.

Before the champagne cork is popped, however, experts have warned that the budget is likely to remain in structural deficit, especially in more normal economic conditions.

This is largely due to spending demands, such as NDIS, interest payments on debt, aged care, health and defence, that could put a strain on the budget in the medium term.

As such, the government plans to cover its spending measures by “repurposing” $17.8 billion from other programs in this year’s budget.

All in all, it appears the Labor Government is taking a cautious approach to the budget in an effort to return its first surplus since 2008.

Past performance is not a reliable indicator of future performance.

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