Independent economist tips budget cash deficit to be $20b worse than forecast

The context: Federal government spending has become a focal point of the economic debate amid claims that it has made it more challenging to get inflation back to target. Treasurer Jim Chalmers has disputed that his budgets have contributed to the cost of living crisis, instead saying initiatives like energy bill relief have helped ease the pressure on households without putting upwards pressure on inflation.

This debate is firming up to be a central fight of the upcoming election and, in the nearer term, the discussion around Mid-Year Economic and Fiscal Outlook. A date for MYEFO has yet to be announced but it is expected within the next couple of weeks.

What they said: “Our luck has been remarkable .... between them, war, migration and inflation led Treasury to raise its tax estimates by a huge $365 billion, all in a span of less than 20 months. And that wasn’t due to any decision by a politician: the Lucky Country’s budget got lucky again,” Richardson said in the report, noting a net spend of $60 billion suggests the government saved 84% of the windfall.

“But our budgetary luck is running out – instead of write-ups, the budget is now edging into writedown territory. That’s because iron ore prices are down, inflation is down too, and migration is slowly slowing, while the hollow log provided by past Treasury conservatism is a lot less hollow than it used to be,” he said.

“Compared with many other nations, headline deficits of some 2% of national income are still an excellent outlook. It is, for example, hugely better than the budgetary mess over in the United States. Yet we should have done so much better than we have.”