Budget shortfall set to halve fiscal year, but spending pressures mean the push will be short-lived

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Soaring commodity prices and a strong labor market will provide a $ 42 billion boost to budget profits over the next four years, with the deficit more than halving this fiscal year.

However, the improvement – which will be revealed in Jim Chalmers’ first budget on Tuesday evening – will be short-lived, with worse-than-expected deficits by the end of anticipated estimates due to mounting spending pressures.

Riding a fiscal revenue boom of over $ 100 billion, the underlying cash balance for 2022-23 is projected to be a $ 36.9 billion deficit, less than half the $ 78 billion deficit forecast in March.

Related: Australian budget preview 2022: what we know so far

According to anticipated estimates, the budget bottom line will be $ 42 billion better than previously anticipated, but the improvement will focus over the next two years before conditions worsen again.

This means deficits will be worse than previously anticipated in recent years due to “substantially higher” than expected spending on the cost of debt, health care, aged care and the National Disability Insurance Scheme. (NDIS).

The temporary boost comes on top of a $ 48 billion improvement in the deficit for 2021-22, which was revised to $ 32 billion from $ 79.8 billion in last month’s final budget result.

Chalmers said the improvement in the deficit was a result of the government taking most of the revenue gains, saying responsible budgeting was the best defense in “times of extreme volatility and global uncertainty.”

“Our responsible approach to increasing revenue means that the budget bottom line will be more than $ 40 billion higher than anticipated total estimates and debt will be lower than previous forecasts,” he said in a statement prior to the budget. Tuesday.

“The main influence on this budget is inflation. We’re giving moderation and resilience a premium because that’s what the times require. “

Related: Labor “rorts and waste” audit to provide $ 10 billion in savings to the federal budget

Gross debt, which is expected to peak in March of $ 1.17 trillion in 2025-26, is also expected to be revised downward in the budget, with a figure lower each year than future estimates.

“This is less debt than the Liberals, but there will be more to prove,” Chalmers said.

“We are left with a trillion dollars in debt and a deeply structural budget deficit, but tough decisions mean we can still deliver on our commitments, keep spending under control and start the long road of budget repair.”

Tuesday’s budget will include downgrades to domestic and international economic growth and a rise in inflation, with wages not expected to exceed the cost of living until 2024.

More than $ 10 billion in savings will be delivered as a result of the government’s waste and waste audit that will eliminate a number of projects promised by the former coalition government.

Chalmers called the budget a “solid, simple and sane” project for uncertain economic times, rejecting calls for increased spending and immediate cost-of-living aid for families in Australia’s high-inflation environment.

Related: Housing, indigenous and domestic violence services will receive $ 560 million more in the federal budget

The budget will reveal that the cost of paying interest on government debt is set to grow on average by about 14% annually over the next four years, with defense spending growing 4.4% annually, hospitals in the 6.1% and care for the elderly by 5%.

The NDIS will cost $ 8.8 billion more annually, up 12.1 percent annually, with the program now expected to cost more than $ 50 billion annually by 2025-26.

The government, for now, has ruled out recovering any of the $ 254 billion phase three tax cuts over the decade and has limited its commitment to tax reform to a crackdown on multinational corporations.

But Chalmers left open the possibility of future tax reform following a “national conversation” about future tax challenges.

“We’re a good chance for a really important and productive national conversation about how we spend and invest in the things our company values ​​the most,” he said last week. “October was always meant to be the beginning of that conversation and not the end.”

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