Budget update forecasts deficit of $1.1 billion this financial year

The federal budget is headed for a small $1.1 billion deficit this financial year, according to the update released by Treasurer Jim Chalmers and Finance Minister Katy Gallagher on Wednesday morning.

This is an improvement of $12.8 billion compared to the deficit forecast in the May budget.

It suggests the final figure for the financial year might end up a surplus. If so, that would be the second year the Albanese government delivered a surplus.

Anxious to continue the fight against inflation, the government has not used the update to provide any cost-of-living relief or make new announcements. It has concentrated on improving the budget bottom line.

It has returned 92% of the upward revisions in revenue since the budget to the bottom line.

The Mid-Year Economic and Fiscal Outlook (MYEFO) shows deficits across all four years of the forward estimates. But over these years, the forecast underlying cash balance improves by a cumulative $39.5 billion compared to what was projected in the May budget.

Total receipts are projected to be $67.3 billion higher than the budget forecast. A strong labour market and high commodity prices have contributed to the improved revenue.

A further $9.8 billion has been identified in savings and reprioritisations since the budget. This has brought the total to nearly $50 billion since the election. A large part of the current savings comes from cuts and delays in the infrastructure program.

Net new spending since the budget is $650 million in 2023-24.

Chalmers and Gallagher said in a statement that in face of high but moderating inflation, high interest rates and global uncertainty the Australian economy was slowing.

“Growth is forecast to moderate in the near-term as these pressures weigh on domestic activity.” they said.

The economy is expected to grow by 1.75% in 2023-24 before regaining momentum in 2024-25, when improved real incomes are expected to support a recovery in household consumption.

While global oil prices have put upward pressure on inflation in the near-term, Treasury has not changed its forecast timetable for inflation’s return to the 2-3% target band.

The ministers said: “We know many Australians are doing it very tough, but welcome and encouraging progress is being made […] in the fight against inflation and in the economy more broadly”.

Unemployment, which was 3.7% in October, is forecast to rise to 4.25% by the end of this financial year. The unemployment forecast hasn’t changed since the budget.

Gross debt as a share of GDP is expected to peak at 35.4% of GDP in 2027-28, then decline to 32.1% by the end of the medium term.

Michelle Grattan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.