For weeks, Treasurer Jim Chalmers has allowed the media to claim that this year’s Mid Year Economic and Fiscal Outlook (MYEFO) would show a marked deterioration in the budget due to softer revenue and higher spending. The Financial Review, which has been running a campaign against Labor’s spending on health and caring, predicted (courtesy of veteran budget forecaster Chris Richardson at the start of the month) that the $28 billion deficit forecast for this financial year back in the May budget would blow out to at least $31 billion.
Other economists predicted the deficit would be $42 billion. Instead, it’s currently headed for $26.9 billion, Chalmers revealed this morning in the MYEFO document.
What happened? Labor is spending $4.4 billion more than forecast — but is also collecting $5.5 billion more in revenue, mainly through higher individual tax collections. Almost certainly, some spending has also been pushed into 2025-26, where the forecast deficit has gone up by $4 billion, but that’s beyond the next election, and Labor can worry about that later — as part of the total of nearly $24 billion in extra deficits that MYEFO reveals between now and 2027-28.
For the moment, however, the smaller deficit and last two years of budget surpluses means net debt this year will come in substantially lower than forecast back in May; at $540 billion, it’s over $280 billion lower than the Morrison government forecast for this year in its last budget in 2022.
Economic growth has also been downgraded this year, to just 1.75% (still looking optimistic given the Reserve Bank’s bloodymindedness) and wages growth is expected to be just 3% this year and next, but unemployment and inflation forecasts are untouched.
What has been substantially upgraded is the immigration forecast: back in May, the government was forecasting — or hoping against hope for — net overseas migration of 260,000; it now says that will be 340,000 before falling back in 2025-26.
Expect to hear a great deal about that from Peter Dutton, as hard evidence that the government can’t manage migration, even as he fails to explain how he’ll curb migration.
Indeed, this entire document might prove irrelevant by the time election night is over and Anthony Albanese or Peter Dutton have to face up to promises made during the campaign. MYEFO contains around $1.6 billion in revenue measures decided but not yet announced, and around $5.5 billion in spending measures in the same category.
That’s the war chest for Labor’s election campaign — but it’s separate from election commitments that will be added to the bill through the course of the campaign. And that’s assuming we aren’t kept waiting until after another budget to go to the polls. With a $24 billion increase in deficits looming, chances are Anthony Albanese will prefer to go before then.
MYEFO at a glance
Deficit for 2024-25: $26.9 billion / 1% of GDP (down from Budget forecast of $28.3 billion / 1% of GDP)
Deficit for 2025-26: $46.9 billion / 1.6% of GDP ($42.8 billion / 1.5% of GDP)
Revenue for 2024-25: $704.2 billion / 25.5% of GDP ($698.4 billion / 25.3% of GDP)
Payments for 2024-25: $731.1 billion / 26.5% of GDP ($726.7 billion / 26.4% of GDP)
Net debt for 2024-25 $540 billion ($552.5 billion)
GDP growth for 2024-25: 1.75% (2%)
Unemployment for 2024-25: 4.5% (4.5%)
Inflation for 2024-25: 2.75% (2.75%)
Inflation for 2025-26: 2.75% (2.75%)
Household consumption: 1% (2%)
Dwelling investment: 1% (0%)
Net overseas migration: 340,000 (260,000)
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