Back in Black was the AC/DC song that accompanied Josh Frydenberg’s first budget, when Highway to Hell would have been more apt.
Of course, Frydenberg didn’t know the Covid pandemic would hit a year later.
Still, touting the modest cash surpluses planned for the 2019-20 budget and the three that followed did its immediate trick – burnishing the Morrison government’s economic credentials in a way Labor couldn’t easily match.
According to that budget, by 2021-22, we would be enjoying a $17.8bn cash surplus. Instead, according to Tuesday’s budget, the underlying cash deficit is a hefty $79.8bn.
It could have been a lot worse, and a large part of the 2022-23 budget involves highlighting that the outlook is improving almost by the day.
Over the forward estimates to 2025-26, the underlying deficits will total almost $225bn. Painful, yes, if you’re allergic to red ink, but not as bad as the $342.4bn deficit projected a year ago for the years out to 2024-25.
That was the best improvement over four years in seven decades, albeit from a low point.
A key reason is that the government has ended up needing to spend less than it feared in May 2021, in part because the jobless rate has shrunk much quicker than even the most optimistic forecasts, cutting welfare payments.
Still, a year ago, the government was predicting payments would total $588.7bn, when they will come in at $636.4bn, according to Tuesday’s budget.
The bulge in expenditure was contained in part by the extra outlays needed to keep the economy powering through the Delta and then Omicron Covid variants.
“These outcomes have been underpinned by the government’s $31bn in direct economic support, including JobKeeper, which assisted around four million individuals and 1m businesses,” the budget papers state.
Thankfully for the government, revenue surpassed expectations by even more than spending overshot.
A year ago the government was forecasting receipts to total $482.1bn, but in the budget the receipts came in more than $70bn better than expected at $556.6bn.
Reaping more income tax by having more people in jobs helped, but so did soaring commodity prices.
Treasury had tipped an iron ore price closer to US$50 a tonne than the roughly US$150 it is now trading at, and it has been even higher during the year.
“Metallurgical and thermal coal spot prices have recently reached highs that are 62% and 53% above previous peaks,” the papers note.
“Key commodity prices are assumed to decline from current elevated levels by the end of the September quarter 2022. The iron ore spot price is assumed to decline from US$134/tonne to US$55/tonne.”
The metallurgical coal spot price is “assumed” to decline from US$512/tonne to US$130/tonne, while thermal coal’s spot price will drop from US$320/tonne to US$60/tonne.
To the extent that those forecasts are too pessimistic from Australian miners’ point of view, future budgets will get a boost.
The projection of debt is also a beneficiary of the improving budget outlook.
Australia is good at digging holes, and the debt hole will keep growing deeper, but at a slower pace – and if the economy keeps growing it should sink slowly as a proportion of GDP.
At the end of this financial year, net debt – the gross sum minus the debt owed to the Australian government – will reach $631.5bn. By June 2023 it will be at $714.9bn and a year later $772.1bn.
By contrast, a year ago, the budget was projecting we would be approaching $729bn by this June, $835bn by June 2023 and $920.4bn by June 2024.
