The Australian federal budget has improved significantly, showing an increase of $18 billion due to a stronger-than-expected jobs market. The final budget outcome, set to be released on Monday, indicates a deficit of just under $10 billion for the financial year 2024/25, a marked improvement from prior projections exceeding $28 billion.
Strength in Employment Drives Budget Recovery
Treasurer Jim Chalmers attributed this positive shift to a robust jobs market and an increase in take-home pay for Australian workers. He expressed confidence in the budget’s performance, stating, “In dollar terms, we’ve made more progress on the budget in three years than any government in history.” Chalmers noted that the government has transformed two significant deficits inherited from the previous administration into two substantial surpluses during their first two years in office. In their third year, they have notably reduced the deficit while continuing to address national debt.
The overall budget deficit for the last complete financial year is projected to be 0.4 percent of Australia’s gross domestic product. Chalmers highlighted that various factors, including budget revenue upgrades and prudent spending practices by the Commonwealth, contributed to this reduction in deficit levels. He stated, “Today’s figures show that the deficit in our third year is around a fifth of the forecast we inherited from the coalition and around a third of the forecast before the election earlier this year.”
Future Economic Outlook and Interest Rate Considerations
An estimated 70 percent of revenue upgrades have been realized over the past three years. The final budget outcome is also expected to reflect average real spending at 1.7 percent across the seven years leading up to 2028/29.
The release of the budget documents coincides with the Reserve Bank of Australia commencing two days of discussions regarding potential interest rate adjustments. Analysts widely anticipate that the central bank will maintain the official cash rate at 3.6 percent following a slight uptick in monthly inflation. In August 2023, inflation rose from 2.8 percent to 3 percent. While the Reserve Bank prioritizes quarterly inflation data, this rise has tempered expectations for further relief on mortgage rates.
Chalmers’ remarks and the upcoming budget release underscore the government’s commitment to responsible economic management, further establishing the fiscal strategy of the Albanese Labor government as a pivotal focus in the face of evolving economic conditions.
