The federal government has unveiled a $27.6 billion deficit in its last budget before the May election, but insists the economy is on track for a soft landing.
The federal government has unveiled a $27.6 billion deficit in its last budget before the May election, but insists the economy is on track for a soft landing.
Treasurer Jim Chalmers delivered his fourth budget on Tuesday – the first time four budgets have been handed down in a single term since 1940 – with a dip back into the red headlining the paper.
It’s the first time the country’s finances will be back in a deficit, after the past two budgets delivered the first successive surpluses in almost two decades.
“This budget builds on the progress we’ve made together. It’s a plan to help with the cost of living, with two new tax cuts, and higher wages. More bulk billing, and more help with electricity bills,” he said.
“Our economy is turning a corner. Inflation is down, incomes are rising, unemployment is low, interest rates are coming down, debt is down, and growth is picking up momentum.
“On all these fronts, our economy and our Budget are in better shape than they were 3 years ago.”
Several pre-budget commitments were confirmed in the paper, including the $8.5 billion spend on Medicare over four years.
There were a few surprises in the paper, including a $2.6 billion commitment to increase aged care workers’ wages and two new tax cuts for every taxpayer over the next two years.
Those cuts will see the tax rate for those earning between $18,201 and $45,000 cut by one per cent to 15 per cent on July 1, 2026 – and by a further 1 per cent on July 1, 2027.
It will result in a tax cut of around $268 for every taxpayer in the first year, increasing to $536 the year after.
It’s projected to cost around $17 billion to the 2028-29 financial year.
Overall budget picture
2024-25: $27.6 billion deficit
2025-26: $42.1 billion deficit
2026-27: $35.7 billion deficit
2027-28: $36.9 billion deficit
2028-29: $36.9 billion deficit
Another surprise was the unveiling of a plan to ban non-compete clauses for nearly 3 million Australians.
Non-compete clauses in employment contracts prevent or restrict an employee from moving to a competitor within a specified timeframe of leaving their current employer.
Touted as a productivity reform in the budget, it’s understood the ban would apply to anyone earning up to $180,000 per year.
Dr Chalmers touted several already-announced budget measures, including the $8.5 billion Medicare investment.
That commitment comprises a $5.4 billion spend to make nine out of ten general practitioner visits free from out-of-pocket expense by 2030, fund 400 new nursing scholarships, and train 2000 new GPs per year by 2028, and open 50 new Urgent Care Clinics around the country.
Also among previously announced budget measures was a $1.2 billion package to support disaster recovery and rebuilding efforts in response to Cyclone Alfred; a $1.8 billion commitment to provide $150 electricity rebate for all households and some small businesses – paid in two quarterly instalments of $75; and 20 per cent reduction on student loan amounts costing $500 million.
Some $800 million will be injected to the Help to Buy Scheme, bringing its total funding to $6.3 billion.
The scheme will essentially see the government take a 30 per cent stake in a home, which the owner can buy out over time.
A 40 per cent stake would be on offer if the property is a new build.
The extra funding will mean the income test cap will increase from $90,000 to $100,000 for individuals and from $120,000 to $160,000 for couples and single parents. It will also see the cap on the value of the property increase.
In his Budget speech, Dr Chalmers also touched on global trade tensions.
“Tariffs and tensions abroad have been accompanied by storms at home. Storm clouds are gathering in the global economy too,” he said.
“Trade disruptions are rising, China’s growth is slowing, war is still raging in Europe, and a ceasefire in the Middle East is breaking down.
Treasury expects the global economy to grow 3¼ per cent for the next 3 years – its slowest since the 1990s. It’s already forecasting the 2 biggest economies in the world will slow next year – with risks weighing more heavily on both.”
“Australia is neither uniquely impacted nor immune from these pressures, but we are among the best placed to navigate them.”
Reactions
Reactions to the pre-election Budget have already started to flow, with Shadow Treasurer Angus Taylor emailing Liberal Party members to say the Budget confirmed “you are poorer”.
“Tonight’s Budget is a Budget for an election, not one for our country’s future prosperity,” Mr Taylor said.
“At a time when living standards have suffered the biggest collapse on record and when the security environment is the most dangerous since the Second World War, Labor’s Budget has failed to deal with the economic and security challenges our country faces.
“Tonight’s Budget confirms you are poorer after three years of the Albanese Labor Government.”
Nationals leader David Littleproud criticised what he said was a lack of support for regional Australia.
“Labor has no new funding for the Stronger Communities program, Local Roads and Community Infrastructure program, Growing Regions program, and the Regional Precincts and Partnerships program, critical to building community infrastructure in regional Australia,” he said.
He said Labor was raiding what was left of regional community program to pay for Canberra-based public servants.
“Labor’s $150 energy rebate is a fraction of the cost of energy bills that have increased by up to $1300 since Labor came to government,” he said.
The proposed 70 cents a day election bribe doesn’t come in until next year, while Labor continues to run away from fixing the fundamentals of what is driving cost-of-living pressures, that regional Australia can be the solution to.”
Moody's Analytics head of Asia-Pacific economics Katrina Ell said the budget measures did not address the "stickier parts" of inflation.
“The Federal budget comes at a critical time for the Australian economy. It is providing some relief to households including via extending energy subsidies, increased bulk-billed GP visits, cheaper pharmaceuticals, further income tax cuts and cuts to HECS-HELP debt.
"But these measures do not address the stickier parts of inflation including elevated insurance and rental costs that disproportionately hit lower-income households.
"Inflation remains a critical issue heading into the Federal election as non-discretionary goods and service prices remain well above pre-pandemic levels and wages haven’t kept pace."
Ms Ell said the Budget showed "noteworthy restraint" to not stoke inflation; but that the economic outlook was uncertain due to US tariff threats.
"The raft of announced government support for households and, to a lesser extent, small businesses does not change our view that the RBA is on track to reduce the cash rate by a further 50 basis points this year, taking cumulative easing to 75 basis points," she said.
"The 25 per cent tariffs on steel and aluminium will directly hit Australia's bottom line, and there are threats of more tariffs either to hit Australia directly or its trading partners.
"Fiscal policy can play a critical role in shoring up Australia’s resilience to overseas ructions. Still, the government’s latest measures, including additional funding for Future Made in Australia, come too late to provide additional insulation from the current global protectionist landscape."
Chamber of Commerce and Industry WA chief economist Aaron Morey said the budget bottom line was showing clear signs of stress.
"The underlying cash balance weakened by $66.7 million over the forward estimates, which was driven by softening revenue growth and an increase in spending commitments,' he said.
"At the same time debt is growing and becoming more expensive to service, although the nation’s debt levels still remain manageable.
"The best way to navigate out of fiscal challenges is through economic growth. That means the conditions must be right to grow productivity and encourage investment."
Mr Morey said it was vital the government took action to turn around the nation's flagging productivity and ensured the conditions were right to encourage investment.
"Australia needs an industrial relations system that is flexible and modern, we need an approvals system that doesn’t leave major projects in limbo for years, and we need to send a message to the world that we are open for business," he said.
"Ultimately, it’s Australian businesses who will drive the growth that can turn around our economic fortunes, and no state contributes more to this that WA by virtue of our economy-shaping resources sector.”
Mr Morey said it was disappointing the instant asset write-off scheme was not extended, meaning the current threshold of $20,000 would drop to $1000.
CPA Australia chief executive Chris Freeland said Mr Chalmers failed to deliver initiatives which would improve business productivity, innovation and growth.
"Businesses and their advisers will find little in the federal Budget that will help offset the pain all-too-many small businesses have been experiencing," he said.
"The Budget lacks ambition and a thorough understanding of what business needs. Not enough is being done to slash red tape or create the conditions and improve policy development that would shift the dial on Australian productivity and competitiveness."
Mr Freeland said the tax cuts would "capture the public's attention" but would not really help.
"SMEs - many of which have thin margins - needed a Budget that would significantly alleviate the cost pressure they face every day," he said.
"The unrelenting rise in insurance premiums and the burden of utility bills, materials, wages, fuel and various other inflationary pressures are hard to manage. Though the emphasis on relieving pressure on household finances was expected, a more business-centric Budget would have benefitted all Australians because small businesses are significant contributors to the economy and job creation.
"The instant asset write-off is a prime example. Tonight, it should have been made permanent - but it remains in limbo."
