2022-23 Federal Budget Update

There is an improvement in the cash balance amounting to $42 billion in 2022-23 and the government now expects a further improvement of $12 billion in 2023-24, both compared to previous forecasts. The improvement came via soaring commodity prices (royalties) and a booming jobs market (tax revenue), both of which are unlikely to be repeated.

Budget deficits will continue through to 2032-33, but the government doesn’t expect them to exceed more than 2% of GDP from 2024-25.

The Treasurer all but abandoned Labor’s pre-election pledge to reduce power prices by $275 a year by 2025 but gave notice that the government was planning a broad range of regulatory interventions in the energy market. They refrained from using those interventions now to avoid adding further inflationary pressures.

Overall, a reasonable budget in terms of what was required, but an uninspiring one with the forward period in mind.

Forecasts from budget papers included:

• RBA cash rate to peak at 3.35% in 1^st half of 2023 (currently at 2.60%)
• Inflation to average 5.75% this financial year and 3.5% next year, before dropping back to 2.5% in 2024-25
• Unemployment to rise to 4.5% over the next 2 years
• National Disability Insurance Scheme could hit $102 billion by June 2023 which would see it eclipse the age pension
• Annual interest payments on government debt expected to hit $70.5 billion in the next decade, about $30.5 billion higher than forecast just 7 months ago
• Electricity costs to rise by 20% this year and another 30% next year, whilst gas costs are to rise 20% this year and another 20% next year
• Wages to grow at the fastest pace in more than a decade at 4%, but workers to still be worse off with inflation running hotter than wage growth
• Deficit to remain about $50 billion over the next decade, roughly 2% of GDP, with big cuts needed to bring the deficit in
• Gross debt to continue rising out to 2025-26 to $1.16 trillion or 43% of GDP, whilst net debt rises to $767 billion or 29% of GDP

Some of the winners and losers from the budget include:

Winners

• Families – progress on $4.7 billion plan to reduce the cost of childcare for families from July 2023
• Patients - $2.9 billion package to strengthen primary care
• Aged care residents - $2.5 billion to mandate a minimum number of care minutes for nursing home residents and employing a registered nurse onsite 24/7 in homes.
• Internet - $2.4 billion to be spent on NBN to expand full fibre access to 1.5 million homes and businesses by 2025
• Foreign Aid - $2 billion boost in aid and grants for the Pacific and SE Asia.
• Students - $852 million to provide 480,000 fee-free TAFE places
• Medicine users – Max co-payment on prescription drugs drops to $30 a script from January at a cost of $787 million
• New parents – $530 million for paid parental leave payments up to 26 weeks by 2026
• Self-funded retirees – income thresholds increased to $90,000 for singles and $144,000 for couples so more people qualify for the senior’s health card.
• Skilled migrants – permanent migration program expanded to 195,000 places a year

Losers

• Scrapping previous grants – including infrastructure, business incentives, community programs, road and commuter car parks etc. saving $13.7 billion
• Consultants and external agencies - $3.6 billion in savings from reduced outsourcing by the public service
• Energy users – electricity costs to rise by 20% this year and another 30% next year, whilst gas costs are to rise 20% this year and another 20% next year
• Consumers – weather related events on east coast to add to food inflation over the next few quarters
• Multinational companies – crackdown on multinational tax avoidance to take in more than $950 million over 4 years
• Investors – closing tax loophole for big companies and investors in off-market share buy-backs, raising $550 million
• Foreign investors – fees doubled for applications in July and penalties for residential land breaches from January, expected to take in $457 million over 4 years