Australia’s budget deficit has come in $11.5 billion better than predicted in the October budget, according to monthly financial statements released by the Department of Finance.
For the month of December 2022, the underlying cash budget was reported to be in deficit by $2.9 billion, giving a year-to-date cumulative budget deficit of $14.7 billion compared to the 2022–23 October budget profile deficit of $26.2 billion.
Meanwhile, the headline budget deficit was running at $19.8 billion in the six months to December, an improvement of $12.6 billion against the budget profile.
Commonwealth Bank chief economist Stephen Halmarick argued that, as the Reserve Bank (RBA) tightens monetary policy to help bring inflation back into its target range of 2 to 3 per cent, it remains critical that fiscal policy also do some of the heavy lifting.
“The good news is the resilience of the Australian economy through 2022, especially the strength in nominal GDP growth, is helping the budget position improve quickly,” he said.
Over the first six months of 2022–23, receipts flowing into the budget were reported to be $8.8 billion higher than expected, driven largely by a $6.5 billion improvement in tax receipts, including $2.7 billion from individual income tax and $2.8 billion from company tax.
On the payments side, government spending was $2.8 billion lower than projected at $312.9 billion, including lower running payments for transport and communication (-$4.4 billion), education (-$1 billion), Health (-$3.3 billion) and social security and welfare (-$0.8 billion).
Additionally, higher payments were recorded in the areas of defence (around $150 million) and public order and safety (around $300 million).
“The 2022–23 budget deficits, both underlying and headline, look set to be on track to come in well below the $39.9 billion and $49.6 billion deficits, respectively, estimated in the October 2022 Budget,” commented Mr Halmarick.
“As the government begins planning and preparation for the 2023–24 budget, expected to be released on Tuesday, 9 May, it will be important for the tightening of fiscal policy, which is coming courtesy of the automatic stabilisers that are flowing from higher commodity prices and the strength in the labour market, to continue and assist monetary policy in bringing inflation back towards the target range.”
The latest estimate for the 2023–24 budget deficit, as outlined in the October budget last year, is $44 billion or around 1.8 per cent of Australia’s GDP.
“We see a deficit of closer to 1.5 per cent of GDP as more appropriate and would look for an update to a lower deficit estimate when the 2023–24 budget is handed down in May,” Mr Halmarick concluded.
