Australia's Budget Deficit Widens as Government Increases Spending
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Australia's government will face larger budget deficits in the coming years, driven by increased spending on healthcare, cost-of-living support, and veterans' care, reports Reuters. Despite trimming this year's deficit forecast, the Labor government is prioritizing public spending to navigate a slowing economy and upcoming elections.
The Mid-Year Economic and Fiscal Outlook (MYEFO), released Wednesday, reveals a revised economic growth forecast of 1.75% for the fiscal year ending June 2025, down from the 2% prediction in May's budget. Wage growth has also been revised down to 3.0%, disappointing the government's promise of faster pay increases.
This economic slowdown, attributed to high interest rates and inflation, has prompted the Reserve Bank of Australia (RBA) to signal potential easing of monetary policy.
Treasurer Jim Chalmers indicated that further cost-of-living assistance may be forthcoming, adding to existing measures like tax cuts, electricity rebates, and cheaper medicines. "From budget to budget, if we can afford to do more and there is a case to do more to help people with the cost of living, of course, then we will consider that," Chalmers stated in a press briefing.
Despite this increased spending, the 2024/25 deficit is now projected at A$26.9 billion, slightly lower than the A$28.3 billion predicted in May. However, the coming years will see a significant increase in deficits, reaching A$117 billion by 2027/28, A$23 billion more than previously anticipated.
"The slippage in subsequent years is largely because of urgent, unavoidable or automatic increases in spending in areas like pensions, Medicare and medicines," Treasury stated in a report.
The government has also downgraded expected tax revenues from corporations, citing subdued demand in China and its impact on key Australian commodity exports like iron ore. The MYEFO maintains a long-term iron ore price assumption of $60 per tonne by the third quarter of 2025, despite current prices exceeding $104 per tonne.
Net debt is projected to rise to A$1.16 trillion by 2027/28, up from an estimated A$940 billion this year. However, at 36.7% of gross domestic product, this level of net debt remains relatively low by international standards.
The government has also revised its net overseas migration forecast for 2024/25 to 340,000, up from 260,000, reflecting ongoing challenges in managing migration levels.