The budget bottom line is forecast to be $40 billion better over the four years to 2026-27. This was driven by a sizable $66.1 billion upgrade in expected receipts, partly offset by higher expenses ($21.3 billion) and new spending measures ($5.2 billion). This has lowered the peak in both net and gross debt as a share of the economy.
As we expected, the 2023-24 budget deficit was revised lower to $1.1 billion (or 0.0% of GDP), from the $13.9 billion expected back in the May Budget. We continue to expect the 2023-24 Final Budget Outcome will show a surplus of at least $11 billion when unveiled next September.
Treasury continues to expect the economy will slow over the next few years to grow below trend with the unemployment rate drifting higher to 4.5% in 2025-26. The economic outlook was broadly unchanged with some near-term strength driven by investment and public spending, partly offset by lower household spending. Importantly, Treasury continues to expect inflation to drift lower and be at 2.75% by mid-2025.
Was the MYEFO update a showcase in “responsible budget management” as the Treasurer claimed? A large share of the windfall was banked, which we have argued is the prudent approach given we are amid a temporary budget sweet spot.
However, to assess the broader question – whether fiscal policy is reducing inflationary pressures, we must look at the totality of fiscal settings not just what happened in one update. Treasury’s analysis of the structural budget position suggests that the budget in 2023-24 is neutral with respect to inflation – it is neither adding nor reducing inflationary pressures.
While neutral, policy settings are impacting cohorts differently – workers are being squeezed by bracket creep, but some of this drag is being offset by targeted temporary measures, such as cost of living relief measures, and spending on infrastructure.

Jameson Coombs

Stay informed with Westpac IQ

Latest articles

Australia and NZ weekly 29 April 2024

Where are USD bank funding levels now?

Cliff Notes: inflation risks linger

Browse topics