The truth behind Australia's fiscal recovery
A closer look at Australia's budget surplus reveals a mix of fiscal accidents, hidden tax hikes, and misguided government spending that could leave the country facing a decade of deficits.
This will be the first of two posts digging into a few interesting economic events that happened last week, starting with the federal budget. For as you may have heard, Treasurer Chalmers gleefully revealed that the final 2023-24 financial year results came in much better than expected:
"The federal government recorded a $15.8 billion surplus for the 2023/24 financial year, a $6.4 billion improvement on the forecast in the May budget, data released on Monday showed.
Treasurer Jim Chalmers attributed the budget turnaround to lower government spending.
'It's not about higher commodity prices, it's not about more taxes – it's about the less spending', he said."
Chalmers is clearly aware of the public's perception that his government is spending too much, or he wouldn't have gone to such pains to say that it wasn't.
But he's only telling half-truths. While it's true that the total tax take was largely unchanged, the composition was very different than expected: taxes on incomes and consumption were up a lot over the past six months (~8%), while those on profits were down by about the same amount. The former is up because of inflation, for which his government is at least partly responsible, while the latter is down not because of decisions made by Chalmers, but because commodity prices have fallen.
It's similar with spending. Chalmers' half-truth is that the government spent less than it expected when it made the projection five months ago. But as economist Chris Richardson pointed out, that's largely an "accident of timing" – e.g. big government projects moving slower than expected – and an accident of the economy, with a strong labour market "keeping spending lower than expected in some areas".