Tough times ahead — for households, government and the nation

Treasurer Jim Chalmers’ updated 2022-23 budget offers a mixed bag of a poorer economy for working Australians but stronger revenue for the government, bringing deficits down significantly before an increase in the overall size of government solidifies a long-term structural deficit.

Chalmers unveiled significantly lower deficits over the next two years — a $37 billion deficit, down from $78 billion forecast in the April budget, and $44 billion in 2023-24, down from a forecast $56.5 billion, off the back of $142 billion in extra revenue over the forward estimates. Chalmers says this extra revenue has nearly all been banked rather than spent.

But the forecast deficits for 2024 and 2025 are both higher — by $4-6 billion — than earlier forecasts as spending continues to grow, back up to 27% of GDP.

The economy and households will struggle. Growth has been downgraded across the forward estimates, and will be just 1.5% in 2023-24. There will be an increase in unemployment back to 4.5%; inflation over the year will hit 5.75% in 2022-23 (and peak higher later this year).

Labor evidently has high hopes for its industrial relations changes — it thinks wages will grow even more strongly than under the Coalition, forecasting growth of 3.75% over the next two years. But even with such Panglossian optimism, households are set to go backwards in real terms.

As promised, the government has reprofiled infrastructure spending, saving $4.7 billion over the forward estimates. $3.5 billion has been cut in public service consultants and travel, and National Party pork-barrelling worth $3 billion has also been ditched.

But Chalmers and Finance Minister Katy Gallagher promised that spending restraint would continue to characterise the government and that “hard decisions” lie ahead — as they must for a country that has permanently increased the size of government but not bothered to yet work out how to pay for it.