Deloitte predicts December budget update will show bottom line has worsened since May, in fiscal ‘thud’
- Written by Michelle Grattan, Professorial Fellow, University of Canberra
Next month’s update of the federal budget will forecast a bigger deficit for 2024-25 than was predicted in the May budget, according to the Deloitte Access Economics’ Budget Monitor, released on Tuesday.
Deloitte forecasts a deficit for the current financial year of $33.5 billion, $5.2 billion worse than the $28.3 billion deficit that the budget forecast.
Multiple factors are contributing to the worsening figure, including the flat economy, less company tax revenue than earlier expected, the overseas situation particularly the problems in China’s economy, and continued spending pressures.
In his economic statement to parliament last week, Treasurer Jim Chalmers foreshadowed the budget update was expected to revise company tax receipts down for the first time since 2020.
Deloitte says: “While Australia appears to have achieved the much-vaunted soft economic landing that policy makers had been seeking, the federal fiscal position is returning to earth with a thud”.
If its deficit forecast is realised, “that would represent a deterioration in the budget bottom line of more than $49.3 billion following the $15.8 billion surplus inked in 2023-24,” Deloitte says in its November Budget Monitor.
“That stunning turnaround in Australia’s fiscal fortunes would be the largest nominal contraction in the underlying cash balance on record, excluding the pandemic-hit budget of 2019-20.”
Deloitee adds: “Worryingly, there is little to suggest that the situation will right itself in the years to come.”
It warns if the Trump administration imposes subsational tariffs on imports, including up to 60% on Chinese goods, Australia’s budget “will not be immune given its reliance on commodity prices via company tax receipts”.
Deloitte says Australia needs a more sustainable fiscal strategy.
On the present timetable, the government is due to deliver a budget on March 25. Some commentators have argued that because of the budget’s problems, including a looming string of deficits, the government may want to avoid a budget by an earlier election.
Deloitte also questions the government’s change to the mandate to the Future Fund, saying “the changes raise more questions than they answer”.
Last week Chalmers said the Future Fund should give priority to investments in housing, the energy transition and infrastructure where that was consistent to its requirements in relation to returns and risk.
Deloitte asks: “If having regard to these national priorities can be consistent with maximising returns, why has the Future Fund not invested more in these areas in the past?”
“Equally, if the new Investment Mandate doesn’t change the benchmark risk or return, and doesn’t strictly require investment in a specific area – in other words, if it changes nothing – then why was it published?”
It says a better explanation of why the fund requires “refreshing” is needed to build broader support for the changes.
Deloitte criticises the lack of substantial economic reform over the last more than two decades.
“That has resulted in a coddled and cosseted economy bereft of competitiveness and dynamism.
"Economic and productivity growth are moribund and real incomes are declining, while income, wealth and intergenerational inequality has morphed into a broader schism through Australian society.”
Commenting on the report, Chalmers said:“We’ve warned for some time that pressures on the budget are building, not easing, and this is consistent with that.
"Our budget position in the mid-year update will be a bit weaker than what Treasury forecast in May, but still much stronger than what we inherited”.
“Deloitte’s report shows that global economic uncertainty like the slowdown in China is a key factor weighing heavily on the budget right now.”
