Anthony Albanese’s pre-election spending spree could be stopping Australians from getting a rate cut.
Treasury’s Mid-Year Economic and Fiscal Outlook, released on Wednesday, revealed government debt levels and income tax collections had risen since the May Budget.
Government spending as a proportion of gross domestic product is also at the highest level in almost four decades, outside of the pandemic, which will also mean bigger Budget deficits in coming years.
This is occurring as Labor goes on a spending spree, with $16billion to be spent on university fee debt relief as another $5billion goes towards childcare and $20billion is outlaid on renewable energy transmission lines.
But ahead of the figures being released, Treasurer Jim Chalmers denied Australia had a spending problem – despite concerns from economists about ‘escalating spending’.
‘The Reserve Bank Governor herself has said that public spending is not the main game when it comes to our inflation challenge,’ he told Sunrise on Wednesday morning.
‘We have made a lot of progress on inflation, we’ve got a bit further to travel, but the Budget position is a very responsible Budget position.’
Reserve Bank of Australia Governor Michele Bullock in August did say ‘public demand is not the main game’ but in November added ‘I should emphasise here it’s not just the federal governments, it’s the state governments as well’ that are helping to keep inflation high, with government debt now at record levels as a proportion of the economy.
Anthony Albanese ‘s government’s pre-election spending spree could be stopping Australians from getting a rate cut
The Budget update projected a deficit $46.9billion for 2025-26, up from the $42.8billion figure predicted in the May Budget
The Budget update projected a deficit of $46.9billion for 2025-26, up from the $42.8billion figure predicted in the May Budget.
Gross government debt in the next financial year was also set to climb to $1.028trillion, higher than the $1.007trillion level forecast in May and making up 36 per cent of gross domestic product.
‘Our debt position is very substantially better than other countries, but it’s still a concern to us,’ Dr Chalmers said.
‘That’s because the more debt that we carry in the Budget, the more interest we pay on that debt.
‘We can all think of better destinations of those billions of dollars than paying interest on debt.’
Government payments are set to add up to $731.133billion in 2024-25.
This would make up 26.5 per cent of GDP, which outside the 2020 Covid pandemic will be the biggest proportion of the economy since 1986.
‘One of the big drivers of the extra spending in the Budget update, which is uncontested, is indexation of things like the Age Pension, working age payments and the like,’ Dr Chalmers said.
Treasurer Jim Chalmers denied Australia had a spending problem
A fall in iron ore prices to $US60 tonne by September 2025, from $US100 a tonne now, is also expected to affect federal company tax revenue.
The Reserve Bank of Australia has declined to cut interest rates in 2024 with its 4.35 per cent cash rate now higher than equivalent policy rates in Canada and New Zealand.
This is occurring even though those nations have this year cut interest rates, along with the U.S., UK and European Union.
Deloitte Access Economics partner said Cathryn Lee: ‘The federal Budget’s bottom line is deteriorating under the weight of escalating spending and Australia’s economic challenges.’
Fellow partner Stephen Smith said the government was too reliant on income taxes and spending too much on superannuation concessions and a 50 per cent capital gains tax discount when selling an investment property – a policy change Labor ruled out after losing the 2019 election.
‘Australia’s fiscal settings are increasingly inequitable,’ he said.
‘Almost half of all revenue raised by the federal government is sourced from taxes on individuals.
‘At the same time, major tax expenditures such as the concessional taxation of superannuation contributions and earnings, and the capital gains tax discount, disproportionately benefit the wealthiest Australians.’
Treasury’s Tax and Expenditures Statement released on Tuesday showed the government would forfeit $24.2billion in revenue in 2024-25 from taxing superannuation earnings at 15 per cent during the accumulation phase but not taxing it at all during the retirement phase.
Australia’s economic growth was expected to remain weak, despite high government spending, with only a 1.75 per cent pace forecast for 2024-25, a level well below the three-decade average of 3 per cent and below the 2 per cent level forecast in the May Budget.