The budget forecasts a deficit of $49.6 billion in 2025-26 compared to a forecast of $43.1 billion for the same year when the Coalition unveiled its last budget in March.
In the most significant new initiative in the budget,Labor revealed an ambitious plan to build one million new homes from 2024 to 2029 in a “housing accord” with the states and territories,with support from superannuation funds that could bankroll construction.
Chalmers said he wanted the program to include land release to make way for new homes so they would be built near transport networks and jobs,but the plan only included $350 million in new federal funding.
Labor cut dozens of programs and delayed spending on others to add $22 billion to the bottom line over four years but chose not to slash spending any harder,given the backlash against the Coalition when it unveiled unpopular cuts in its 2014 budget after it won power.
“We’ve always seen this as the beginning of the effort,not the end of the effort,” Chalmers said when asked about the spending cuts.
Finance Minister Katy Gallagher signalled further cuts to come in this term of government,with Chalmers also declaring the government would not delay controversial decisions until after the next election even if this meant breaking election pledges.
With the cost of the stage three tax cuts rising to $254 billion over a decade in the updated forecasts,the government sent a clear signal it would examine more options to restore the budget to balance.
Chalmers used his speech to parliament at 7.30pm on Tuesday night to call for a “conversation” in the community and choices in government about what was “affordable and fair” in the budget.
A central claim in the budget is that 99 per cent of the additional revenue in the next two years will fall to the bottom line rather than being spent,while this percentage shrinks to 92 per cent in the subsequent two years when the childcare and PPL spending programs build up.
While the revenue gain helps Labor produce a better outlook for debt in the next few years,the borrowings will surpass $1 trillion by June 2024 and continue to grow because there is no forecast for a budget surplus at any point.
Loading
The face value of Commonwealth debt on issue will reach $1.2 trillion in 2026 and the interest payments on the debt will be $32.6 billion in that year.
By 2030,the gross debt will be worth about 47 per cent of economic output,seven percentage points more than the scenario set out to voters before the election.
While the government has blamed the Coalition for leaving the nation with $1 trillion in debt,the borrowings include $306 billion in gross debt issued when Labor was in power from 2007 to 2013 and issued bonds to pay for emergency measures during the global financial crisis.
The budget warns of a global slowdown but assumes this will not lead to a “hard landing” that triggers an economic winter.
“The baseline forecast is that central banks can navigate slowing demand sufficiently to return inflation to target without tipping the world economy into recession,” it says.
Under a more grim forecast,however,the budget considers the risk of higher global inflation and interest rates. This would slash growth further and push Australia’s unemployment rate to 5 per cent compared to the current rate of 3.5 per cent.
Chalmers prepared for a political contest with shadow treasurer Angus Taylor over the budget deficit by pointing out that spending growth was lower than economic growth over the next four years,a test the Coalition set for the government.
Loading
Total federal payments are forecast to contract by 2.2 per cent this financial year and another 1 per cent next year before increasing by 1.8 per cent in the third year and 2.4 per cent in the fourth year of the official forecasts.
This will take payments to 27.1 per cent of GDP,the highest level on budget records that track the figure back to 1970.
Total receipts,however,will only reach 25.3 per cent of GDP,slightly lower than the level seen during the commodities boom in 2005 in the final term of the Howard government.
As a result,the budget expects receipts will reach $679 billion in 2026 but payments will climb to $728.6 billion and the budget will record a deficit of $49.6 billion after taking into account earnings from the Future Fund.