Tuesday’s federal budget is set to show that strong commodity prices will account for about 20% of the increase in government revenue in 2022-23.
However, personal income tax is set to be the biggest source of revenue, at more than $300 billion, and it is now tipped to account for more than 50% of total revenue for the first time.
A low unemployment rate and strong wages growth are expected to account for about 40% of the improvement in the budget bottom line, with pundits last week forecasting a surplus.
Treasurer Jim Chalmers has stated that there will be a substantial improvement in the budget in the near-term, although he has downplayed the prospect that he will announce the first surplus in 15 years.
Even with next year’s stage three personal income tax cuts, income tax revenue will be forecast to remain above $300 billion over the forward estimates.
The Reserve Bank of Australia’s (RBA) latest forecasts outlined in its Statement of Monetary Policy showed that jobs growth will slow at the same time as the nation’s population swells by around 2% per year on the back of the government’s extreme immigration settings:
Accordingly, the unemployment rate is expected to rise to 4.5% over the next two years:
The CBA is more pessimistic, projecting the migration surge and the slowing economy to lift the unemployment rate by 0.75% to 4.25% by the end of 2023.
The RBA also projected a per capita recession for this calendar year, with the 1.25% growth in the economy not enough to keep pace with the 2% growth in the population.
Based on these forecasts alone, let alone falling commodity prices, it is difficult to see how the federal budget will remain in surplus.
