Federal Budget rebounds on higher tax revenue

By Stephen Halmarick, chief economist at CBA:

Key Points:

• Australia’s underlying budget deficit for 2022/23 was running at $A14.7bn for the 6 months to December 2022, a $A11.5bn improvement on the deficit profile from the October 2022 Budget. The Headline budget deficit was running at $A19.8bn for the first half of 2022/23, an improvement of $A12.6bn on the Budget profile.
• For the 6 months to December 2022, government receipts were $A8.8bn higher than projected, thanks largely to a $A6.5bn improvement in taxation receipts. On the payments side, government spending was running $A2.8bn lower than projected.
• As preparation for the 2023/24 Budget gets underway, it will be important for a tightening of fiscal policy to work together with tighter monetary policy to help inflation head back towards the 2%-3% target range. The 2023/24 underlying budget deficit was estimated at $A44bn, 1.8% of GDP, in the October 2022 Budget. We see a budget deficit closer to 1.5% as a more appropriate level.

Fiscal policy helping monetary policy

As the Reserve Bank of Australia (RBA) tightens monetary policy to help bring inflation back to the 2%-3% target range (see here for our views on the monetary policy outlook post the Q4 22 CPI data), it is critical that fiscal policy also does some of the heavy-lifting.