Australia's budget is anticipated to decline into a deficit for the 2024-25 fiscal year after achieving consecutive surpluses for the first time in nearly twenty years, as announced by Treasurer Jim Chalmers on Wednesday.
In the updated Mid-Year Economic and Fiscal Outlook, the government forecasts a deficit of AUD 26.9 billion for 2024-25, noting this figure is AUD 1.3 billion better than initially projected in the budget.
The government attributes the worsening fiscal position to challenging economic conditions and essential expenditures. These elements have prompted a downward revision of tax receipts, largely due to weaker commodity volumes amidst emerging issues in the Chinese economy.
The deficit is predicted to rise to AUD 46.9 billion, equating to 1.6% of the gross domestic product, by 2025-26. The outlook suggests a gradual narrowing of the deficit to AUD 38.4 billion in 2026-27 and further to AUD 31.7 billion by 2027-28.
Projections indicate the budget will return to a surplus only by 2034-35.
The government anticipates that the underlying cash balance will improve over the medium term, achieving equilibrium by the 2034-35 period.
Overall, the medium-term fiscal forecast remains largely consistent since the 2024-25 budget, as spending pressures and increased borrowing costs offset any gains in receipts.
Australia’s economic growth is expected to rise from 1.4% in 2023-24 to 1.75% in 2024-25, before reaching 2.25% in 2025-26, according to the treasurer.
