Federal budget set to sink into ‘deep deficit’, Deloitte reveals
The big four firm has predicted the 2025 federal budget will bring a substantial deficit for Australia in its most recent edition of the Budget Monitor.
Deloitte’s Budget Monitor revealed a surplus is out of reach for the next federal budget despite a “much-vaunted soft economic landing” sought out by policymakers.
The firm said the November 2024 edition of the Budget Monitor carried the consistent message that relying on unforeseen revenue upgrades was not a sustainable fiscal strategy.
According to the report, a deficit of $33.5 billion was anticipated by the firm, compared to the official forecast of $28.3 billion.
Deloitte Access Economics partner Cathryn Lee said adopting conservative commodity price assumptions had regularly delivered sustainable revenue upgrades to the federal budget for much of the last decade.
“Over the last two decades both major political parties have fallen short of the standard of fiscal rectitude necessary to ensure the long-term health of the federal budget,” Lee said.
“The structural budget position – that is, what the budget balance looks like after correcting for the swings and roundabouts of the economic cycle – is in deep deficit, meaning that without cyclically serendipitous commodity price booms, a surplus is out of reach.”
“This is exactly what is playing out in 2024-25. While Australia appears to have achieved the much-vaunted soft economic landing that policymakers had been seeking, the federal fiscal position is returning to Earth with a thud.”
However, due to the last two consecutive surpluses that followed the pandemic-induced deficit, Lee said the government still deserved credit.
“Most of the unexpected revenue which has flowed into federal coffers over the past two years has been saved rather than spent.”
“That has required discipline, particularly given the calls for more cost-of-living support that have reverberated throughout the community during that time.”
The budget monitor also revealed that Deloitte expected Treasury downgrade expectations for company tax relative to the forecasts set out in the 2024–25 budget.
Deloitte Access Economics Partner, Stephen Smith, said there was concern surrounding the upcoming budget deficit.
“If realised, that would represent a deterioration in the budget bottom line of more than $49.3 billion following the $15.8 billion surplus in 2023-24,” he said.
“That stunning turnaround in Australia’s fiscal fortunes would be the largest nominal contraction in the underlying cash balance on record, excluding the pandemic-hit budget of 2019-20.”
Smith also noted Donald Trump’s re-election may impact the federal budget if substantial tariffs were to be applied to USA imports, which would impact China before flowing onto Australia.
Lee said the composition of the Australian economy would mean it would always be more exposed to global commodity prices rather than most developed countries and could only be fixed by critical tax reform.
“There have been steps in the right direction. Recently announced aged care reforms and the new $900 million National Productivity Fund both represent good policy, alongside the energy transition reforms that are underway,” Lee said.
“The time will come for changes to tax. Economists know that proper tax reform, done correctly, can be good for the economy, good for the prosperity of Australians, and good for the budget.”
“Governments hoping to continue to unveil ‘surprise’ revenue upgrades year after year will be disappointed. Australia needs a more sustainable fiscal strategy.”
About the author
