The Albanese Government delivered its third Budget on Tuesday, and we’ll take a brief look at the key numbers, policies, and economic forecasts, as well as draw some conclusions, including for superannuants and retirees.

Key budget numbers

  • This year’s Budget is forecast to be in surplus by $9.3 billion, or 0.3% of GDP. That surplus is higher than the December forecast of a $1.1 billion deficit, or 0.0% of GDP, and the original estimate for a deficit of $13.9 billion, equivalent to 0.5% of GDP. It means the Budget will be in surplus for a second year in a row.
  • However, future years are expected to slip back into deficit. The Budget estimates a 2024/5 deficit of $28.3 billion (1% of GDP). That’s larger than the deficit forecast in December of $18.8 billion. And the $9.5 billion difference entirely comes from new government spending.
  • The budget deficits forecast to 2027/28 range from 0.8% to 1.5% of GDP. It partly comes from an increase in net spending of $24 billion over the next four years. Cumulative deficits of $112 billion are predicted to 2028, and the deficits will run for a decade.
Table of truth
  • It will result in spending as a percentage of GDP averaging close to 26% in the long term, compared to 24.8% prior to the pandemic. That’s due to the new policy announcements and higher spending from health and aged care, as well as the NDIS.
  • Tax cuts will result in a dip in revenue, however the Budget forecasts that revenue will recover, mostly due to bracket creep.
Federal government spending

Economic forecasts

  • The Government left its forecast for GDP growth unchanged for this financial year, but marginally lowered it for 2025-2026. GDP growth of 1.75% is projected this year, rising to 2% in 2025 and 2.75% in 2026. Interestingly, the bounce in growth is expected to mostly come from a rise in household consumption, which has been tracking poorly in recent months.
Economic forecasts
  • The Government has also lowered its inflation forecasts. It projects 3.5% for this financial year, and 2.75% next year. The upfront energy bill deductions for households and small businesses will reduce headline inflation by 0.5% in 2025. The Budget assumes a slowing in wages growth from 4% in 2023/24 to 3.25% over the next two years.
  • The Government increased its forecast for net immigration this financial year to 395,000 from 375,000 in December. It expects international student cutbacks to reduce net immigration to 260,000 next financial year. That will result in population growth falling to 1.4% in 2024/25.
  • The Budget maintained most of the Government’s commodity price assumptions. An iron price of $60/tonne is predicted from 2026 onwards, compared to the current price above $100/tonne. If iron ore prices continue near current levels, that would be a revenue windfall for future budgets.

Major policy announcements

The key spending initiatives were mostly announced prior to the Budget, and include:

‘Future Made in Australia’

This is one of the cornerstones of the Budget, with an estimated investment of $22.7 billon over the next decade. The investments will focus on “industries that contribute to net zero transformation where Australia has a competitive advantage, and in areas where Australia has national interest imperatives related to economic security and resilience.”

Here’s where most of the money will go:

  • $7 billion in production tax incentives for the processing and refining of critical minerals.
  • $6.7 billion production tax incentive to produce renewable hydrogen.
  • $1.7 billion to promote net zero innovation, including for green metals and low-carbon fuels.
  • $1.5 billion to strengthen battery and solar panel supply chains.

Cost-of-living relief

Key spending measures include:

The previously announced personal income tax cuts. The modified stage three tax cuts will come into effect from July 1. The redesigned tax cuts will cost the Budget $106 billion over the next four years. A quick summary:

  • Earn $100k, save $2,179 p.a.
  • Earn $150k, save $3,729 p.a.
  • Earn $200k, save $4,529 p.a.
  • Earn $250k, save $4,529 p.a.
  • Earn $300k, save $4,529 p.a.

* The figures don’t include the Medicare levy and other deductions.

A 7.8 billion cost-of-living package, including:

  • $3.5 billion in power bill discounts. This will start July 1, run for a year, and equates to $300 off for every household and $325 for small businesses.
  • $1.9 billion for rent assistance. The Government will increase the Commonwealth Rent Assistance by a further 10% after last year’s 15% rise. This will increase the maximum rate for a single person living alone from $188.20 per fortnight to close to $200. For a single person in a shared house, it will rise from $125.47 to almost $138 per fortnight.
  • Changing the indexation of student debt from the CPI to the lower of either the Wage Price Index (WPI) or CPI. The Government estimates that this will reduce the outstanding value of student debt by $3.3 billion.

Health

The price of medicines listed on the Pharmaceutical Benefits Scheme (PBS) will be frozen for everyone or at least two years, and longer for older Australians. The maximum price for any PBS-listed drug will be $31.60, and $7.70 for pensioners and concession card holders. The Government estimates the measure will cost $310 million over the next five years.

Aged care

The Government has budgeted a further $500 million this financial year for another 24,100 home care packages.

$610 million will go to the states to help long-stay older residential patients to leave hospital and live back in the community.

Age Pension

Deeming rates for people on government support payments, including the Age Pension, have been frozen at current rates until June next year. The upper deeming rate will stay at 2.25% while the lower deeming rate will remain at 0.25%.

Superannuation

There wasn’t a lot in the Budget on super. However, the Government has strengthened the Paid Parental leave (PPL) scheme. Funding includes $1.1 billion over four years to pay super on PPL for births and adoptions on or after 1 July 2025.

Housing

The Government has announced $6.2 billion build more homes. Some of this money will go to the states to unblock bottlenecks preventing houses being built.

$1 billion will go towards crisis accommodation for women and children, and $423 million will go the states to support social housing and homelessness services.

Defence

The Government had previously announced a $330 billion investment in the National Defence Strategy and the Budget allocates an additional $5.7 billion to 2028.

Infrastructure

The Government has committed an additional $2.9 billion over five years to increase its infrastructure investment, with most of the focus on Western Sydney, near the upcoming second airport.

Budget implications

Given that an election is likely not far away, this was a Budget that was always going to be as much about politics as policy. And the majority of economists seems to have given it the thumbs down, echoing the AFR’s screaming front-page headline, ‘Spending addiction fuels a new decade of deficits’.

They cite the increased spending and ‘bigger Government’ putting upward pressure on inflation and making it more difficult for the RBA to reduce inflation and interest rates. They also point to structural deficits being a bad thing when the terms of trade are at 100-year highs and unemployment is at 50-year lows. It won’t leave much wiggle room when a recession hits.

Also, many economists point to the ‘Future Made in Australia’ theme being protectionist and a case of the Government cherry-picking ones – things that have been tried in the past and failed.

Finally, they think the housing measures won’t be enough to plug the current shortfall in homes – nowhere near it.

Yet, things aren’t as gloomy as the economic boffins make out. Australia remains in a sound economic position, and it balance sheet is vastly superior to most of the developed world. Federal Government net debt of 18.6% this year will rise to just under 22% of GDP by June 2028. 

Net federal debt

That said, the bigger picture is that Australia faces the same problem as much of the West: people are living longer, putting pressure on welfare budgets. The various Intergenerational Reports probably underestimate future longevity given continuing medical advances in the field.

Unfortunately, Governments everywhere, including in Australia, are not living within their means and are funding the welfare through borrowing. And Governments will struggle to keep up with ever-increasing welfare bills. To raise revenue, it’s likely that things like super and the Age Pension will continue to be tightening.

For more on the budget:

Federal budget 2024: Treating the symptons instead of the disease