Australia\u2019s national debt has likely fallen due to surging cost-of-living and the war in Iran, but economists warn the country\u2019s luck is running out. <\/p>\n
According to Deloitte Australia, fiscal policy has been held together by \u201csugar hits\u201d of inflation and strong commodity prices, with real reform needed over short-term support to ease the pain at the petrol pump.<\/p>\n
Since April, motorists have saved on average 32 cents per litre due to a halving of the fuel excise and returning the GST windfall. <\/p>\n
Deloitte Access Economics partner Stephen Smith warned Australia could not rely on foreign events to continue to prop up the budget. <\/p>\n
\u201cHigher inflation and the conflict in the Middle East, that is all quite good for the budget because higher prices means more tax revenue,\u201d he told NewsWire. <\/p>\n
Mr Smith said the budget had been structurally flawed for a number of years, with surprising revenue increases papering over Australia\u2019s \u201cprecarious fiscal position\u201d.<\/p>\n
\u201cEconomic developments that deliver sugar hits on the revenue side will jeopardise the budget\u2019s health elsewhere,\u201d he said.<\/p>\n
\u201cA sustained oil supply shock could substantially slow demand, while the Reserve Bank of Australia may have to hike interest rates further than anticipated.<\/p>\n
\u201cThat risk will be more certain of becoming a reality if there is heavy-handed support for households in the budget.\u201d <\/p>\n
According to Deloitte Access Economics budget monitor report, the underlying cash deficit will come in at $33.2bn or a $3.6bn improvement on the Mid-Year Economics and Fiscal Outlook (MYEFO).<\/p>\n
Mr Smith said higher inflation would lift revenue for the national coffers for the next two years. <\/p>\n
Commonwealth Bank is more optimistic, forecasting a \u201csignificant improvement\u201d in the fiscal outlook, as the deficit drops to $29bn this year and $22bn the year after. <\/p>\n
In total, the Australian Office of Financial Management shows the country still owes $962.6bn, after the country paid back a $40bn tranche of the debt on April 21, 2026. <\/p>\n
Costs will rise<\/p>\n
Deloitte warns Australia\u2019s elevated inflation will lift indexed cost payments, including jobseekers and the pension, while the government will have to pay more on public debt.<\/p>\n
\u201cEven with a relatively disciplined approach to new spending, the increased cost of existing spending is likely to offset a large part of the budget\u2019s revenue windfalls,\u201d Mr Smith said.<\/p>\n
\u201cThe \u2018fast five\u2019 spending areas \u2013 defence, the NDIS, aged care, health and interest costs \u2013 are all essential, but their growth is outpacing revenue at an unsustainable rate.\u201d<\/p>\n
Health Minister Mark Butler has previously announced changing the rules for the national disability insurance scheme to reign in the runaway costs. <\/p>\n
New legislation is due to be put before parliament to target \u201cscheme inflation\u201d and crack down on eligibility requirements and alleged rorting of the scheme.<\/p>\n
These changes would result in taxpayers spending about $55bn over forward estimates, instead of the NDIS costing more than $70bn in 2030, as current projections show.<\/p>\n
Competing priorities<\/p>\n
According to Commonwealth Bank chief economist Luke Yeaman, the budget faces three main issues that the government needs to address.<\/p>\n
These include changing the tax system to create a \u201cfairer\u201d burden between the generations while also improving priorities.<\/p>\n
The second is the economy is growing faster than expected and any increase in government spending will only add fuel to the inflation fire. <\/p>\n
At the same time, the Iran war has created significant uncertainty and challenges. <\/p>\n
\u201cAchieving all of this in one budget (major reform, big spending cuts, national resilience and supporting households) is quite the ask,\u201d he said.<\/p>\n
\u201cWe expect the government to try to thread the needle. To pull this off, they will need to meet several tests.\u201d<\/p>\n
In recent weeks, Treasurer Jim Chalmers has gone as far as describing the budget strategy as \u201chostage to economic turmoil\u201d.<\/p>\n
He has promised it will remain ambitious while delivering \u201csubstantial savings\u201d.<\/p>\n
The Treasurer has also pledged the budget will focus on \u201cintergenerational inequity\u201d issues in the taxation and housing sectors.<\/p>\n
Here\u2019s what we know about the federal budget so far.<\/p>\n
Go big or go home<\/p>\n
Part of the tax reform begins by removing the sacred cow of rejigging the capital gains tax discount and negative gearing.<\/p>\n
Currently, there is a flat 50 per cent discount that applies to capital gains across all asset classes when held for greater than one year.<\/p>\n
This means if an investor buys a property for say $500,000 and it increases over two years to $700,000, the capital gain is $200,000.<\/p>\n
But the investor would only pay taxes on $100,000 of this money due to the changes.<\/p>\n
Instead, reports have emerged the government will change this to indexation, meaning the investor only pays gains on the \u201creal capital gain\u201d.<\/p>\n
\u201cThe stars have finally aligned for long\u2011touted reforms to the CGT discount and negative gearing, with the Government seeking to frame this as a housing and intergenerational equity issue, not a \u2018tax grab\u2019,\u201d Mr Yeaman said. <\/p>\n
Commonwealth Bank predicts this will save the budget about $2bn over four years, if the current reports prove true. <\/p>\n
While calling changes to capital gains tax a decent start, Deloitte believes the budget should go a step further, moving away from a reliance on income, to broader consumption and land taxes. <\/p>\n
Deloitte Access Economics said this could be done by lifting the tax-free threshold to $35,000, a 33 per cent marginal rate on all incomes up to $300,000 and a to 40 per cent on all incomes above this threshold. <\/p>\n
\u201cFrom an economics point of view if you are taxing income you are discouraging people from working, so the less we can tax labour the more we encourage people to work and that can really boost the economy,\u201d he said.<\/p>\n
\u201cOver the last few decades the structure of the economy has changed a little bit, as we have a much older population on average and have people who are relatively wealthy who are no longer working.<\/p>\n
\u201cSo when we have higher taxes on income that is falling disproportionately on younger people while people with a lot of wealth are paying proportionally less tax.\u201d<\/p>\n
He also told NewsWire taxes such as the GST were more efficient because everyone consumed, meaning everyone would pay the tax. <\/p>\n","protected":false},"excerpt":{"rendered":"Australia\u2019s national debt has likely fallen due to surging cost-of-living and the war in Iran, but economists warn…\n","protected":false},"author":2,"featured_media":641235,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[64,63,99,164,115817],"class_list":["post-641234","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-au","tag-australia","tag-business","tag-economy","tag-newswire-business"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/641234","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/comments?post=641234"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/641234\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media\/641235"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media?parent=641234"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/categories?post=641234"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/tags?post=641234"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}