Josh Frydenberg says budget on track to return to balance by 2019-20 after tax receipts $13.4bn higher than expected

This article is more than 2 years old

This article is more than 2 years old

A surprise multibillion-dollar increase in tax revenue, and a significant decline in spending on welfare since May last year, have helped the government deliver a smaller budget deficit than forecast for 2017-18.

It is the smallest recorded deficit since the global financial crisis, at $10.1bn.

The treasurer, Josh Frydenberg, said the smaller deficit was the result of underlying strength in the economy and showed the Coalition’s economic plan was working, with the budget on track to return to balance by 2019-20 and real spending growth down to its lowest level in 50 years.

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He avoided saying if the government would now drop its rule that all new spending must be accompanied by savings elsewhere.

Labor said it demonstrated that Frydenberg had all but given up on offsetting new spending measures, warning the Liberal party’s budget discipline was weakening as the global economy was strengthening.

Treasury officials released the final budget outcome for the 2017-18 budget on Tuesday, showing an underlying cash deficit of $10.1bn for last financial year.

The government had been expecting a deficit of $29.4bn, so it has welcomed the $19.3bn improvement.

The multibillion-dollar improvement in the deficit is the result of tax receipts being $13.4bn higher than expected, and total government payments being $6.9bn lower than expected, partly offset by higher net Future Fund earnings of $1.1bn.

The lower payments were largely driven by a lower than expected number of participants entering the National Disability Insurance Scheme (NDIS) but there were also lower infrastructure payments to states and territories due to delays.

Last financial year, expenditure on social security and welfare was $6.3b less than estimated in the 2017-18 budget, with:

NDIS payments down $2.5bn, reflecting lower than expected numbers of participants entering the NDIS and lower utilisation of participants’ individual support packages

Age pension down $894m, reflecting the ongoing impact of the previously implemented measure to increase the age pension qualifying age from 65 to 67 years of age

Family tax benefit payments down $790m, reflecting lower than expected average payments and reconciliation payments driven by improving economic conditions

Jobseeker payments down $335m, reflecting lower than expected average payments and recipient numbers attributable to the strong labour market

Total tax receipts were $13.8bn higher than estimated in the 2017-18 budget, with:

Company tax receipts up $6.8bn (8.7%), due to higher-than-expected growth in corporate profits and stronger-than-expected results from ATO compliance activity. Bulk commodity prices rose 6.5%, helping to lift mining sector profits

Income tax withholding receipts up $5.3bn, reflecting stronger employment growth (partially offset by other individuals tax receipts, which were down $2.8bn due to lower than expected outcomes for unincorporated business income)

Receipts from superannuation fund taxes up $2.3bn (27.7%)

Total excise and customs duty receipts up $1.5bn (4%), reflecting higher than expected fuel and tobacco collection

Receipts from the GST up $676m (1.1%), consistent with stronger growth in consumption

At the end of 2017-18, the level of Australian government net debt was $342bn (18.6% of GDP), $13bn lower than estimated at the time of the 2017-18 budget.

Frydenberg said stronger economic growth and much stronger employment growth had helped the budget’s final outcome.

Real GDP in 2017-18 had been stronger than anticipated.

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Nominal GDP (which measures the value of all goods and services produced by a country at their current market prices) grew by 4.7% in 2017-18, higher than the forecast 4%. The higher than expected nominal GDP was the result of stronger than expected real GDP growth and higher than assumed prices for key commodities.

Almost 350,000 jobs were created in 2017-18, with employment growing by 2.7% through the year to the June quarter 2018, well above the 1.5% growth forecast in the 2017-18 budget.

Economists say the improved budget position means the government has more room for new spending promises in the run-up to the federal election.

“The abandonment of the enterprise tax plan for companies with revenues greater than $50m should save $35.6bn over 10 years,” Commonwealth Bank senior economist Belinda Allen said.

“Some of this could be repurposed to accelerate the tax cut to smaller businesses immediately. Prime Minister Morrison has also floated other policy changes including keeping the pension age at 67 and changes to school funding.”

But the shadow treasurer, Chris Bowen, and the shadow finance minister, Jim Chalmers, said the budget was still in “substantially worse condition” than that inherited by the Abbott-Turnbull government.

“Net debt has doubled under the Liberals, having ballooned from $175bn in September 2013 to $342bn in the latest figures,” they said in a joint statement.

They also warned the government would waste the huge improvement in tax revenue, rather than banking it.

“We’ve seen this story before with the Howard-Costello government baking in unaffordable, permanent income tax cuts and tax concessions and middle-class welfare into the budget, only for that to be unwound by successive governments as a temporary boom dried up,” they said.

“We know the Liberal party will move to bring back the big business tax cuts as soon the opportunity arises – that’s exactly what senior economic ministers said after the company tax cuts were defeated in the Senate.”