A surge in tax revenue from everyday workers, companies and superannuation funds plus lower-than-expected unemployment levels are helping the federal budget recover from the fiscal fallout of the COVID-19 recession.
But new figures from the Finance Department also show the budget is still on track for one of the largest deficits on record, leaving which ever party wins next year’s federal election tough decisions on how to repair the economy.
A surge in personal and company tax revenues have improved the position of the budget but the government is still facing a deficit of more than $80 billion this financial year.Credit:Gabriele Charotte
In May, Treasurer Josh Frydenberg forecast the 2021-22 budget would show a deficit of $106.6 billion with $99 billion tipped for 2022-23.
The department’s data shows the budget deficit to the end of October for this financial year was $43.9 billion, a $7.9 billion improvement on what had been expected.
The improvement to October was despite the Delta-related lockdowns across the east coast that contributed to a 1.9 per cent contraction in the economy.
Income tax collections alone are 20 per cent higher than expected to the end of October. Some of this is due to the stronger-than-forecast jobs market.
But a portion of the improvement is due to income tax returns being $3.4 billion or more than 12 per cent short of forecasts. This may have been caused by lockdowns which prevented individuals from completing their tax returns.
If those returns are completed in coming months, this improvement may prove transitory.
Company tax collections, due in large part to surging iron ore prices, are 34 per cent ahead of expectations while superannuation tax collections are 50 per cent up on forecasts due to the strong sharemarket.
There are signs of weakness in government revenue with indirect taxes, including the GST and excises, down $2.3 billion or 5.5 per cent on forecasts. Delays through the nation’s ports caused by problems across global supply chains may be feeding into the shortfall.
Finance Minister Simon Birmingham said the figures highlighted the economy’s resilience.
Finance Minister Simon Birmingham says the improvement in the budget confirms the economy’s resilience. Credit:Alex Ellinghausen
“Whilst we continue to grapple with COVID curveballs such as the Omicron strain, this boost to the budget bottom line is demonstration that our economy remains resilient,” he said.
“Our necessary economic support during Delta has put pressure on the budget, but it has also put businesses and households in a prime position to bounce back. As we head towards Christmas, more Australians in jobs and more confidence across the economy will be key to further improving our budget position.”
While revenues were stronger, some payments were lower than feared. JobSeeker payments were $1.2 billion lower than anticipated in May even considering the impact of lockdowns.
The federal government has paid out $12.9 billion in COVID-19 disaster payments to 2.4 million people and $13 billion to the states in business support.
While $7.9 billion better than expected, the budget is still on track to show a deficit between $80 and $90 billion. Last year’s deficit of $134 billion was the largest on record and followed an $85.3 billion shortfall in 2019-20.
Federal government gross debt reached a record $866.9 billion on Friday.
The figures also do not consider any extra election-related spending that may be announced by the government in either its mid-year update, to be released on December 16, or at its March 29 budget.
The government and Labor are considering extending the low and middle income tax offset, that is due to end this financial year. A one-year extension will cost more than $7.5 billion and would prevent almost 10 million people facing a tax increase in 2022-23.
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