The federal government could return the budget to balance this financial year, 12 months earlier than forecast, but that would require spending restraint ahead of the federal election, leading budget economist Chris Richardson said.
Finance Minister Mathias Cormann confirmed on Sunday that the budget bottom line for the first two months of this financial year – to the end of August – was already $6.6 billion better than expected.
Of this, $2 billion was due to better-then-expected company tax receipts while superannuation taxes were also booming.
The deficit for the 12 months to the end of August was $8.9 billion, well ahead of the $14.5 billion deficit forecast for this financial year in the May budget. The budget forecast a return to balance of $2.2 billion for next year, 2019-20.
Mr Richardson said if the current revenue trend continued, balance could be achieved this year but it would require fiscal discipline and a continuing good economy.
“We’re still in deficit but it’s wafer-thin. They’re in with a chance of 2018-19 being in balance but a lot will come down to discipline between now an the election and continuing momentum in the economy,” he said.
Senator Cormann indicated the government would not be banking all the money. Last week’s announcement, for example, to bring forward small business tax cuts by five years at a four-year cost to the budget of $3.2 billion, would be funded from the extra revenue rather than offsets elsewhere because the government did not consider cutting taxes a spending measure.
“Actually, the offset rule in our fiscal strategy in our budget requires that any new spending measures have to be more than offset with spending reductions in other parts of the budget,” he told the ABC’s Insiders program.
“What we are talking about here is a tax cut. Even though Labor is confused about the difference between a tax cut and a spending increase, it should be clear to everybody else that reducing taxes is not increasing government expenditure.
“We do not always pay for a lowering in the tax burden in the economy with an increase in taxes elsewhere. Labor stands for higher taxes, which we would argue would detract from investment, lead to lower growth, fewer jobs, higher unemployment and, over time, lower wages.”
The budget has been in rude health for some time. The final budget outcome for 2017-18 showed the deficit for that year had been slashed to $10.1 billion which was $19.4 billion better than the $29.4 billion expected at the start of the financial year.
The federal election is due by May next year and the government has studiously avoided forecasting a quicker return to surplus or balance, fuelling expectations of a pre-election spending spree.
This speculation includes bringing forward or bolstering the income tax cuts which are being rolled out over seven years at a decade-long cost of $144 billion but sources cautioned against this, saying even a small increase “has a huge effect” on the budget.
For example, stage one of the income tax cuts for low and middle-income earners, which began on July 1, will cost the budget $13.4 billion in the first four years.
Labor has promised its own version which will be more generous but will cost $19.2 billion, meaning the Coalition would have to find $5.8 billion to match it while still funding stages two and three of its cuts, which Labor will repeal if elected.