The government has just delivered the first back-to-back budget surpluses in nearly two decades.
But, as quickly as they arrived, those surpluses are forecast to disappear, from next financial year for as far as Treasury's estimates go, to the middle of next decade.
This graph shows the picture.
Last financial year's $22.1 billion surplus and this year's $9.3 billion surplus are mainly due to "cyclical" factors.
Quite simply, that means the economy has been performing above average with fewer people unemployed and more people in work, higher commodity prices and bigger business profits — all those things mean higher tax receipts and lower welfare payments.
Due to income tax bracket creep, high inflation also tends to boost government receipts more than it lifts expenses.
It also explains why the surplus will disappear — it's because the federal government has a "structural deficit".
That is, when the economy performs at more average levels, Treasury expects the government to spend more than it raises in revenue.
What is it spending money on?
Rising interest rates have hurt government finances, while Treasury says "Australia faces long‑term fiscal challenges due to climate change, an ageing population, regional security and rising demand for care and support services."
But, as you can see from this graph, a deficit is situation normal for the federal government.
And it's generally not down to economic bad luck.
As you might have noticed in the first graph, we've had just a few years of structural surplus in recent budget history — 2020-21, 2021-22 and 2022-23 — with a couple years of structural balance in 2017-18 and 2018-19.
But, even over that period, the groundwork had been laid for a return to structural deficit, with the tax cut plan passed by the Morrison government in July 2019.
The $20 billion-plus hit to revenues from the amended version of Stage 3 of those tax cuts accounts for at least two-thirds of next financial year's forecast $28.3 billion deficit.
Should we be worried?
On alert but not alarmed is probably the fair answer.
Treasury's forecasts have the structural deficit shrinking over time to virtually disappear by 2034-35.
But that relies largely on bracket creep to lift the tax take from 25.2 to 26.2 per cent of GDP over the next decade.
At the same time, it assumes government spending rises only slightly from 26 to 26.3 per cent of GDP.
If correct, it would see total federal government debt peak at 35.2 per cent of GDP in June 2027, before declining to 30.2 per cent by June 2035 as economic growth outpaces extra borrowing.
Compared to similar advanced economies, Australia would remain right near the bottom of the pile for government debt levels.
Which is just as well, because our private debt levels remain among the world's highest.
Loading...