(Bloomberg) -- Australia’s budget deficit is likely to swell beyond forecasts, in a reversal of previous years when massive revenue upgrades from high iron ore prices ended up returning the books to the black, according to Deloitte Access Economics.
Ahead of next month’s mid-year fiscal review, Deloitte estimates the underlying cash deficit in the 12 months through June 2025 will be A$33.5 billion ($22 billion) compared with A$28.3 billion seen six months ago. That would end consecutive surpluses.
“The structural budget position – that is, what the budget balance looks like after correcting for the swings and roundabouts of the economic cycle – is in deep deficit, meaning that without cyclically serendipitous commodity price booms, a surplus is out of reach,” said Cathryn Lee, an author of the report.
The re-emergence of deficits comes at a politically awkward time for the center-left Labor government: it’s due to hand down the next budget on March 25 and hold an election by May. Unveiling a deteriorating outlook for the books — traditionally seen by Australians as a gauge of economic stewardship — will only add to Labor’s challenges as it slips in opinion polls.
During the current term of the government, the budget updates delivered by Treasurer Jim Chalmers showed A$80 billion in revenue upgrades, on average, Deloitte said. That reflected strong commodity prices and low unemployment.
“The government still deserves credit,” Deloitte’s Lee said. “Most of the ‘unexpected’ revenue which has flowed into federal coffers over the past two years has been saved rather than spent. That has required discipline.”
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Yet the structural budget deficit highlights the downside of almost a quarter-century of commodity windfalls. Successive governments have been able to dodge politically risky reforms like reshaping the tax base to offset rising costs.
Deloitte noted that the composition of Australia’s economy means it’s always more exposed to global commodity prices than most other developed economies.
“Even so, building a more resilient federal budget with a firmer structural balance and with better safeguards against commodity price exposure is possible, but it requires change,” Lee said, calling for productivity-boosting economic reform and substantive changes to the tax system.
Still, Australia is better placed fiscally than the US, which recorded a deficit of $1.83 trillion in the fiscal year ended Sept 30. The Committee for a Responsible Budget last month estimated President-elect Donald Trump’s plans would increase the debt by $7.75 trillion more than what’s currently projected through fiscal year 2035.
Chalmers, responding to the report, said he had been warning for some time that budget pressures are building, not easing.
“Deloitte’s report shows that global economic uncertainty like the slowdown in China is a key factor weighing heavily on the budget,” he said in a statement. “Our budget position in the mid-year update will be a bit weaker than what Treasury forecast in May, but still much stronger than what we inherited.”
(Adds iron ore in lead, comment in ninth paragraph.)
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