BUDGET MOVE ON RISING COST BURDEN

Federal Treasurer Josh Frydenberg has moved to head off concerns over rising inflation, targeting cost-of-living relief while making inroads into the federal budget deficit.

With inflation rising to 4.25 per cent in 2021-22, the Treasurer has introduced a series of measures to curb household costs ahead of the looming Federal Election.

As a result, the forecast budget deficit is $78 billion for 2022-23, just under the $79.8 billion deficit outcome tipped for the current 2021-22 year.

The effects of the Ukraine invasion and the recent floods in New South Wales and south-east Queensland have also readjusted earlier budget forecasts.

In particular, the Federal Government is spending $6 billion on disaster relief and recovery following the floods.

And the Russian invasion of Ukraine has led to a spike in global energy costs and the price of worldwide food supplies.

To help Australians meet the effects of the price shock, the Federal Government has halved the level of fuel excise, amounting to a 22-cents a litre saving when filling up the tank. But the reduction is a six-month measure only.

In addition, the Treasurer announced a cost-of-living tax offset and special payments for eligible Australians, including pensioners and veterans.

The combination of the fuel excise cut and the cost-of-living measures will cost the budget $8.6 billion over the forward estimates.

Many of the budget investment and spending measures were announced in recent weeks, including major defence initiatives.

The Treasurer used the Budget to increase funding for apprenticeships and training, as employers scramble to fill worker and skills shortages.

In addition, the Government announced a $9.9 billion, 10-year program to strengthen intelligence and cyber capability, while investing an additional $328 million in its $1.5 billion modern manufacturing strategy.

On the major economic indicators, unemployment is predicted to remain below four per cent until 2025-26, bolstering federal taxation revenues and reducing the nation’s welfare bill.

Budget papers forecast that inflation will fall to 2.75 per cent by 2023-24, while the wage price index is predicted to rise from 2.75 per cent in 2021-22 to 3.25 per cent next year.

The forward estimates are based on continued economic growth, but the rate of real GDP growth is expected to slow from 4.25 per cent this financial year to 2.5 per cent in 2023-24.

At a forecast $78 billion, the 2022-23 budget deficit would equate to 3.4 per cent of GDP (the size of the economy); by 2025-26, the budget deficit is forecast to further decline to $43.1 billion, or 1.6 per cent of GDP.

Net debt, however, will continue to increase in coming years. In 2022-23, it is forecast to reach almost $715 billion, or 31 per cent of GDP. By 2025-26, net debt is forecast to hit almost $865 billion, or 33 per cent of GDP.

(Sources: Budget Paper No 1, Budget Speech 2022-23)