GST FUND CUTS RILE NSW; QUEENSLAND

Natural disaster relief weighs on NSW budget

New South Wales has forecast that it will be back in the black within three years, as it targets a return to surplus for the first time since the Covid-19 pandemic. Presenting the 2025-26 NSW Budget, Treasurer Daniel Mookhey forecast a budget deficit of $3.4 billion next financial year, ahead of a surplus in 2027-28. Gross debt is forecast to hit $193 billion, or around 20 per cent of gross state product, over the same period. The path to surplus has been hampered by the cost of the state’s response to natural disasters. Budget papers claim that expenditure on natural disaster relief and recovery in NSW has increased by more than 1,000 per cent since the 2019-20 bushfires, as the state recovers from a series of flooding events. In his Budget speech, Mr Mookhey said the state’s budget position had improved despite NSW losing $12.6 billion in income distributed from the Goods and Services Tax.

Queensland takes aim at GST shortfall in state budget

Queensland Treasurer David Janetzki has also blamed a sharp drop in GST revenue and declining royalties for higher-than-forecast budget deficits in coming years. Delivering his first Queensland Budget after the election last year of the Crisafulli government, Mr Janetzki said the state’s “unprecedented GST reduction of $2.3 billion” last year had punched a hole in revenue forecasts, and was the biggest redistribution of GST revenue in Australian history. Budget papers forecast a deficit of $8.6 billion in 2025-26, declining to a deficit of $1.1 billion in 2028-29. Net debt is forecast to rise from $41.8 billion in 2025-26 to $93.2 billion in 2028-29; accounting for borrowing by Queensland government corporations, however, reveals that net debt rises from $147.8 billion to $205.6 billion over the same period.

Auto fuel, electricity, insurance drive lower inflation

Annual inflation is continuing to trend down, with the Consumer Price Index indicator recording a 2.1 per cent rise for the 12 months to May. The Australian Bureau of Statistics attributed the lower rate of inflation – down from 2.4 per cent in April – to a 10 per cent fall in the price of automotive fuel and a slide in electricity prices. Insurance prices have also subsided significantly, rising just 3.9 per cent in the past 12 months and down from a peak annual rise of 16.5 per cent in February 2024. Core inflation, which excludes larger price rises and falls, eased to 2.4 per cent in the latest figures. In December 2022, headline inflation peaked at 8.4 per cent and core inflation (or annual trimmed mean), at 7.2 per cent.

Higher tax payments whittle down Federal deficit

While NSW and Queensland are projecting short-deficit budget deficits, the Federal Government is an outside chance of recording its third consecutive budget surplus. In the latest update released by Finance Minister Katy Gallagher, the Federal Government recorded a $5.5 billion deficit to the end of May – well below the $27.6 billion deficit for 2024-25 that was projected in the March Budget. The improved budget position was achieved through an improvement of almost $10 billion in receipts, and just under $5 billion in lower payments. Taxation revenue for the year to the end of May was almost $14 billion ahead of expectations.

Lower demand tipped to ease resource exports by $16 billion

A weaker outlook for the world economy is forecast to drive a $16 billion fall in Australia’s resources and energy exports in 2025-26, according to latest projections. The Department of Industry, Sciences and Resources quarterly report shows a sharp fall in export earnings of iron ore, liquefied natural gas (LNG) and thermal coal, offset in part by a rise in earnings for gold and copper. Export earnings of the sector are projected to slip to $369 billion next year – well down from the peak export value of more than $450 billion in 2022-23. Iron ore exports, which typically account for more than 25 per cent of resource and energy export value, are tipped to fall by $11 billion to under $105 billion, while the value of gold exports is forecast to rise $10 billion, to $56 billion. LNG exports are projected to fall by $6 billion, to $60 billion.

Bowen, King step on the gas

Federal Climate Change and Energy Minister Chris Bowen has announced a review into gas market regulations, paving the way for additional gas supply in the east coast gas market. Mr Bowen and Resources Minister Madeleine King said the review would help deliver on the Government’s 2024 Future Gas Strategy, which spelt out the role of gas in a net zero transition, while supporting Australia’s trading partners. The review would consult with industry and the public on the Australian Domestic Gas Security Mechanism, the Gas Market Code and the Heads of Agreement with major east coast gas exporters.