On Thursday the government announced that the budget bottom line had been boosted by $23 billion. The increase in revenue was due to extra income tax being paid by people who were going back to full time work earlier than expected, but it needs to be kept in perspective.
If all of this budget windfall was applied to paying off our debt it would still take 40 years for us to be debt free. Of course, the government expects inflation to take care of half of the bill but that still leaves 20 years while we are in hock to creditors.
The budget is still not looking pretty, and it will be a long time before it is back in the black, with the deficit likely to be just over $150 billion by June – well below the $197.7 billion projected in the mid-year update.
Finance minister Simon Birmingham said that further budget repair would depend on more people getting back into work.
“This is still a huge deficit in anyone’s language but more people in work is providing a marked improvement to date, thanks to lower unemployment payments and more taxpayers.
“Whilst it won’t all be smooth sailing going forward, we are seeing a remarkable recovery in the labour market. The jobs are coming back and that means our welfare bill is coming down.”
A drop in the unemployment rate has seen it fall to 5.8 per cent from a pandemic peak of 7.4 per cent, and a tighter enforcement of job search requirements has slashed welfare payments, leaving overall government welfare spending $12.3 billion lower than expected by February.
This has been driven by $4.4 billion lower JobSeeker payments and a drop in demand for a range of grants and subsidies, including the $90 billion JobKeeper payment which ends on Sunday, with just over 1 million people still covered by the program.
Apart from this, the receipts from company and income tax have increased by $10.2 billion. Company tax has been boosted by iron ore prices which at $159 a tonne, three times the estimated price Treasury used in the budget.
GST receipts have surged $5.9 billion ahead of where they were forecast to have been by this time.
The government’s own dividend collections from investments are also ahead by more than $1 billion.
Upgrades to employment forecasts by economists have added pressure on the Morrison government to start reining in the deficit before an election in the first half of next year.
Treasurer Josh Frydenberg told Parliament on Thursday that the government had promised to be fiscally disciplined.
“It is one thing to know when we need to act for Australians and provide that emergency assistance, that is an important thing that government must have in responding to a crisis. But our government also understands that you cannot run the Australian economy on taxpayers’ money forever.
“You also need the fiscal discipline of a government that taxpayers can trust. We are not out of this pandemic yet, there is still some challenging days ahead, but the Australian economy is recovering more strongly than nearly any other country in the world.”
However, there will be some special interests who will regard the additional revenue as a windfall and argue that it should be spent on things like free childcare, the NDIS, and special payments for businesses left stranded by the end of Jobkeeper.