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BUDGET 23-24: return to surplus, but just for one year

Head of Australian Economics

2023-05-09 04:30

The Australian federal budget position will briefly return to surplus in 2022-23 to the tune of $A4.2 billion - or 0.2 per cent of gross domestic product - before slipping back into deficit in 2023-24.

The return to surplus this year reflects a significant boost to revenue that also lowers future expected deficits, although there are a range of cross currents impacting the budget.

After the 2022-23 surplus, the budget is expected to return to a deficit of A$13.9 billion in 2023-24. This reflects short-term revenue not being sufficient to offset the larger starting point deficit in that year, plus the impact of spending pressures, including a range of policy decisions. Nonetheless the deficit is forecast to peak at just 1.3 per cent of GDP in 2024‑25 and 2025-26.

Treasury’s economic forecasts are slightly more conservative than ANZ Research’s for the 2023-24 year and relatively conservative in the following years. This suggests there may be upside risk to the budget numbers over the forecast period.


A stronger economy improves the starting point and lowers future deficits. While that statement might sound counter-intuitive in the context of high inflation and higher interest rates, the major economic drivers of budget revenue have delivered a significant boost.

This better starting point, combined with policy decisions that further increase revenues, improves the budget position over 2023-24 and beyond and offsets policy decisions that provide a net increase in the deficit of $A20.6 billion over the budget year and forward estimates.

Structural spending pressures have been offset by other factors improving the ten-year budget estimates. While there are significant medium-term pressures on the budget, ranging from defence to the care sector, several factors have produced a significant improvement in the fiscal position over a ten-year horizon.

With almost a year in office, Australia’s federal government has now re-prioritised $A61 billion over this and the October 2022 budget.

As was widely flagged, the budget also contains a range of measures to provide cost of living relief to households. These include an increase to JobSeeker, increases to bulk billing incentives, subsidies for energy bills and other increases to welfare payments.

There may be a rotation from inflation to unemployment as the focus of policy over coming years. Specifically, the budget papers show inflation moderating to 2.75 percent to June 2025 with the unemployment rate expected to rise to 4.5 per cent from 3.5 per cent currently.

While 4.5 per cent is a historically low unemployment rate, the expected increase could become a focus of future policy and budgets.


The bulk of changes to the underlying cash balance in the Budget 2023-24 estimates compared with the estimates from October were from improvements in economic parameters.

The total fiscal improvement from 2022-23 to 2026-27 was $A125.9 billion, with the bulk of this occurring in 2022-23 and 2023-24. This was the key driver reducing the total budget deficits from 2022-23 to 2026-27 by around half.

While payments as a share of GDP fell, relative to the October budget, there are some cost increases as well as reprioritisation of spending. Policy changes will add net $A42.6 billion to payments from 2022-23 to 2026-27, while parameter impacts will offset this by $A15.9 billion.

Net debt projections in this budget were revised sharply lower compared to the October budget. In the October budget, net debt at the end of the 2023-24 fiscal year was projected to be $A634.1 billion (25.8 per cent of GDP). This has been revised down to $A574.9 billion (22.3 per cent of GDP).

The downward revision is mostly due to a reduction in expected borrowing requirements as a result of the smaller underlying cash balance estimates across the forward estimates. This is partly offset by an increase in the market value of Australian Government Securities (AGS) since the October budget.

Adam Boyton is Head of Australian Economics; Adelaide Timbrell, Felicity Emmett and Catherine Birch are Senior Economists; Jack Chambers is Rates Strategist and Madeline Dunk is an Economist at ANZ

This is an edited version of the ANZ Research report “Budget 2023-24 – a brief return to surplus”, published May 9, 2023

BUDGET 23-24: return to surplus, but just for one year
Adam Boyton et al
Head of Australian Economics


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