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BUDGET 24-25: surplus, then deficit

Head of Australian Economics, ANZ

2024-05-15 00:00

After a surplus of A$9.3 billion in 2023-24, the Australian federal budget returns to deficit and remains there over the forecast horizon out to 2027-28. The Department of the Treasury (Treasury) is forecasting a deficit of A$28.3 billion for 2024-25, compared to $A18.8 billion in the mid-year economic and fiscal outlook (MYEFO) released in December.

The overall softening in the fiscal position reflects higher costs across a range of programs, alongside policy decisions that add a little more to the deficit in 2025-26 than expected (although that isn’t the case in the coming financial year, 2024-25).

Revenue uplifts on account of stronger nominal gross domestic product growth in 2023-24 and 2024-25 are modest and it is possible Treasury has been a little conservative. Stepping back from the MYEFO comparisons, in aggregate, the fiscal position over 2024-25 to 2026-27 appears similar to that outlined a year ago in the May 2023 budget.

The amount of net new spending in 2024-25 ($A9.5 billon) is consistent with ANZ Research’s previously expressed view the budget would contain a discretionary fiscal easing equivalent to around 0.25 per cent to 0.5 per cent of GDP in that year.

It therefore has no direct impact on ANZ Research’s near-term growth, inflation or Reserve Bank of Australia forecasts. Of more importance will be how consumers respond to the Stage 3 tax cuts, to which ANZ Research will be looking to consumer confidence for an early guide.

That said, ANZ Research also see nothing in the budget to dissuade it from the view the coming rate cut cycle will be a shallow one, with only three rate cuts in total. Stage 3 tax cuts have been included in the Budget figuring for some time, meaning estimates above of net new spending only reflect the (largely revenue neutral) redesign of cuts announced in January, and not their overall cost.

Treasury is forecasting headline inflation of 2.75 per cent by the second quarter of calendar 2025. ANZ Research suspects the lower figure, relative to the RBA’s forecast, reflects the central bank not including budget measures that had not been announced when its forecast was finalised - particularly the electricity price relief and increase in rent assistance.

The differences between Treasury’s and the RBA’s inflation forecasts come the middle of 2026 are immaterial.


Policy measures in the budget have focused on cost-of-living relief, including new power bill support for all households and an increase in Commonwealth rent assistance.

There is also $A22.7 billion over the next decade for the Future Made in Australia package. The government will establish a national interest framework to guide the identification of priority industries and investments.

There will also be a “new front door” for investors with “major, transformational investment proposals” to assist in attracting domestic and global capital. 

As flagged ahead of the budget, there are changes to the indexation of student debt. There are also a range of measures designed to support investment in housing and related infrastructure.


Relative to both the MYEFO and ANZ Research’s expectations, the fiscal position has come in a little stronger in 2023-24, but thereafter is materially weaker than expected in the MYEFO and weaker than ANZ Research’s expectations published on April 30.

The improvement in the fiscal position in 2022-23 reflects both revenues being higher than expected (likely due to stronger nominal GDP growth) and payments lower than expected (the lower-than-expected unemployment rate likely helps here).

Changes in the fiscal position due to a stronger or weaker economy, or changes in estimates of program costs, are known as ‘parameter variations’. Those due to actual policy decisions are called simply that: effects of policy decisions.

Moving into 2024-25 and beyond, there are two main factors behind the weaker fiscal position. The first is that parameter variations do not improve the fiscal position beyond 2023-24 as ANZ Research had expected.

This reflects less of an upward revision to revenue estimates than anticipated, combined with upward revisions to payments across a range of programs. The increase in payments comes to $A18.5 billion across 2024-25 to 2026-27.

ANZ Research suspects there may be scope for future budgets to show an improvement in the fiscal position if some of these forces don’t play out as Treasury anticipates.

The second is that while the impact of net policy decisions in 2024-25 at $A9.5 billion is broadly in line with ANZ Research’s expectation of $A10 billion, the estimated cost of net policy decisions in 2025-26 of $A10.3 billion is higher than expectations for that year of $A5 billion. Beyond that, policy decisions add less to the deficits.

The smaller than expected revenue uplifts, the unanticipated increases in program costs and a little more discretionary spending in 2025-26 all cumulate to produce a weaker fiscal position than expected and that Treasury forecast in December’s MYEFO.

Adam Boyton is the Head of Australian Economics at ANZ

This is an edited version of the ANZ Research report “Australian Federal Budget 2024-25”, published May 14, 2024.

BUDGET 24-25: surplus, then deficit
Adam Boyton
Head of Australian Economics, ANZ
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