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Australia budget deficit set to widen: stimulus may alleviate the cost-of-living crisis

The upcoming Australian budget for 2023-24, set to be announced on 09 May 2023, is anticipated to alleviate the cost-of-living crisis caused by the elevated price levels through significant stimulus packages. Additionally, the government is expected to prioritize energy transition, digitization, and defence. Against this backdrop, the budget deficit of Australia is expected to widen from 1.6% of GDP in FY2022–23 to 1.9% of GDP in FY2023–24, forecasts GlobalData, a leading data and analytics company.

Indrajit Banerjee, Senior Economic Analyst at GlobalData, comments: “The Australian economy is facing several challenges such as higher cost of living, tighter monetary policy implemented by the Reserve Bank of Australia, and a decrease in real wages. Consequently, the country’s economic growth, which increased by 3.7% in 2022 due to the rising household spending and an increase in exports, is projected to slow down to 1.78% in 2023.”

GlobalData forecasts Australia’s annual inflation rate to be 5.5% in 2023, beyond the Reserve Bank of Australia’s target of 2-3%. From the fiscal side, the Australian Labor government is expected to provide support for households as well as increase unemployment benefits to improve the real wages.

Banerjee adds: “The forthcoming federal budget may include tax reforms, with the government planning to reduce income tax rates to boost economic growth by promoting private consumption. However, this move is expected to have a substantial impact on the budget balance.

“In addition to investing in crucial industries like energy, health, and defense, the government is also focused on identifying opportunities to cut costs in certain areas and introducing minor yet impactful tax changes, including those affecting multinational corporations and superannuation.”

SBW24

Meanwhile, the federal government is expected to benefit from the recent surge in commodity prices due to the recovering Chinese economy and the increased global demand for lithium, resulting in higher exports. As a result, the government’s revenue windfall is expected to marginally offset the rising expenditure on stimulus measures.

Banerjee concludes: “While the budget deficit is expected to widen, cost-cutting measures and higher revenue from commodity exports may help mitigate its impact. As the Australian economy continues to face challenges, it is crucial for the government to balance its fiscal policies and stimulate economic growth.”

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