Pre-election tax cuts
With an election just weeks away, nobody expected this to be a fiscally tight budget. Given so many Budget details are now released to the media in the days leading up to the Budget, the surprise was the announcement of a tax cut. The lowest tax rate (applying to income from $18,201 to $45,000) will be reduced to 15% in July 2026, and 14% in July 2027, from the current rate of 16%. This tax cut at the bottom end of the tax brackets will provide a proportionately larger tax cut for low-income workers, although the full tax cut of $536 per year applies to anyone earning at least $45,000. The total cost of the tax cut will be $6.7 billion in 2026-27. The Coalition have announced that they will oppose the tax cuts.
Other spending measures
Most other spending initiatives had been announced in recent days. These include additional funding for Medicare ($8.5b), increased wages for aged care workers ($2.6b), additional funding for the Clean Energy Finance Corporation ($2b), the extension of subsidies on electricity bills ($1.8b) and funding for states for public hospitals ($1.7b). With an election coming up, not surprisingly there are also many small funding initiatives, right through to $3m for breeding the Maugean skate (a fish).
The net impact
A useful way to examine the impact of all of these policy initiatives, and other changes, on the Budget balance is with the so-called 'Table of Truth' (Table 1).1 Over the current and next four financial years the Budget deficit is now projected to total $180b, almost identical to the total projected deficit at the December budget update.
But that doesn't mean nothing has changed. Since the December update various changes, such as how the economy is affecting the Budget, have improved that total deficit by $36b. But the new policy stimulus measures have wiped out all of that, contributing to a deterioration of the Budget of $35b. Overall, the Budget deficit only improves slightly over the coming years to be 1.1% of GDP in 2028-29. Note that some initiatives don't even show up in these estimates as they are 'off balance sheet', such as the 20% cut in the balance of 'student loan' (HECS) balances.
Overall, the underlying cash balance of the Budget is slightly larger at the tail end of the forecast period than in the previous Budget (Figure 1). This deterioration reflects the net effect of spending measures, with an increased in both receipts and payments (Figure 2). The increase in Budget deficits means that the Government's net debt is projected to be slightly higher, reaching 23% of GDP by 2028, still well below the COVID peak (which was inflated by the depressed GDP at the time) (Figure 3).
Table 1: Decomposing the Change in the Budget Deficit
