Treasurer Jim Chalmers' first budget will show the fiscal mountain has been more than halved since the $78 billion deficit forecast in the last Coalition budget in March, but there are warnings of tough times ahead with big, unavoidable spending pressures such as the NDIS, health, aged care and debt management.
It comes as the government reveals it plans to prioritise health and aged care spending, spending an extra $11 billion in the portfolio area over the next four years to deal with expiring and unfunded measures as well as election commitments such as aged care reforms and plans for cheaper medicines.
The Canberra Times can reveal the revised deficit in Tuesday's election reconciliation and Labor redo budget is now forecast to be $36.9 billion, with most of the improvement coming from a $100 billion commodities and incomes tax revenue bonus over the next four years.
The Treasurer has also flagged lowering the gross debt figure every year for the next four years, putting it below the often cited trillion dollar debt and the peak debt figure of almost $864 billion for 2025 revealed in March.
"In times of extreme global volatility and uncertainty, our best defence is a responsible Budget, and that's what you'll see tonight," Dr Chalmers said.
"Our responsible approach to revenue upgrades means the Budget bottom line will be more than $40 billion better over the forward estimates in aggregate, and debt will be lower than previously forecast. That's less debt than the Liberals but there'll be more to show for it.
"The primary influence on this budget is inflation. We are putting a premium on restraint and resilience because that's what the times call for."
The Treasurer has attempted to lower expectations for the October fashioning of the nation's books, describing it as a non-fancy "bread and butter" budget, while he has also already disclosed many of the headline figures such as unemployment, inflation and GDP (gross domestic product).
Due to high inflation and rising interest rates, economic growth next financial year will be 1.5 per cent, a percentage point lower than previously forecast. Unemployment is expected to rise to 4.5 per cent, while inflation is still expected to peak at 7.75 per cent in the December quarter, but it is expected to hang around longer than previously expected.
But the five main unavoidable spending mountains are the NDIS, defence, hospitals, aged care and managing the debt.
It can be revealed Labor's spending on health and aged care will be $135.3 billion dollars this financial year, up from $132 billion in March for health, aged care and sport. While the total health and aged care spend over the next four years will be $548 billion. That's an increase from the March allocation from the Coalition of $537 billion.
The budget will include $9.9 billion in spending to establish a Strengthening Medicare Fund and pay for cheaper medicine commitments and aged care reforms.
"We make no excuses for prioritising health and aged care spending. We choose to pay for better hospitals and health care because that's what Australians voted for," Health Minister Mark Butler said.
Other major Albanese government commitments to be accounted for include new migration targets, measures from the September jobs and skills summit, the super-sized paid parental leave scheme and a restructuring of infrastructure funding.
Chief economist at EY, Cherelle Murphy told ACM, publisher of this newspaper, the budget's problems were not new but made worse by the COVID-19 pandemic as it required a whole lot of spending very quickly.
She said the Treasurer had to get spending down as "we simply will run out of money to pay for it" all.
"They've got the structural budget problem which essentially means that long term expenditure is running too high for revenue," Ms Murphy said.
"When we add into that the inflation problem it brings an urgency to that. So in other words, they really have to get spending down faster than they're doing. So that's probably the kind of most urgent concern."
Despite calls for cost of living relief as many Australians struggle with basics such as rent and food, she insists Dr Chalmers does not have much to work with as he does not want to drive inflation up further.
"We have an inflation problem like we haven't had for, you know, 20 years," she said.
"So he's stuck because if he adds anything to the economy that puts money in people's pockets, even if it's just to relieve them of some other problem, he's essentially putting aggregate demand into the economy when the Reserve Bank is trying to take it out."
"It's a short term fix and it might look good and it might feel good, but it's like a sugar hit, you know, wears off and then you've got the hangover, and that's not good."
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