As the 2024-25 Australian federal budget approaches, Adam Boyton, head of Australian Economics at ANZ, forecasts a balance between modest surplus gains and significant new spending.
“We expect a modest improvement in the fiscal position,” Boyton said, highlighting a strategic financial management approach.
The upcoming budget is expected to reveal an underlying cash surplus of $4.5 billion for 2023-24, with a shift to a projected deficit of $15.25bn in 2024-25. Continuing deficits are anticipated for the following two years, with a return to surplus projected for 2027-28.
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New expenditures and economic implications
ANZ anticipates new spending initiatives totaling approximately $2.5bn in 2023-24 and increasing to $10bn in 2024-25. These investments are poised to shape various sectors without impacting growth, inflation, or interest rate forecasts significantly.
Boyton highlighted the potential impacts of these fiscal movements, stating, “Such a degree of net new spending is consistent with our view that the budget would contain a discretionary fiscal easing.”
A significant portion of the budget’s success will hinge on consumer reactions, particularly to the Stage 3 tax cuts.
“Of more importance will be how consumers respond,” Boyton said. This response will serve as an early indicator of the budget’s real-world effects, influencing everything from individual spending habits to broader economic trends.
While the Treasury’s economic forecasts are expected to remain largely consistent with previous predictions, there are anticipated adjustments based on recent data. Notably, nominal GDP growth for 2024-25 is expected to outpace earlier estimates, potentially boosting budget revenues.
“On top of a better starting point, it appears likely nominal GDP growth in 2024-25 will be stronger than expected,” Boyton said.
As Australia navigates through various economic pressures – from defense spending to social services – ANZ Research suggested that strategic fiscal management will be crucial.
“With structural pressures building on the budget, some of the measures in the budget could be targeted to reduce medium-term growth in spending,” Boyton said, indicating a cautious yet optimistic outlook for Australia’s fiscal future.
Read the ANZ Research note, "2024-25 Australian Federal Budget Preview", here.
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