Federal budget: Treasurer Jim Chalmers reveals $22.1bn surplus

Soaring commodity prices could deliver back-to-back budget surpluses after official budget documents showed a staggering $12.7bn upgrade in company tax payments

Formally released by the government on Friday, the final budget outcome figures for 2022-23 reveal a near-$18bn improvement to the budget bottom line, resulting in an underlying cash surplus of $22.1bn, the first since Peter Costello’s final budget in 2007.

The result is thanks to a boom in the amount paid in company tax as commodity prices for iron ore and coal have been far higher than anticipated, and increased personal tax payments from a near-record number of people in work.

In March 2022, former treasurer Josh Frydenberg forecast a deficit of $77.9 billion for the 2022-23 financial year ahead.

Speaking to reporters in Canberra, Dr Chalmers played down the prospect of a second consecutive surplus, conceding the budget continued to face long-term challenges and implementing structural savings would require multiple electoral cycles.

“We’re still anticipating a deficit this year and in the years ahead, and obviously, there is lots that can happen between now and when we hand down the next budget in May,” he said.

“There’s an element of unpredictability when it comes to revenue at the moment, because the global economic environment is uncertain, particularly in China.

“And because the full impact of those interest rate rises has not yet been seen in our economy and so for all those reasons, we [continue to] update our revenue forecasts … But we’re currently not anticipating a second surplus for the time being.”

The sixth Intergenerational Report, released in August, revealed the federal budget would drop back into deficit from 2024 and remain there for the next 40 years.

Dr Chalmers said the results were evidence of the government’s responsible economic management and spending restraint.

“Now, because of our responsible economic management, because of this surplus, we are saving the Australian taxpayer billions of dollars in interest, on the trillion dollars of debt that we inherited from our Liberal predecessors.

“And that is really important as well, getting the budget in better nick, avoiding some of the debt which was in our predecessor’s budget […] it gets us in a better position for the future.”

Surging commodity windfall expected

Asked about the impact of commodity prices on the budget bottom line – after Prime Minister Anthony Albanese on Thursday described them as having a “minor” role – Dr Chalmers said they were “playing a role”.

When he handed down the May budget, Dr Chalmers said for every $10 in improvement to the budget bottom line, $2 of this was due to commodity revenues.

“But the most important thing is what governments do from time to time when they get those upward revisions in revenue, and by finding savings, by showing spending restraint, and by banking almost all of this upward revision,” he said.

“Whether it’s the labour market, whether it’s commodity prices or in other areas … what’s necessary is when we get those upward revisions to revenue is to take the most responsible approach possible and that’s what we’ve done.”

In the May budget, Treasury officials were forced to upwardly revise their commodity price forecasts.

Treasury also forecast that it will take four quarters, rather than the initially anticipated two, for iron ore and coal prices to fall to their long-term averages.

“Prices have also been increased modestly to take account of recent developments in commodity markets, inflation in the mining industry and updated assessments of long-run supply and demand fundamentals,” the budget papers said.

“The commodity price assumptions remain conservative and at the lower range of market forecasts.”

At the time, the revision delivered an additional $22bn in revenue to the budget bottom line.

However, despite the revised assumptions that the iron ore price would fall to $US60 a tonne by the end of March next year, it has since surged higher to $US121.80 a tonne.

Coal prices also continue to defy budget assumptions, increasing 20 per cent since June.

Both federal and state treasuries have a track record of underestimating commodity prices during boom periods, thus enabling governments to take advantage of any price surge.

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