Budget update will revise down company tax receipts but treasurer Chalmers welcomes economy’s ‘soft landing’
- Written by Michelle Grattan, Professorial Fellow, University of Canberra
Next month’s federal budget update is expected to revise down company tax receipts for the first time since 2020, amid continued low economic growth in the near term.
In his Wednesday ministerial statement on the economy, the forecasts remained subdued but Treasurer Jim Chalmers emphasised the upside.
Chalmers said any growth was welcome, given many countries’ economies have gone backwards. Treasury was expecting a gradual recovery “driven by rising real incomes thanks to our cost-of-living relief, jobs growth and progress bringing inflation down,” he said.
Consumer confidence was already showing a modest recovery and households were feeling more confident about the next year, Chalmers said.
“This is the soft landing we have been planning for and preparing for,” he said. “Inflation coming back to band, an economy still growing and unemployment with a 4 in front of it.”
Chalmers said while there was still data to come, including on the national accounts and tax collection, before the December budget update (titled the Mid-Year Economic and Fiscal Outlook), the Treasury’s current estimate was that any revenue upgrade would be a “sliver” of Labor’s earlier budget updates.
In each of Labor’s earlier budget updates, revenue upgrades averaged $80 billion.
But this trend is diminishing with the labour market softening, and problems in the Chinese economy hitting commodity prices. Iron ore prices are down more than 30% since the start of the year.
Treasury’s latest inflation forecasts are generally in line with the May budget.
“Treasury expected inflation to be back in the [Reserve Bank’s target band of 2–3%] by the end of this year, and that’s what happened,” Chalmers said.
He said government spending wasn’t the main driver of prices and the government’s budget surpluses were assisting the fight against inflation – “points Governor Bullock has repeatedly made”.
With wages growing and inflation falling, “real wages are growing again. They were going backwards by 3.4% when we came to office,” Chalmers said.
“Real wages grew by 0.7% in the year to September – the largest annual increase in over four years, and there’s now been four consecutive quarters of real wages growth.
"The average full-time worker is now earning $159 more per week since we came to office. For women it’s $173 per week more. Since we came to government, wages in industries dominated by women have risen by more than 8%,” Chalmers said.
In his reply, Shadow Treasurer Angus Taylor said there was “nothing soft” about the landing.
He said prices were still rising, and “there is nothing soft about the pain Australians are feeling”.
“On nearly every metric, Australians are not better off than they were almost three years ago,” Taylor said.
Labor had added $315 billion of spending, boosting inflation. “That is $30,000 per household of extra spending,” he said. “The RBA has said extra government spending is making their job harder.”
Authors: Michelle Grattan, Professorial Fellow, University of Canberra
