(Bloomberg) -- Australia faces a more challenging fiscal outlook as key trading partner China cools and the local job market loosens, suggesting tax revenue upgrades will be smaller than in previous years, Treasurer Jim Chalmers said.
In a ministerial statement to parliament on Wednesday, Chalmers outlined some of the parameters for the mid-year budget review expected next month, and ahead of an election due by May. Opinion polls show the electorate is increasingly restless over the state of the economy as interest rates remain elevated and inflation lingers.
The budget is being squeezed by a labor market that is “softening around the edges” and “structural challenges in the Chinese economy” that have seen the iron ore price fall 30% since the start of the year, Chalmers told lawmakers. “As a result of these factors, I can inform the House that Treasury expects any revenue upgrades in the mid-year outlook will be much smaller,” he said.
Since the center-left Labor government’s election in May 2022, the treasurer has forecast significant budget deficits and then revised them away as the year unfolded — resulting in successive surpluses. That’s been aided by a jobless rate with a 3 in front of it for much of the period — boosting the tax take and cutting welfare costs — and the key iron ore price sitting over $100 a ton.
In its budget for fiscal 2025, released in May, the government had predicted a A$28.3 billion ($18.5 billion) deficit, swelling to A$42.8 billion in the following 12 months. Chalmers seems to be setting the stage for the books to remain in the red this time.
Treasury is expecting to revise down company tax receipts for the first time since 2020, he told lawmakers. “In each of our four budget updates there were A$80 billion in revenue upgrades, on average,” he added.
Chalmers has tried to keep a lid on spending even as economic growth has slowed to a crawl in response to rates at a 13-year high of 4.35%. He wants to help suppress inflation to give the central bank maximum potential to cut rates before the election.
Yet even with some softening in the labor market, unemployment has remained historically low during the tightening cycle at 4.1%, and consumer confidence is now showing signs of recovery.
“This is the soft landing we have been planning for and preparing for,” Chalmers told parliament.
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