Treasurer Jim Chalmers and Finance Minister Katy Gallagher handed down the final budget outcome for 2021/22 on Wednesday, posting an underlying deficit of $32 billion.
This was about $50 billion less than the $79.8 billion deficit originally forecast for the year, with the government's finances expected to be in much worse shape due to COVID-19 support spending.
Dr Chalmers welcomed the improvements in the budget bottom line but said the favourable conditions wouldn't last.
"Australia faces more substantial pressures that will have an ongoing impact on our fiscal position including higher costs of servicing government debt, increased spending on government payments from higher indexation, and underlying spending growth in areas such as NDIS, health, aged care and defence," he said.
Senator Gallagher also said there was some delayed spending last year that would need to be addressed.
As such, the treasurer said his October 25 budget for the 2022/23 year was unlikely to contain a surplus forecast.
"In October, I would encourage people not to anticipate a surplus budget even in the out years," he said.
"The situation is more difficult than that, and I think Australians understand that given the fiscal and budget circumstances that we've inherited, it will take much more than one budget to turn that around,"
AMP economist Shane Oliver agreed the budget would take time to recover, in part because commodity prices were likely to drop and an economic slowdown would likely boost unemployment.
He also said the government would need to cover higher spending in the areas it had specified and expectations of lower long-term productivity growth could drag on government revenue.
"So the October budget is likely to project ongoing deficits in the years ahead, albeit they may be a bit lower than projected in March," Dr Oliver said.
The $32 billion deficit follows a $134.2 billion shortfall in 2020/21, and an $85.3 billion deficit in 2019/20.
The budget took in $27.7 billion more than expected due to strong commodity prices and more income tax due to low unemployment.
Outgoings were also $20.1 billion lower than predicted.
"This was due to delays in the contracting of COVID spending, temporarily lower-than-expected demand for some health and NDIS services, and the impact of supply chain disruptions and capacity constraints on road and rail infrastructure projects and other spending," the budget outcome papers said.
Take-up of COVID-19 business support was also lower than anticipated.
Shadow treasurer Angus Taylor said the improvement in the budget bottom line was well diversified and not just about high commodity prices.
Mr Taylor pointed to high employment - leading to more income tax and fewer welfare payments - as well as healthy business performance despite workforce challenges.
"Labor has inherited an extremely strong position," he told reporters.
He also said the government was playing down the $48 billion reduction in debt.
"Perhaps he's just buttering up the Australian people for more taxes. For a big spending budget he needs to tax people more," he said.
Mr Taylor said a higher level of spending would fuel inflation.
Dr Chalmers said the budget would contain restrained cost-of-living measures that would not add to inflationary pressures.
"(The government) is providing responsible cost of living relief in a way that delivers an economic dividend and doesn't force the Reserve Bank's hand even more," he said in parliament.
6°C