Treasurer Jim Chalmers and Minister for Finance Katy Gallagher today released the Mid-Year Economic and Fiscal Outlook (MYEFO), revealing that Australia’s fiscal position has marginally improved by $1.4 billion since the Federal Budget was handed down in May. The Government attributed the change to strong employment figures delivering higher income tax receipts, weighed against ‘unavoidable spending’ on essential services such as frontline legal assistance, new and amended PBS listings, funding for infrastructure projects, termination funding for government agencies and commissions, and more.
The MYEFO confirms the Government will deliver a deficit of $26.9 billion this financial year, an improvement from the $28.3 billion deficit estimated in the Budget. The Government is also projected to deliver budget deficits across the forward estimates. Net debt has decreased by $12.5 billion to $540 billion in 2024-25, representing 19.6 per cent of Gross Domestic Product (GDP), but is forecast to increase across the forward estimates and medium term.
Australia’s economy grew by 1.4 per cent in 2023-24 and is expected to grow by 1.75 per cent in 2024-25, with further improvements across the forward estimates. The Treasurer observed that GDP growth slowed more than expected over the year due to the impact of high interest rates, cost of living pressures, and global economic conditions. However, Dr Chalmers stated that inflationary pressures were improving and growth in the economy would be supported by a recovery in household consumption.
The MYEFO shows that labour market conditions remain strong, however, the unemployment rate is expected to increase from 4.1 per cent in 2023-24 to 4.5 per cent in 2024-25, while remaining relatively steady across the forward estimates. Wage growth is expected to moderate to 3 per cent this financial year and remain relatively stable across the forward estimates.
The mid-year budget update includes new and ‘unavoidable’ spending, including $737.7 million for the 20 per cent reduction on outstanding HELP debts and $182.2 million to reform the repayment system. The Government will also provide $253.7 million to make 100,000 Free TAFE places ongoing from 1 January 2027. Additionally, the Government will provide the National Disability Insurance Agency (NDIA) with $280 million to develop a consistent approach to understanding participants’ needs for NDIS supports and transition them to a new planning framework.
A re-elected Labor Government also committed to investing $5 billion in initiatives to build a universal early childhood education and care system. This would include $3.6 billion to support a wage increase for the early childhood education and care workforce, $1 billion to establish the Building Early Education Fund, and $291.2 million to replace the Child Care Subsidy activity test with a new 3 Day Guarantee. In the lead-up to the federal election, the MYEFO also includes a total of $5.56 billion in spending over four years in ‘decisions taken but not yet announced’.
Key economic indicators:
- Real GDP is forecast to rise by 1.75 per cent in 2024-25, up from 1.4 per cent in 2023-24.
- Unemployment is forecast to increase to 4.5 per cent, up from 4.1 per cent in 2023-24.
- An underlying cash deficit of $26.9 billion is expected in 2024-25, while the underlying cash balance improves by a cumulative $1.4 billion.
- Net debt is projected to fall to $540 billion in 2024-25, 19.6 per cent of GDP, but is forecast to increase over the forward estimates.