Federal Budget 2023-24: A slim surplus ahead of a defining decade

9 May 2023

Handing down the Albanese Labor Government’s second budget this evening, Treasurer Jim Chalmers stated that this Budget strikes a “considered, methodical balance” to assist those in need and invest in long-term priorities while avoiding inflationary pressures. He highlighted the themes of industry growth, broadened opportunity, and “responsible” cost-of-living relief, looking ahead to a “defining decade” for Australia.

The Treasurer confirmed that the Budget forecasts a surplus of $4.2 billion for 2022-23 – the first surplus in 15 years – but outlined that a deficit of $13.9 billion is expected to follow in 2023-24. While economic growth for 2022-23 is anticipated to be 3.25 per cent, it is forecast to slow to 1.5 per cent in 2023-24. Commentators have highlighted that this would be the slowest rate of annual growth since the early effects of the pandemic in 2020-21, however Dr Chalmers stated that over the next two years, Australia will be affected by what is expected to be the weakest global growth in over 20 years.

Referring to inflation as the Government’s “primary economic challenge”, Treasurer Chalmers emphasised the Government’s priorities of easing inflationary pressure on households. He indicated that inflation is forecast to decline over the next two years to 3.25 per cent in 2023-24. Australia’s historically low unemployment rate is expected to increase by 1 per cent to 4.5 per cent in 2024-25, however this will continue to be considered low by historical standards. The Treasurer also stated that “real wages growth” is forecast to occur earlier than expected, with wages due to rise four per cent in 2023-24.

As anticipated, this Budget incorporates the Government’s plan to remove tax concessions on super account balances over $3 million by increasing the tax rates on affected accounts from 15 to 30 per cent. Revenue will also be raised through a five per cent increase to the tax on tobacco over the next three years, as well as new changes to the Petroleum Resources Rent Tax (PRRT), which will come into effect from July. Under these changes, the proportion of PRRT assessable income that can be offset by deductions will be limited to 90 per cent, and the date that liquefied natural gas projects are expected to pay PRRT will be brought forward. This is expected to raise $2.4 billion. Outside of tax measures, $17.8 billion will be achieved in savings through redirected spending including re-prioritisation of projects in the defence portfolio.

Cost of living relief was a key feature of the 2023-24 Budget, underpinned by a $14.6 billion package that Treasurer Chalmers stated will avoid adding to inflation by prioritising “those most in need”. As part of this package, $3 billion has been allocated to energy bill relief for eligible households and small businesses, with up to $500 in power bill deductions available for households in the next financial year. A commitment of $1 billion has also been made to subsidise energy improvements to homes, including solar panels and double-glazing. Significantly, the Budget also incorporates a $40-per-fortnight increase to Jobseeker payments, in addition to a six-year expansion of accessibility to the Single Parenting Payment.

Treasurer Chalmers also outlined what he referred to as a “historic investment” in Medicare, announcing that the Budget will provide $3.5 billion in funding to assist GPs to provide free consultations to eligible patients. In addition to this increase in bulk billing incentives, new funding will be provided to support the development of eight additional Urgent Care Clinics.

The Treasurer acknowledged that secure and affordable housing was “out of reach for too many Australians”. In response, the Budget incorporated a number of measures targeted at increasing housing supply and affordability. The maximum rates of Commonwealth Rent Assistance will increase by 15 per cent and an additional $2 billion will be allocated toward social and affordable housing through an increase to the National Housing Finance and Investment Corporation’s liability cap from July 2023. Additionally, the development of build-to-rent projects across Australia will be incentivised with tax breaks, including a reduction in the withholding tax rate for eligible build-to-rent projects from 30 per cent to 15 per cent from July 2024. The Government’s $11.3 billion commitment to fund a 15 per cent increase to aged care workers was also noted as a measure for cost-of-living relief, as was an increase in the medicines listed on the Pharmaceutical Benefits Scheme.

In measures Dr Chalmers referred to as “laying the foundations for growth”, the Budget also includes a focus on harnessing the economic opportunities of a shift to renewable energy and investing in “strategic industries”. The Treasurer announced a $2 billion investment in a new ‘Hydrogen Headstart’ program aimed at positioning Australia as “a world leader” in the production and export of hydrogen. He also outlined a commitment to “value-adding” technology, including quantum and AI, and pointed to the Government’s commitment to the AUKUS agreement as a key investment in advanced manufacturing opportunities. Skills and training will also be supported with a $3.7 billion five‑year national skills agreement with the states and territories. The Budget also accounted for defence spending recently announced in the Government’s response to the ‘Defence Strategic Review’.

The Treasurer also outlined a number of key commitments to social policy, which he referred to as “broadening opportunity” measures. Funding of $1.9 billion has been allocated to health, housing, education, employment, and other essential services for First Nations peoples, and the Budget papers also indicate that $364.6 million has been committed to the upcoming referendum on establishing a constitutionally enshrined First Nations Voice to Parliament. In terms of outcomes for women, up to $590 million has been dedicated to the National Plan to End Violence against Women and Children. The Budget also incorporates funding for 10 days of paid Family and Domestic Violence Leave for workers.

For further information on key portfolio measures, please refer to GRACosway’s detailed briefings:

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