Soaring prices, low unemployment boost budget bottom line by $8 billion

High prices for key commodities and a strong jobs market are delivering a financial windfall to the Albanese government with the federal budget enjoying its strongest November since Wayne Swan was treasurer in 2007.

Finance Department figures released on Friday showed that through November, the budget actually showed a surplus for the month of $8.9 billion.

In October, Treasurer Jim Chalmers forecast a budget deficit for 2022-23 of $36.9 billion. By the end of November, it was projected to show a deficit of $19.6 billion.

Instead, for the first five months of the financial year, the deficit was almost $8 billion lower than expected at $11.8 billion. It’s the smallest November budget deficit since Swan was in his first month as treasurer.

In November last year, the budget was showing a deficit of $41.8 billion.

The turnaround is being driven by much higher tax collections and lower than expected spending.

Through the first five months of the financial year, total tax revenues are $6 billion ahead of what Chalmers forecast in October.

Income tax paid by workers are $1.1 billion ahead what was expected at this point of the financial year. Personal income tax collections jumped 29.5 per cent or $25.1 billion over their October level, the largest October to November increase since before the COVID pandemic.

The level of income tax is closely connected to the strength of the jobs market. In November, the jobless rate was 3.4 per cent with a record 13.75 million people in employment.

Company tax collections at the end of last month were $2.6 billion higher than expected. Company taxes lifted by a record 36 per cent or $14.9 billion through November to reach $55.6 billion.

Prices for the nation’s key commodities including coal, iron ore and LNG, though easing, have remained well above Treasury’s expectations over the past month. In the budget, Treasury estimated that if a forecast drop in coal and iron ore prices was delayed by just three months, the government would collect an extra $9.9 billion in company tax over by 2024-25.

The impact of higher inflation and ongoing strong household demand is evident in the figures with GST collections almost $2 billion above the October forecasts.

While revenues are running ahead of forecasts, expenditures are slightly behind expectations.

Some of that is due to delays in spending around transport and communications. Just $2.5 billion of an expected $15.4 billion had been spent in that sector by the end of November.

In October, Chalmers said the budget was being buoyed by a “temporary” boost in revenue due to higher employment and stronger commodity prices.

But he cautioned these impacts would fade while “profound” and permanent spending pressures could continue to grow.

“The budget we inherited was stuck in structural deficit,” he said.

Despite the improvement in the overall budget bottom line, debt continues to climb.

Gross debt will finish the calendar year at $891.6 billion while net debt increased through November to $537.9 billion. Net debt is expected to reach $572.2 billion by the end of 2022-23 while gross debt is forecast to hit a record $927 billion.

Higher interest rate settings by the Reserve Bank, coupled with a global economic slowdown, are expected to slow the domestic economy through 2023.

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