The huge surge in income taxes rebuilding Chalmers’ budget bottom line

A surge in personal income tax collections from working Australians plus record returns from superannuation nest eggs have not been enough to offset a $54 billion jump in government spending that has delivered the Albanese government its first budget deficit.

Treasurer Jim Chalmers said on Monday the government was “enthusiastic” about pledged tax cuts that will “return” some bracket creep as the final results of the 2024-25 budget showed it was supported by a nearly $12 billion increase in tax collected from working people.

It took total personal income tax collections to $338.3 billion, or more than two-thirds of all income tax raised by the government last financial year.

An extra $6 billion from superannuation funds, largely due to the strong returns on equity markets over the past year, helped to offset a small decline in expected tax from the business sector, which still handed over $138.8 billion to the federal government.

The stronger revenue helped to reduce the size of the budget deficit which Chalmers last year forecast would reach $28.3 billion. Instead, it came in at just under $10 billion.

Chalmers said the stronger tax collections from working people was partly due to the lift in the number of people holding down a job, plus solid wages growth.

“That is a source of considerable pride to our government. Not just because it’s good for the budget, but because it’s good for millions of Australian workers, who were subject to almost a decade of deliberate wage suppression and wage stagnation,” he told reporters.

Tax as a share of the economy reached 23.7 per cent, in line with 2023-24 and at the same level as recorded by the Howard-Costello government in its final two years in office. But over those two years, Howard-Costello oversaw budget surpluses worth a combined $37 billion.

The government went to the May election having legislated two modest tax cuts that will start from July 1 next year. The cuts, worth $17.1 billion over three years, will deliver a maximum of $10 a week in tax relief.

Pressed on whether more relief might be in store for working people, Chalmers talked up the government’s tax cut record.

“We are enthusiastic about returning bracket creep where we can afford to do that. We’ve shown that willingness not just on one occasion, not just on two occasions, but on three occasions,” he said.

A key reason for the government’s shift back into deficit was increased spending. It lifted by 5.5 per cent in inflation-adjusted terms to a record $727 billion, down on what had been expected when the budget was released.

Spending was down across a range of areas, including $800 million less in natural disaster payments due to delays in payments and adjustments in the size of claims from the states.

Another $700 million was saved on pharmaceutical payments as fewer people than expected bought expensive medicines while another $500 million was saved in the National Disability Insurance Agency due to lower operating costs.

Shadow treasurer Ted O’Brien said Chalmers had benefited from a record budget windfall that he had largely spent.

He said if the government had offset its new spending with fiscal discipline since coming to office, the budget would be in a healthy surplus.

“Jim Chalmers won the lotto and immediately went on a spending spree,” he said.

“In its first two years, the budget windfall was so large that the government was able to deliver a surplus even with this spending spree. But as the spending spree reached new heights and the windfall subsided, the government’s fiscal irresponsibility has been laid bare for all to see.”

Overall tax revenue was stronger than expected, but the government also collected an additional $2.2 billion in interest.

One unexpected area of revenue growth is on visa application fees, which raised a record $4.2 billion in the just completed financial year. Visa fees are now worth more to the budget than either excise on spirits ($3.3 billion) or beer ($2.7 billion).

In May, Chalmers forecast that gross government debt would go through the $1 trillion mark this financial year.

But the better-than-expected revenue, plus the modest reduction in spending, suggests the government may fall short of $1 trillion.

Gross government debt reached $928.6 billion at the end of the 2024-25 financial year, $11.4 billion lower than had been estimated. It would have been even lower but for the fact the Australian Office of Financial Management – the agency that manages government debt – maintained its full-year debt issuance plan.

It means that debt needed for the current financial year has already been sold, suggesting a further improvement in the overall budget bottom line may help avoid hitting the $1 trillion level.

Chalmers in May forecast a deficit of $42.1 billion for the 2025-26 financial year.

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