Australia's government has today presented its annual budget, forecasting a modest surplus for the current fiscal year but a return to deficit in coming years. Higher commodity prices and stronger employment have boosted revenue in recent months, with the government now projecting a surplus of 0.2 percent of GDP in the year ending June 2023. Additional spending, much of it aimed at helping to offset cost of living pressures on households, is expected to contribute to a deficit of 0.5 percent of GDP for the year ending June 2024. Deficits of 1.3 percent of GDP are forecast for the following two fiscal years.

The government expects GDP will grow by around 3.25 percent in the current fiscal year, but forecasts growth to slow to around 1.5 percent in the year ending June 2024. This largely reflects the impact of policy tightening by the Reserve Bank of Australia. GDP growth is then forecast to pick up to around 2.25 percent the following fiscal year.

Policy tightening is also expected to reduce inflation pressures over the forecast period, with the government expecting this will happen more quickly than the RBA expects. Whereas the RBA is forecasting headline inflation to return to the top of its target range of 2.0 percent to 3.0 percent by mid-2025, the government expects headline inflation to average 2.75 percent over the year ending June 2025.

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