More tax cuts for workers means the federal budget will likely not return to balance within the next decade, the agency that assesses the nation’s finances warns.
While the outlook for the federal budget has improved over the past year, despite economic headwinds from the Middle East, the independent Parliamentary Budget Office said the projection for the budget to return to surplus within a decade was under threat.
The budget office projected the $31.5 billion deficit to shrink modestly by 2029/30 and return to surplus from 2034/35, in its Medium-Term Budget Outlook report on Tuesday.
But that assumes no changes to current policy settings, including that programs due to terminate are not extended and that public service expenditure is not cut, as the budget has forecast.
“Historically, these assumptions have not been realised, with governments typically announcing further tax cuts as well as additional expenditure associated with new or extended programs,” the report said.
If the government introduces more personal tax cuts to return bracket creep to workers, as has been foreshadowed by Treasurer Jim Chalmers, the budget would not return to balance by 2036/37.
If bracket creep was returned, grants to states and territories were maintained and the public service kept at the same size, the deficit would expand to more than two per cent of GDP by the mid-2030s, the Parliamentary Budget Office estimated.
Following the release of the federal budget, Dr Chalmers said a new tax offset for workers laid the groundwork for the government to return additional revenue from curbs to investor tax breaks back to income earners.
“My ambition when it comes to future tax reform is to try and provide more tax relief for working people,” he told the National Press Club in May.
“We set up this architecture to make that easier on the income tax side for workers and so I would intend to make the most of that at some future point.
“I suspect that successive governments after us would do that too.”
Cuts to immigration would also threaten the budget bottom line, the budget office said in its report.
Structural spending pressures continued to strengthen in areas such as defence, health and interest costs, offsetting historically large savings on the NDIS.
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