The ink on the March 29 federal budget is barely dry, but the weeks since have seen more than $ 700 million in extra spending plans announced.
- There is no “material” change to Treasury budget forecasts in the three weeks since the budget
- Policy decisions since the budget worsened the bottom line by $ 714 million, but that has been largely offset by other factors
- Rapidly rising interest rates threaten to increase the government’s debt and deficit beyond current forecasts
The Pre-election Economic and Fiscal Outlook (PEFO), prepared independently by the bureaucrats at Treasury and the Department of Finance, reveals that policy decisions taken since the budget have worsened the bottom line by $ 714 million over the four years to 2025-26.
It appears that this additional planned spending covers only announcements from the first two weeks of the election campaign, with the Treasurer and Finance Minister signing their PEFO declarations on April 12.
The final document was signed off by the secretaries of Treasury and Finance on April 19.
PEFO reveals that much of the extra money is earmarked for election commitments to local infrastructure projects, with an emphasis on sporting facilities and roads.
An extra $ 117 million has been pumped into the Community Development Grants program.
Some of the larger projects include $ 15 million each towards the Frankston Basketball Stadium and Macedon Ranges Sports Precinct redevelopments, $ 6.1 million for the Pioneer River Levee, $ 5 million for a new pavilion for the Boronia Hawks Football Netball Club and the same amount for Neerim South Aged Care and the Scheyville Veterans Wellbeing Center.
The Infrastructure Investment Program has had an additional $ 56 million in funding committed since the budget, including more than $ 21 million in funding for six road projects in Queensland, and $ 35 million for the Nicholson Road-Garden Street Grade Separation Project in Western Australia.
However, the reversal of a number of policy decisions taken but not yet announced has saved the budget around $ 365 million over the next four years.
These are decisions for which funding was set aside in previous budgets, but which were never publicly announced and have now been canned.
The budget has also saved $ 270 million over five years because the government no longer needed contingency measures to support the implementation of Workforce Australia – the new Commonwealth jobseeker hub – after legislation was passed in the last sitting week of parliament.
Other variations since the budget, mainly the drawdown of flood-response spending provisions, have also improved the bottom line by $ 894 million.
All up, the budget bottom line is virtually identical to what it was on March 29, with a deficit of $ 79.8 billion for the current financial year and $ 77.9 billion for the coming one.
Risks to budget outlook escalate
However, some of the risks identified in the budget have intensified even in the few weeks since it was published.
“Health developments in China also present a risk to global supply chains as China’s aggressive suppression approach to managing the virus has the potential to lead to frequent lockdowns and disruptions to industrial production and normal consumption patterns,” the PEFO warned.
Russia’s war in Ukraine also shows no sign of ending soon, putting further pressure on already surging prices for commodities and energy.
While this is good for Australia’s exports in those areas, it also adds to inflation domestically and globally, as well as the pressure for higher interest rates sooner.
“Government borrowing rates, proxied by the 10-year yield, increased between MYEFO and the 2022-23 budget, and have increased further over the past few weeks, reflecting domestic and global factors, particularly higher US bond rates,” PEFO noted.
“Should this increase be sustained, interest payments on Australian Government Securities as a share of GDP would be around 0.1 percentage points higher in 2025-26 than estimated at budget.
“Gross debt as a share of GDP at 30 June 2026 would be 0.5 percentage points higher.”
That translates to around $ 2 billion more per year in interest payments, and government debt about $ 10 billion higher than previously forecast.
That’s small change when gross debt is already projected to pass a trillion dollars within the next two years, with net debt approaching $ 800 billion over the same period.