Economist Warns of Impending Budget Crisis: The Lucky Country’s Good Fortune May Soon End

Ironically, author Donald Horne first dubbed Australia “the lucky country” in 1964. The irony lies in the fact that the title served as a cautionary tale: despite the mediocrity of Australia’s political and business leaders, the nation rode on good fortune.

Regrettably, the country embraced the title as a national slogan, disregarding its intended warning.

Now, economist Chris Richardson mirrors Horne’s sentiments by stating that the current politicians—under the Albanese government—have had an unimpressive tenure, and the country’s luck is on the verge of running out.

Despite an influx of $365 billion (US$237 billion) from higher-than-projected tax revenues, Richardson attributes this to the last remnants of luck.

He predicts that over the next four financial years, the budget will be $20 billion worse off than what Treasury forecasts.

Driven by war-induced global price hikes and an uptick in migration, tax collection spiked, boosting the federal coffers.

However, the decline in iron ore prices, inflation, and migration poses a challenge. While the latter two may benefit individuals and families, they present a negative impact on the country’s financial state.

Richardson points out that since taking office in 2022, Labor has increased spending by $104 billion but only raised taxes by $44 billion, resulting in a $60 billion deficit in the budget.

He cites examples like tobacco, superannuation, and resource taxes as illustrations of Australia’s “increasingly foolish” budget policies, creating more financial gaps as time progresses.

“It’s a missed opportunity. This government, considered the luckiest in budgetary terms, failed to seize the chance to prepare the national budget for the long run,” he remarks.

Richardson attributes the $20 billion deviation from Treasury’s deficit forecast to increasingly questionable off-budget actions.

Off-budget spending does not impact the core budget position, such as when the government acquires an asset with enduring value.

With the upcoming release of national accounts data on Nov. 4, Richardson anticipates deficits of $32 billion by the end of 2024/25, nearly $44 billion in 2025/26, $27.5 billion by 2026/27, and $30 billion by 2027/28—figures significantly exceeding Treasury’s estimates.

An interim budget update is on the horizon in the following weeks, preceding a scheduled federal budget in March 2025. However, the possibility of an early election disrupting the schedule remains a topic of heated debate in Canberra.

If Richardson’s forecasts materialize, the looming larger-than-expected deficit serves as a compelling impetus for Albanese to consider an early election.

Increasing Pressures on the Budget: Treasurer

Treasurer Jim Chalmers is managing expectations ahead of the announcement, hinting at anticipated sluggish economic growth.

“We’ve been transparent about the mounting challenges on the budget,” he states.

“We’ve orchestrated the most significant fiscal transformation in a single term, transitioning two substantial Liberal deficits into two sizable Labor surpluses, showcasing the responsible economic governance of the Albanese government,” Chalmers adds.

Attributed mainly to rising commodity prices, Chalmers has delivered back-to-back budget surpluses. Analysts widely predict that the forthcoming fiscal update will project deficits well into the future.

Forecasts indicate that the national accounts report for the September quarter will unveil GDP growth of just 0.4 percent over three months and 1.1 percent over the year.

If actualized, this would mark the slowest expansion rate since December 1991, excluding the COVID-19 pandemic.

Despite this bleak outlook, Australian consumers seem optimistic. Surpassing expectations, they splurged during early Black Friday sales, propelling a 0.6 percent surge in retail sales in October, surpassing projections of 0.4 percent.

Consumer consumption and spending, pivotal drivers of economic growth, remained robust.

“The robust October figures reflect retailers enticing buyers through discounts, particularly on discretionary items,” notes Robert Ewing, head of business statistics at the Australian Bureau of Statistics (ABS).

A notable 1.6 percent spike in the “other retailing” category and a 1.4 percent rise in household goods sales are observed. Notably, spending on televisions and electronics intensified as they went on sale.

While some categories like clothing, footwear, and personal accessory retailing witnessed declines, Oxford Economics Australia’s Sean Langcake asserts that pre-Christmas months often exhibit volatility, with an underlying trend indicating improvement.

“Tax cuts and reduced inflation likely boosted consumer spending, expected to gain momentum in 2025,” says Langcake.

AAP contributed to this report.