• The underlying cash deficit is now predicted to be $79.8 billion or 3.5 per cent of GDP in 2021-22. That’s down from MYEFO projections of a $99.2 billion or 4.5 per cent of GDP deficit. The underlying cash deficit is then projected to fall modestly to $78 billion or 3.4 per cent of GDP in 2022-23, down from MYEFO forecasts for a $98.9 billion or 4.4 per cent of GDP deficit.
  • Net debt is forecast to fall to, and then stabilise at, 33.1 per cent of GDP by 2025-26. That compares to a forecast ratio of 37 per cent of GDP in the MYEFO for the same year. The debt burden is then forecast to fall further over the medium term.
  • Better economic parameters (lower unemployment, higher employment and higher commodity prices) are together estimated to have boosted the budget bottom line over the period 2021-22 to 2025-26 by a cumulative $142.9 billion. Of that, about $39.3 billion has been ‘spent’ with the balance reflected in lower deficits relative to last year’s MYEFO.
  • Key budget initiatives include increased direct financial support to offset rising living costs and a temporary cut to fuel excise along with more spending on infrastructure, on regional Australia, and on defence and cybersecurity.
  • The budget forecasts see a relatively rosy outlook for the Australian economy, predicting ‘a sustained period of strong economic growth, low unemployment, and rising wages growth.’ The unemployment rate is forecast to fall to just 3.75 per cent and an expected increase in headline inflation to above four per cent is predicted to be only temporary. Near-term risks to this outlook include a new variant of COVID-19, the uncertain consequences of the war in Ukraine, commodity prices (to the upside and as well as the downside) and wage growth. In the longer term, risks include lower-than-forecast productivity growth and higher-than-forecast borrowing costs.

It also reckoned that in seeking to pull off this balancing act, the Government was likely to get a big helping hand from improvements in some key economic parameters, including lower-than-expected unemployment, higher-than-expected employment, and much higher-than-expected commodity prices. That in turn would allow the Treasurer to combine some considerable improvements to the budget bottom line with some assistance to households on the cost of living front and still allow scope for some further pre-election largesse.

And that is pretty much what Budget 2022-23 delivers.

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Start off with those better-than-expected economic parameters. This financial year, nominal GDP and therefore the overall national tax base is predicted to have surged by 10.75 per cent on the back of higher commodity prices. At the same time, employment growth has surprised to the upside and the unemployment rate has fallen to just four per cent. According to the budget papers, the stronger labour market alone has reduced support payments and boost income tax receipts, thereby contributing to a $98.5 billion improvement in the underlying cash balance over the five years to 2025-26 relative to the numbers presented in the December 2021 Mid-Year Economic and Fiscal Outlook (MYEFO) .


Strikingly, and despite the global economic uncertainty created by war in Ukraine, Budget 2022-23 thinks that the economy will continue to perform strongly in the near term, with further labour market gains. It predicts another fall in the unemployment rate to 3.75 per cent and a gradual acceleration in wage growth to reach the RBA’s desired result of ‘something with a three in front of it’. At the same time, while inflation is expected to overshoot the central bank’s target in the near-term and climb above four per cent, squeezing real wage growth, the budget forecasts see the headline inflation rate back within the RBA’s target range by 2023-24.

This positive economic backdrop allows for some equally positive debt and deficit projections. The deficit on the underlying cash balance is now forecast to fall from a high of 6.5 per cent of GDP in 2020-21 to 3.5 per cent in 2021-22 and to 3.4 per cent of GDP in 2022-23.  The deficit is then forecast to continue to fall to just 0.7 per cent of GDP by the end of the budget’s medium-term projections. That means that while the initial improvement in the deficit this financial year is a substantial three percentage points of GDP, the pace of fiscal consolidation then slows dramatically, falling to just 0.1 percentage points of GDP for 2022-23 before picking up again in 2023-24.


That profile for the underlying cash balance marks a significant improvement relative to the numbers included in last year’s MYEFO. The deficit will be $19.4 billion smaller in the current financial year and $20.9 billion smaller in 2022-23 than was envisioned last December. Over the full five-year period covered by Budget 2022-23’s Forward Estimates, the cumulative improvement in the underlying cash balance is forecast to be greater than $100 billion: better economic circumstances are estimated to have boosted the budget bottom line over the period 2021-22 to 2025-26 by about $142.9 billion, but of this about $39.3 billion has been ‘spent’ by the government (in the form of both more expenditure and lower revenues), with the remaining $103.6 billion showing up as lower deficits relative to the MYEFO.


Smaller deficits also imply smaller borrowing requirements and hence a flatter debt profile. Gross debt as a share of GDP is now expected to peak at 44.9 per cent of GDP in 2024-25. That’s more than five percentage points lower and four years earlier than projected in the MYEFO. Net debt is now projected to stabilise at 33.1 per cent of GDP in 2025-26 before falling again over the medium term. Higher interest rates mean that the cost of servicing this debt as a share of GDP is little changed relative to MYEFO, however.

The lower profiles for debt and deficits mean that the Government can fairly claim that it has stuck to its fiscal strategy and started phase two and the process of budget repair and debt stabilisation on schedule. The initial fiscal adjustment is cautious and gradual, however – just a 0.1 percentage point of GDP between the current financial year and 2022-23 – and the anticipated declines in gross and net debt are being delivered against a backdrop of persistent (albeit smaller) budget deficits. Deficit reduction is a product of better news on the economic front and debt stabilisation is the product not of a return to surplus, but of forecast growth running ahead of the predicted yield on government debt. That’s a potential source of vulnerability to the projections should growth turn out to be slower and/or increases in borrowing costs higher than assumed in the budget projections.

Also, note again that the government is not directing all of the fiscal windfall from higher commodity prices and higher employment towards budget repair. The more than $114 billion cumulative boost to the budget bottom line over the four years of forward estimates from 2022-23 to 2025-26 that is expected to arise from better-than-expected economic outcomes has allowed the Treasurer to boost spending to the tune of more than $30 billion over the same period. 

Some of this new money has gone to deliver the promised relief to voters with regard to the cost of living. This comes in the form of a ‘cost of living package’ which includes a $420 tax offset for low- and middle-income earners that will be paid in addition to the low and middle income tax offset (LMITO). There is also a $250 cost of living payment for eligible pensioners and welfare recipients. And there is a temporary (six month) reduction in petrol and diesel excise and excise equivalent customs duties that will see excise cut from 44.2 cents to 22.1 cents per litre which the Government estimates will deliver an average benefit of around $300 to households with at least one vehicle.

Additional spending commitments include funding support for disaster relief and recovery in response to the floods in Queensland and New South Wales, with the Government estimating likely total support at more than $6 billion including about $2.2 billion to households for income support, temporary accommodation and social services. There were also spending measures targeting the regions and critical infrastructure including $16.8 billion of more spending on road and rail projects and more than $7 billion on regional infrastructure. And there is also more money for cybersecurity and defence. Overall, government spending will remain above 26 per cent of GDP (and above its pre-COVID levels) throughout the forecast period.

Finally, the injection of more spending into the economy from Budget 2022-23 and the continuation of a significant degree of fiscal support will add to the case for a normalisation of monetary policy on the part of the RBA via an increase in the cash rate.

More details below.

The economic forecasts: An optimistic story

Budget 2022-23 assumes a relatively rosy outlook for the Australian economy, predicting ‘a sustained period of strong economic growth, low unemployment, and rising wages growth.’ Key assumptions and projections include:

  • The outlook for real economic growth is seen as stronger in the near term, with growth now forecast to be 4.25 per cent in in 2021-22 or about a percentage point above the MYEFO estimate, and then slowing to a still-above trend 3.5 per cent in 2022-23 before easing again to 2.5 per cent in the following year.
  • That economic growth is expected to be relatively broad-based - led by household consumption but with positive contributions from business investment and dwelling investment.
  • The household savings rate is assumed to ‘comfortably normalise’ by June 2024 and household spending to remain resilient in the face of the pending normalisation of monetary policy and higher interest rates.
  • The re-opening of Australia’s international borders is expected to lead to a return to positive net overseas migration (NOM) and higher population growth, with NOM forecast to increase from -89,900 persons in 2020-21 to 41,000 in 2021-22 and up to 235,000 persons in 2024-25 and 2025-26.
  • The unemployment rate is expected to fall to 3.75 per cent in the September quarter of 2022 and remain there until 2024-25. That would be the lowest unemployment rate seen since the early 1970s.
  • The participation rate is projected to rise to a new record high of 66.5 per cent by the June quarter of this year and to remain there through 2023-24.
  • Wage growth (as measured by the Wage Price Index) is forecast to rise to 2.75 per cent by the June quarter of this year and to 3.25 per cent by the June quarter of 2023, which would be the fastest rate seen in almost a decade. Alternative measures of wage growth and labour costs (the budget papers focus on the broader national accounts measure of average earnings) that include bonuses, overtime and allowances are expected to rise faster than this, allowing for real wages to rise despite rises in the WPI lagging the CPI.
  • Inflation (as measured by the CPI) is expected to remain elevated in the near-term, reaching 4.25 per cent in the June quarter of this year. But headline inflation is then expected to moderate to three per cent by the June quarter of 2023 and to 2.75 per cent by the June quarter of 2024.
  • Nominal GDP is forecast to grow by 10.75 per cent in 2021-22 thanks to higher commodity prices. Growth will then slow to just 0.5 per cent in 2022-23 before recovering to three per cent in 2023-24 on the assumption that a decline in commodity prices will see a fall in Australia’s terms of trade. Even so, the level of nominal GDP is around $300 billion higher over the five years to 2025-26 compared with the projections in the December 2021 MYEFO. The potential for further disruption to commodity prices due to the war in Ukraine means that there are significant upside risks to these forecasts (although the risk of a faster-than-expected slowdown in China’s rate of economic growth is a downside risk).
  • Specifically on commodity prices: the iron ore price is assumed to decline from US$134/t to US$55/t; metallurgical and thermal coal prices are assumed to decline from US$512/t to US$130/t and from US$320/t to US$60/t, respectively; and the prices for other metals and cores (such as gold, aluminium and nickel) are assumed to decline to their long-term levels by the end of the September quarter of 2022.
  • Over the medium-term, the assumption is that potential GDP will grow at an annual average rate of around 2.5 per cent to 2025-26 and then increase to a rate of around 2.75 per cent per annum to 2032-33. That in turn assumes (optimistically) that labour productivity growth will converge to its long-run average of 1.5 per cent per annum.


  • The economic implications of the Russian invasion of Ukraine are assumed to include a 0.75 percentage point drag on global growth and a1.5 percentage point boost to global inflation. Australia is expected to be somewhat protected from the inflation impacts of higher energy prices and will likely continue to benefit from a positive terms of trade shock as export prices increase.
  • The direct economic impact of the February 2022 floods is assumed to see a drag on real GDP growth of around half a percentage point in the March quarter of this year, but this direct impact will be partially offset over time by increased investment to replace and rebuild damaged housing, infrastructure and household goods, which will add to real GDP growth in the following years.
  • The forecasts ‘assume that further waves of COVID-19 occur, but that the public health measures imposed to manage future outbreaks do not have material impacts on economic activity’ and the budget papers flag both upside (a faster recovery in confidence) and downside (a new variant) risks to the budget.

The Budget Bottom line: Smaller deficits, less debt

According to Budget 2022-23, the 2021-22 underlying cash balance is now forecast to be a deficit of $79.8 billion or 3.5 per cent of GDP. That’s down from the December 2021 MYEFO estimate of a $99.2 billion or 4.5 per cent of GDP shortfall. Over the forward estimates period, the deficit is then forecast to ease to $78 billion (3.4 per cent of GDP) in 2022-23 and then continue to fall to $57.5 billion in 2024-25 (1.9 per cent of GDP) before increasing in dollar terms to $43.1 billion in 2025-26 but continuing to decline as a share of GDP, falling to 1.6 per cent.

The total forecast decline in the cumulative deficit since the MYEFO is $103.6 billion and the budget papers point out that the decline in the deficit from 6.5 per cent of GDP in 2020-21 to 1.9 per cent of GDP in 2024-25 is the fastest four-year rate of improvement seen in more than 70 years.


The improvement in the fiscal position is also projected to continue across the medium term, with the deficit seen falling to 0.7 per cent of GDP by 2032-33, which is less than half the size of the shortfall projected in last year’s MYEFO.


Smaller deficits imply less borrowing and a lower profile for government debt (with the market value of government debt on issue also falling due to higher yields). As a result, net debt to GDP is now estimated to fall from 28.6 pr cent of GDP in 2020-21 to 27.6 per cent of GDP in 2021-22. While the debt ratio is then expected to rise to 31.1 per cent of GDP by June 2023, this is lower than the 34.7 per cent of GDP forecast included in the December 2021 MYEFO, and the debt profile is now expected to be below the MYEFO’s forecasts across both the forward estimates and the medium term projections, stabilising at 33.1 per cent of GDP at the end of the former and then falling to 26.9 per cent of GDP by the end of the latter.


A lower debt stock in turn is good news for future debt service, although this is offset by higher borrowing costs. Budget 2022-23 assumes a weighted average cost of borrowing of around 2.2 per cent for government Treasury Bonds over the forward estimates. That’s up from 1.7 per cent at the time of last year’s MYEFO. As a result, net debt payments across most of the forward estimates remain unchanged relative to the MYEFO at around 0.7 per cent of GDP, although they do rise to 0.9 per cent in 2025-26.


By the end of the medium-term projections, interest payments as a share of GDP are projected to be 0.8 per cent of GDP, which is lower than those projected in the MYEFO, as the effect of higher interest rates is then more than offset by lower government borrowing.

Note here that Budget 2022-23 projects economic growth to be higher than the yield on government debt, and it is this assumption that allows for a decline in gross debt as a share of GDP over the medium term despite continued budget deficits.

A smaller gap between payments and receipts

Budget 2022-23 sees total government receipts at 23.8 per cent of GDP in 2022-23 and then rising to 25.8 per cent of GDP by 2032-33.

At the same time, total payments are expected to fall from 27.2 per cent of GDP in 2022-23 to 26.3 per cent of GDP in 2025-26 and then remain largely stable across the medium term, rising to slightly to 26.5 per cent of GDP in 2032-33.


Drivers of changes in receipts and payments

Relative to the projections in last year’s MYEFO, parameter and other variations have improved the underlying cash balance by $28.3 billion in 2021-22, by $38.1 billion in 2022-23 and by $114.6 billion over the four years of forward estimates from 2022-23 to 2025-26.  That $114.6 billion largely captures the benefits to the budget position from better-than-expected economic outcomes.


The actual change to the underlying cash deficit is smaller than this, however, because there have been offsetting changes in the form of government policy choices on spending and revenue. Thus, the effect of policy decisions has worsened the underlying cash balance by $8.9 billion in 2021-22, by $17.2 billion in 2022-23 and by a total of $30.4 billion over the forward estimates.

Put slightly differently: of the cumulative $114.6 billion of gains to the budget bottom line over the four years of forward estimates from 2022-23 to 2025-26, the Government has ‘spent’ $30.4 billion while allowing the balance of $84.2 billion to deliver smaller deficits relative to the MYEFO projections.

A closer look at receipts…

Government receipts are now expected to be considerably higher than projected at the time of the December 2021 MYEFO. In particular, parameter and other variations have increased total receipts since MYEFO by $26.8 billion in 2021-22, by $39.5 billion in 2022-23 and by almost $126 billion over the four years of forward estimates from 2022-23 to 2025-26.  Those increases mainly reflect big upward revisions to tax receipts, which have been boosted by a cumulative $133.5 billion over the forward estimates. That in turn is mainly a product of higher employment and wages leading to higher personal income tax receipts as well as a lift from higher commodity prices that have increased company tax receipts.

At the same time, policy decisions have decreased total receipts by $2.3 billion in 2021-22, by $8.4 billion in 2022-23, and by a cumulative $5.4 billion over the four years of forward estimates from 2022-23 to 2025-26. Key measures here include the one-off cost of living tax offset of $420 for 2021-22, which is estimated to decrease receipts by $4.1 billion over the forward estimates and the temporary 50 per cent reduction in the fuel excise which is estimated to decrease receipts by $5.6 billion over the two years to 2022-23 (although note that this will be partially offset by an associated reduction in fuel tax credits and GST payments of about $2.7 billion).

…and a closer look at payments

Parameter and other variations since MYEFO have increased payments by $1.5 billion in 2022-23 and by a cumulative total of $11.4 billion over the four years of forward estimates from 2022-23 to 2025-26, largely reflecting increases in payments relating to the provision of GST to the states and territories in line with higher GST receipts. Major decreases in payments due to parameter variations include a $7.7 billion fall in payments related to the Job Seeker Income Support program due to the stronger labour market.

Policy decisions since MYEFO have increased payments by $6.5 billion in 2021-22, by $8.8 billion in 2022-23 and by $25 billion over the four years of forward estimates from 2022-23 to 2025-26. Key spending commitments here include:

  • $16.8 billion in additional funding for road and rail projects (over ten years from 2021-22).
  • $9.9 billion in funding over 10 years from 2022-23 for expanded cyber and intelligence capability.
  • Investment in water infrastructure for regional communities ($6.9 billion over 12 years from 2021-22) and the establishment of a Regional Accelerator Program which is expected to increase payments by $2 billion over five years from 2022-23.
  • Investment in strategic projects and programs in the 4 key regions of the Northern Territory, North and Central Queensland, Pilbara region in Western Australia and the Hunter region in New South Wales, is expected to increase payments by $7.1 billion over 11 years from 2022-23.
  • New and amended listings on the Pharmaceutical Benefits Scheme are expected to increase payments by $2.4 billion over 5 years from 2021-22.
  • An estimated $1.9 billion of funding over five years from 2021-22 to support communities and the recovery from the February – March 2022 floods in Queensland and New South Wales.
  • An estimated $1.5 billion in 2021-22 to provide of a $250 Cost of Living Payment to help eligible pensioners, income support recipients, veterans and concession card holders with higher cost of living.
  • $1.3 billion over six years for improved regional telecommunications.
  • $1.3 billion over six years for initiatives to reduce family, domestic and sexual violence against women and children.
  • COVID-19 related spending since MYEFO (including funding for testing, personal protective equipment, and vaccines) is expected to increase payments by more than $6 billion, mainly in 2021-22 and 2022-23.

Selected other budget measures to note

Support for investment in digital and training. For small businesses (with an aggregated annual turnover of less than $50 million), the government announced a Technology Investment Boost and a Skills and Training Boost. Small businesses will be able to deduct a bonus 20 per cent of the cost of business expenses and depreciating assets that support digital uptake, up to $100,000 of expenditure per year. This Technology Investment Boost will apply to eligible expenditure incurred between 29 March 2022 (Budget night) and 30 June 2023 and is intended to support investment in digital items such as cloud computing, cyber security, accounting and e-invoicing software and web page design. The Budget Papers estimate that it will provide $1 billion in tax relief to encourage small businesses to invest more in digital products. In addition, small businesses will also have access to a bonus 20 per cent deduction for the cost of external training courses delivered to their employees by providers registered in Australia. This Skills and Training Boost is estimated to provide $550 million in tax relief for small businesses and will apply to eligible expenditure incurred between Budget night and 30 June 2024.

Support for developing skills. The Government will invest $2.8 billion over five years from 2021-22 to upskill apprentices, including by introducing a new streamlined Australian Apprenticeships Incentive System.

Overview of governance measures

by Christian Gergis, AICD Head of Policy

There was little to report by way of new governance-related commitments in this year’s Budget, with many of the policy measures having been announced previously. This was unsurprising given the looming Federal election and inflationary pressures meant cost of living relief took centre stage.

Of interest to members will be:

  • Cyber security: The Government will provide $9.9 billion over 10 years to the Australian Signals Directorate (ASD) to implement a Resilience, Effects, Defence, Space, Intelligence, Cyber and Enablers package (REDSPICE). According to budget documents, the program will double ASD’s size, while bolstering the Government’s commitment to Australia’s intelligence relations with key allies. As part of this measure, the ASD will double its “hunt and response activities” to help address the rising threat posed by malicious cyber actors.
  • Indigenous governance: to strengthen Indigenous leadership and governance, the Government will provide $21.9 million over 4 years to support the Australian Indigenous Mentoring Experience, and for the Office of the Registrar of Indigenous Corporations to develop governance training materials for Indigenous organisations, and to provide scholarships for Indigenous Australians to undertake company directors’ courses. This announcement had previously been made in February with $6.7m specifically earmarked for ORIC courses and $1.7m for company director course scholarships. The Government will also provide $37.5 million over 5 years to build the capacity of Prescribed Bodies Corporate to support native title holders to gain greater economic benefit from their land.
  • Audit quality: the Government has indicated that it will provide the Auditing and Assurance Standards Assurance Board with $1.1m over three years to continue to improve audit quality, without indicating the specific focus of that funding.
  • Insolvency reform:the Government will continue insolvency reforms including $22m to implement reforms to unfair preference rules and $0.8m in 2022-23 to implement the Government’s response to the Independent Safe Harbour Review. The Review Panel, whose report was publicly released last week, recommended that the current insolvency safe harbour (legislated in 2017) be retained with the development of best practice regulator guidance. The Review also recommended a holistic review of insolvency policy settings. The Government endorsed the majority of the Review recommendations but has yet to commit to a holistic review (see AICD media release here).
  • Women in leadership: $106.9 million is allocated over 5 years from 2021-22 to further promote women in leadership. This includes $9.4 million over 5 years from 2021-22 to bring women into board positions, as well as funding for the Future Female Entrepreneurs program and the Future Women’s Jobs Academy. $10.3 million is committed over 4 years from 2022-23 to promote leadership, safety and employment opportunities for women in sport. The budget also commits to an enhanced Paid Parental Leave scheme and $18.5 million for WGEA to support private sector initiatives to address the gender pay gap.