With just over a week until the government unveils its pre-election budget, Deloitte Access Economics has projected an underlying cash deficit of $26.1 billion for 2024–25.
In its latest Budget Monitor: Fiscal Cracks, Political Plaster, Deloitte highlighted the end of recent revenue windfalls and warned of an $11.3 billion revenue write-down over the next four years.
While the government has delivered two consecutive surpluses, driven by strong commodity prices and inflation, Deloitte said that these short-term gains have masked deeper structural issues.
With spending pressures mounting in health, aged care, the NDIS, and defence, the report said that Australia’s tax system, which it described as heavily reliant on personal and company taxes, is “not fit for purpose now, let alone for the future”.
Deloitte Access Economics partner and report co-author, Stephen Smith, said that while the deficit estimate is slightly lower than the 2024–25 Mid-Year Economic and Fiscal Outlook (MYEFO), it should serve as a wake-up call for politicians eager to announce election sweeteners.
“The longer-term structural deterioration of the budget bottom line should be a reality check for politicians wanting to announce election sweeteners in the weeks ahead,” Smith said.
He urged the government to move away from relying on unexpected revenue upgrades and instead adopt a sustainable fiscal strategy. Recent budget improvements, he said, were largely due to conservative commodity price assumptions and favourable economic conditions, which are now shifting.
“That recipe may fail this time,” Smith said.
“Treasury’s commodity price assumptions look less conservative than they have for some time. And there are some genuine economic surprises on the downside that mean revenues are simply not going to measure up this time around.”
A tougher fiscal outlook
Deloitte Access Economics partner Cathryn Lee said that while stronger-than-expected labour market conditions and corporate earnings may boost revenue in 2024–25, the longer-term outlook is less optimistic, with weaker company profits and slower economic growth expected to drive revenue downgrades in the years ahead.
“At the same time, spending pressures are escalating, particularly across health, aged care, the NDIS and defence,” Lee said.
“As a result, Deloitte Access Economics expects the underlying cash balance to be cumulatively $13.1 billion worse off over the four years to 2027–28 compared to the MYEFO forecasts. That would push net debt to 23.9 per cent as a share of GDP from an estimated 19.6 per cent in this financial year.”
While the government has averaged $84 billion in revenue upgrades over its term, Lee said that the projected revenue downgrade marks a sharp shift amid mounting political spending pressures.
With economic realities clashing with political priorities, Deloitte said that fiscal challenges will persist beyond the election and called for a genuine contest of ideas to put Australia on a stronger financial footing.
“The election is more likely to put an outsized focus on flashy proposals designed to woo voters,” Lee said.
“This will distract from a pressing policy issue facing the nation: the fiscal holes in Australia’s medium-term budget outlook are getting bigger, not smaller. And no politician is putting forward a credible plan to plug those holes.”
Lee said that deficits will not fix themselves, calling for a serious national conversation on tax reform.
“Plotting a path back to surplus will require hard decisions – including around how to best raise revenues to pay for the promises that both sides of politics want to keep. Today, the Australian conversation about the right level of revenue and the right mix of taxes is barely a murmur,” she said.
“It’s an increasingly important conversation for the nation’s future, and the volume needs to be turned all the way up.”
With growing speculation that the election could result in a minority government, Smith said that such an outcome would bring additional political challenges for fiscal management.
“Crossbenchers have strong incentives to be associated with spending promises but can place the blame for the resulting deficits on the government of the day,” he said.
“That pattern of negotiation is not favourable to a sustainable improvement in the budget bottom line. That said, in the current Parliament, it is the crossbenchers who have advocated for the most sensible reforms to the tax system.”
