Treasury final Budget outcome: Smaller deficit thanks to higher tax revenue

Treasurer Jim Chalmers is adamant the taxes of Australian workers during a cost-of-living crisis hasn’t been responsible for a narrower Budget deficit.

Higher business and superannuation taxes have delivered extra revenue that has reduced the size of the deficit for 2025-26, Treasury’s final Budget outcome revealed on Monday.

Despite the improved Budget position, Labor’s spending will still be at a four-decade high outside of COVID with Treasury insisting public demand growth had slowed, ahead of another expected Reserve Bank interest rate rise on Tuesday.

Dr Chalmers stressed the smaller deficit had little to do with higher commodity prices during the Iran war or higher personal income tax receipts as more Australians move into higher tax brackets, with personal individual income tax revenue still making up more than half of the Federal Government’s tax take.

“I want to be really clear that the improvement in receipts is not from commodities, in fact mining profits came in lower than was anticipated,” he told reporters in Canberra.

“It’s also not from wage earners. It is overwhelmingly from higher super and investor income than what we anticipated in the Treasury’s forecast in May.”

The deficit for the 2025-26 financial year came in at $22.3 billion, which was $6b less than forecast in the May Budget and made up 0.8 per cent of the economy instead of 1 per cent as predicted four months ago.

This also occurred as the Commonwealth collected $4.6b more in tax revenue “largely driven by higher personal income tax from business and investment income and higher superannuation fund tax receipts”, Treasury said.

“Personal income tax from wage and salary income was broadly consistent with the 2026-27 Budget estimate,” it said.

Total tax receipts added up to $704.4b.

Personal income tax revenue of $366.5b made up 52 per cent of the Government’s overall tax take and coming in $2.3b better than predicted in May.

Superannuation fund tax revenue came to $35b, which was $1.9b more than expected.

Overall income tax receipts, covering business taxes, added up to $557.3b - a $4.9b improvement.

Gross government debt printed at $971.4b, which was $10.6b less than forecast in the Budget, but it will still make up 33.2 per cent of gross domestic product.

“We have much, much lower debt-to-GDP than the major, advanced economies and this is precisely why the agencies have rated us AAA for Budget management,” Dr Chalmers said.

Government payments made up 26.9 per cent of gross domestic product which was the highest since the 1986-87 financial year outside of COVID.

“Responsible economic management is a defining feature of this Government - you can see that in the way we have made savings,” Dr Chalmers said.

Treasury noted that new public final demand grew by 2.2 per cent, the slowest in 11 years and half a percentage point below the May Budget forecast.

By comparison, new private final demand grew by 3.6 per cent during a time of high inflation.

More to come...