‘Unavoidable’: Creeping spend rips at seams of tattered Federal budget

Australia’s budget bottom line is set for a $25 billion hit as a result of extra spending, the mid-year budget update will reveal.

More than $16 billion in automatic spending increases, and $8.8 billion in “unavoidable” spending to extend terminating measures, will further inhibit the government’s ability to pay for its policy platform after flagging a downgrade in tax receipts.

But Finance Minister Katy Gallagher says the federal government has found $14.6 billion in additional savings and re-prioritisations to limit the impact, the full extent of which will be unveiled on Wednesday.

“As we have done at every economic update since coming to government, the Albanese government remains focused on finding responsible savings to make room for priority investments in cost of living, housing and Medicare,” Senator Gallagher said.

The federal budget in May forecast a $9.3 billion surplus for the 2024/25 financial year, followed by consecutive deficits.

Automatic adjustments to indexation, and funding increases in response to increased demand for government payments, will result in $16.3 billion of extra spending over the four years to 2027/28.

This occurs regardless of government decisions.

It includes $3.6 billion in extra payments through the aged pension, $3.1 billion in childcare subsidy payments, $2.6 billion in schools funding, $2.3 billion in health benefits and $1.8 billion in additional payments for veterans.

The government decided to raise spending by $8.8 billion by prolonging measures that did not have ongoing funding and were set to end, which would have otherwise resulted in cuts to existing programs and services.

These include $2.5 billion in new Pharmaceutical Benefits Scheme listings, $871 million to extend health and aged care programs that were set to end, and $647 million to prolong terminating funding for the agency that administers the NDIS.

The government says it has had to find $48 billion to address unavoidable spending and unfunded legacy pressures left by its coalition predecessors since the last election.

“In this update, we have worked hard to find responsible savings while also dealing with the significant spending pressures we are facing,” Senator Gallagher said.

“We are doing the right thing by our veterans, pensioners, school kids and Australians who rely on essential health programs, but the coalition’s plan to cut $315 billion in spending would see cuts across all of these areas.”

The government’s savings include $5.2 billion from its aged care reforms and $1.6 billion in re-prioritisations from the defence portfolio.

It brings the total amount of savings and re-prioritisations since the last election to $92 billion, the government says.

On Monday, Treasurer Jim Chalmers revealed weakness in the Chinese economy would smash Australian mineral exports by more than $100 billion and result in an $8.5 billion reduction in company tax receipts over the four years.

Shadow treasurer Angus Taylor said the government’s “reckless spending” was resulting in budget red ink as far as the eye can see and contributing to high inflation and interest rates.