Parliamentary Budget Office analysis casts doubt over Albanese government’s plan to return budget to surplus
The Parliamentary Budget Office said the projection for a return to surplus within a decade was under threat.
Labor’s plans to return to surplus have been thrown into doubt by new parliamentary analysis that also warns slashing immigration could cost the budget bottom line almost $80 billion over the next decade.
The assessment forecasts Australians will be paying an extra $336 billion in personal income tax even after the latest round of tax cuts, as a greater share of public spending is diverted to hospitals, the military and paying interest on debt.
“Personal income taxes are projected to continue to grow faster than the economy over the medium term, while all other major sources of revenue remain broadly flat,” the annual analysis by the Parliamentary Budget Office states.
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By continuing you agree to our Terms and Privacy Policy.“As such, personal income taxes will make up half of total revenue by 2029-30 and 53.8 per cent of total revenue by 2036-37,” the PBO projected.
While the outlook for the federal budget has improved over the past year, despite economic headwinds from the Middle East, the independent PBO said the projection for a return to surplus within a decade was under threat.
The Budget office projected the $31.5 billion deficit to shrink modestly by 2029/30 and return to surplus from 2034/35, in its Medium-Term Budget Outlook report on Tuesday.
“Historically, these assumptions have not been realised, with governments typically announcing further tax cuts as well as additional expenditure associated with new or extended programs,” the report said.
While the PBO found higher commodity prices were helping the budget, the biggest driver of the move towards a surplus in 2034 was bracket creep, the process by which a person’s average tax rate increases as their income lifts.
“The improvement primarily reflects higher personal income tax receipts (mainly from bracket creep), together with lower public service spending and non-hospital funding to the states,” the report released on Tuesday said.
If the Government introduces more personal tax cuts to return bracket creep to workers, as has been foreshadowed by Treasurer Jim Chalmers, the Budget would not return to balance by 2036/37.
For the budget to return to surplus the Government would need to bank bracket creep revenue, but the PBO says this assumption is “unrealistic as it effectively assumes that the Government will not provide any future personal income tax cuts for a decade.”
If bracket creep was returned, grants to states and territories were maintained and the public service kept at the same size, the deficit would expand to more than two per cent of GDP by the mid-2030s, the Parliamentary Budget Office estimated.
Following the release of the May budget, Dr Chalmers said a new tax offset for workers laid the groundwork for the government to return additional revenue from curbs to investor tax breaks back to income earners.
“My ambition when it comes to future tax reform is to try and provide more tax relief for working people,” he told the National Press Club in May.
“We set up this architecture to make that easier on the income tax side for workers and so I would intend to make the most of that at some future point.
“I suspect that successive governments after us would do that too.”
The PBO has also estimated that if Australia’s net migration is 40,000 lower than the 235,000 a year that is currently assumed through the 2030s, the cost to the budget would be $79 billion.
“The improvement under a higher NOM is primarily driven by higher tax receipts, particularly personal income taxes,” the PBO explains.
“Migration also supports company tax, superannuation fund taxes and other tax streams, as well as fees, charges and broader economic activity.”
Both the Coalition and One Nation are promising cuts to Australia’s net overseas migration, while Labor has recently claimed there is evidence immigration levels are beginning to fall.
Latest data from the Australian Bureau of Statistics revealed net permanent and long-term arrivals during the month of May 2026 totalled 25,580 people, while the Albanese government has recently claimed immigration numbers are actually falling.
With AAP
