Federal Budget Insights FY22-23

Federal Treasurer Jim Chalmers is playing the long game with his first Budget under the new Government - and also with some tough decisions that appear to have been left for next time.

The FY22-23 Budget includes important initiatives aimed at addressing structural drivers of inflation - energy, housing and the workforce - while resisting short-term cost-of-living measures that would add to inflation.

The standout measures include $20 billion to upgrade Australia’s electricity grid to connect with renewable energy sources; a National Housing Accord which aims to build one million new houses over five years from 2024; more TAFE and university places; and reforms to childcare and paid parental leave. There will also be cheaper medicines and support for communities impacted by natural disasters.

The economic conditions remain challenging. Growth will slow, inflation will remain above the RBA band for some time, unemployment and interest rates will rise.

The FY22-23 deficit is forecast at $38 billion with net debt at 23% of GDP. However, this is as good a result as can be expected, given the conditions.

Going forward, though, there are going to be some tough decisions that the Government has yet to make. The rising share of the Budget claimed by social and human services, including NDIS, is not sustainable. How will the Government address these needs while ensuring its election and Budget commitments can be met?

Great effort at reform will be needed. There’s a lot of work to be done before the next Budget.

Read our detailed tax analysis and insights

Net debt remains below 30% of GDP

while gross debt is lower than it was in the March budget. This means the Australian economy is still comparatively stronger than many other countries’ economies.

Repurposed spending to fund new initiatives

Nearly $30 billion of spending outlined by the former government was repurposed and used elsewhere. The Government was also able to bank windfall commodity revenues. As a result, the Government is paying for its signature election commitments with a negligible impact to the bottom line.

Hear from our experts on their first reactions to this year's Budget

Multinational tax reforms confirmed

The Budget delivers on the Government’s pre-election commitment to implement a package of measures focused on multinational business tax reforms - some of the most significant and far-reaching tax integrity measures we’ve seen in years.

Rewiring Australia for our energy transition

The Budget’s pragmatic approach to the net zero agenda makes available $20bn of financing to upgrade Australia’s electricity grid, connecting it to renewable energy sources.

Insights at a glance

PwC's Federal Budget FY22-23 Insights at a glance

A focus on structural reforms to address inflation challenges and budget repair

$36.9bn deficit (1.5% of GDP)
predicted for 2022-23, down from $78bn originally predicted at the March budget

3.75% projected unemployment for 2022-23, before climbing and steadying at 4.5% for the two years that follow

5.75% inflation expected this year before falling to 3.5% in the next financial year

3.25% projected real GDP growth for this year, falling to 1.5% in 2023-24

Energy transition

Rewiring the Nation will provide

$20bn

of low-cost finance to support upgrades to Australia’s electricity grid

$50.5m

to establish the Australian Critical Minerals Research and Development Hub

$157.9m

to support the implementation of the National Energy Transformation Partnership

$224.3m

to deploy 400 community batteries across Australia

$102.2m

to establish a Community Solar Banks program

Voice to Parliament

$75.1m

will be provided to prepare for the delivery of a referendum to enshrine a First Nations Voice to Parliament in the Constitution

Expenditure cuts and reprofiling

$3.6bn

cut to external labour, government advertising, travel and legal expenses

$6.5bn

Has been re-profiled on infrastructure projects to give priority to government commitments and current constraints in construction capacity

$6.5bn

additional revenue from new multinational tax measures and ATO enforcement programs

Defence

Funding for Defence will increase by
8% this year and rise to more than 2% of GDP
over the forward estimates

xxx

$46.2m

to assist current and former Australian Defence Force members to purchase their own home through the Defence Home Ownership Assistance Scheme

xxx

$233.9m

will be invested to recruit 500 additional staff in the Department of Veterans’ Affairs to tackle the current claims backlog

Environmental

$204m

set aside for the Great Barrier Reef, recognising the election commitment to protect, manage and restore the reef

$278.1m

over 5 years to expand investment in nationally-significant, transformational water infrastructure projects

Supply chain sovereignty

$15bn

toward the National Reconstruction Fund for targeted investments in independently-assessed projects which support value-adding production, drive productivity and strengthen supply chain resilience

Addressing Australia’s skills shortage

Additional

20,000

university placements to be created over two years including teaching, nursing, IT, health and engineering

Infrastructure

$120bn

pipeline of investment in transport infrastructure over the next 10 years

$8.1bn

to deliver on infrastructure projects including the Suburban Rail Loop East in Melbourne, the Bruce Highway and freight highways such as the Tanami Road and Dukes Highway

An additional

$500m
investment

to support planning and corridor works for the Sydney to Newcastle section of the high speed rail network

Health and aged care

$787m

allocated to deliver on the election commitment to reduce the cost of PBS medicines (co-contribution will be slashed from $42.50 to just $30 from the first of January 2023)

$235m

to commence the rollout of Urgent Care Clinics

National Disability Insurance Agency will receive an increase of $385m

next year and employ 380 additional permanent staff

Housing

The government has committed to

1,000,000

new homes to build over five years starting in 2024

$10bn

to establish the Housing Australia Future Fund

$350m

additional federal funding for the construction of 10,000 affordable homes over 5 years from 2024, with States and Territories committed to deliver 10,000 homes

Childcare

The Paid Parental Leave Scheme will extend to

26 weeks

by 2026, supported by $531.6m new investment

$4.6bn

to increase Child Care Subsidy rates

$10.8m

set aside for the ACCC to review the rising cost of childcare

Digital economy and cybersecurity

$2.4bn

extend full-fibre access to 1.5 million additional premises, including to more than 660,000 in regional Australia

$12.6m

to help combat scams and online fraud to protect Australians from financial harm

$31.3m

has been allocated to extend the Australian Public Service cyber hubs pilot