Economists tip the budget could be back in black by 2024-25

The delta variant has failed to dampen bullish outlooks for federal coffers, with economists at Deutsche Bank tipping the budget could be close to balance in four years despite recent lockdowns.

Deutsche Bank economist Phil O’Donaghoe, who called the COVID-19 recession early in the crisis, thinks the speed of the bounce back makes it possible the budget could be close to back in black by 2024-25.

His comments come after Department of Finance data showed a surge in tax revenue from workers, companies and superannuation funds helped push an $8 billion budget improvement in the four months to October 31.

In the May budget, Treasurer Josh Frydenberg forecast the 2021-22 budget would show a deficit of $106.6 billion, with $99 billion tipped for 2022-23. That is forecast to fall to $79.5 billion in 2023-24 and $60 billion in 2024-25.

In next week’s mid-year economic and fiscal update, Mr Frydenberg is expected to reveal large improvements over the four-year forward estimates, even with the addition of pre-election spending.

Mr O’Donaghoe said the improvement to date had been “impressive”.

“It feels like the government will be keen to surprise on the upside on the budget deficit,” he said. “It’s certainly not impossible in the budget next year that the deficit is close to balance by the end of the horizon.”

UBS chief economist George Tharenou is predicting the 2021-22 deficit to be $27 billion ahead of forecast, at $80 billion. Commonwealth Bank head of Australian economics Gareth Aird is tipping $76 billion.

“A shock of the magnitude experienced over the September quarter would normally lead to a budget downgrade,” Mr Aird said, but over the period of lockdown there had been an “extraordinary” improvement.

He also predicted MYEFO would contain significant upgrades to the government economic forecasts, although he said the budget impact of these beyond two years should be “taken with a pinch of salt”.

“An election will be held in the first half of 2022 and this will no doubt mean more policy announcements that will result in higher expenditure in coming years than is currently baked into the fiscal projections.”

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