The Morrison government has overseen the nation's largest budget deficit on record in just the first four months of the financial year with signs income tax collections are falling short of expectations.
Figures released by new Finance Minister Simon Birmingham on Friday reveal the 2020-21 budget was $104.1 billion in the red by the end of October, eclipsing the record $85.3 billion deficit set for the full 2019-20 financial year.
Personal and company tax collections are already behind budget forecasts in a continuing sign of the impact of the recession on government finances.Credit:Dominic Lorrimer
In his October 6 budget, Treasurer Josh Frydenberg forecast the deficit for the current financial year would hit $213.7 billion as the pandemic recession slashed revenues and forced the government to increase spending to support the economy.
The new Finance Department figures show almost all sources of income tax are behind what Mr Frydenberg was expecting 8 weeks ago.
Total personal income tax collections are $1.3 billion behind where they were forecast to be at the end of October while company tax is $1.9 billion behind expectations. The two taxes are the most important to the overall budget.
There are some positive signs in indirect tax collections which are dominated by the GST. Total GST is running $200 million ahead of expectations although this cash ultimately flows through to the states and territories.
The budget to the end of October is $3.5 billion better than what was expected at this point but that is due to large underspending in key expenditure areas.
Just a tenth of the government's forecast $13 billion transport and communication services budget has been spent. This spending is expected to be caught up through the rest of the financial year.
Almost 37 per cent of the forecast $227.5 billion to be spent on social security and welfare has already been spent. This will slow as the government winds back the coronavirus supplement and the JobKeeper wage subsidy.
A third of the public order and safety budget has already been used while almost 30 per cent of the $34.4 billion defence budget has been spent one quarter of the way through the year.
The record deficit has also pushed net debt to a record level. It reached $602 billion at the end of October with the government expecting it to reach $703.2 billion by the end of the financial year.
Mr Frydenberg has forecast net debt to hit $966.2 billion by the middle of 2024 and climb beyond $1 trillion into the 2030s.
The government had paid $5.5 billion in interest on its debt by the end of October, a third of what is forecasting for the entire year. Despite the burgeoning amount of government, record low interest rates mean the interest bill is the smallest to this point in a financial year since 2016.
CommSec chief equities economist Craig James said the shortfall in expenditure amounted to almost $4 billion.
"The question is whether the targeted assistance is getting to all the businesses and families that it should be getting to. Or does it reflect the fact that the economy is performing better than hoped? It may be a mixture of the two," he said.
Mr Frydenberg is due to release the mid-year budget update in mid-December. The government on Friday called for public submissions for its 2021-22 budget which is forecast to show a deficit of $112 billion.
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