Iron ore and commodity prices halved Australia’s budget deficit

Treasurer Jim Chalmers says the marked improvement in the budget is partly a reflection of the ‘quite extraordinary’ prices Australia is getting for its commodities.

The monthly financial statement released by the Department of Finance on Friday shows the underlying budget deficit was $33.4 billion in May compared with the $60.5 billion that had been expected after 11 months of the 2021/22 financial year.

A deficit of $79.8 billion was forecast for the full year in the March budget.

‘Obviously, we want those numbers to come in strongly,’ Dr Chalmers told the ABC’s Insiders program on Sunday.

‘But what they don’t take into account is the volatility in our commodity prices. I think iron ore dropped 12 per cent last week, and that has implications for the budget.’

In a tweet, shadow treasurer Angus Taylor boasted the strong budget result was due to the strong economic management of the coalition government.

‘Interesting that Labor should try to quietly release these figures late on a Friday afternoon,’ he tweeted.

The monthly statement is usually released on a Friday afternoon.

Dr Chalmers said a range of issues were working against the budget, including the interest rate payments on the trillion dollars of debt Labor inherited.

‘As interest rates go higher and higher, the cost of servicing that debt goes up as well. So that’s another pressure on the budget,’ he said.

‘The budget is in a pretty big structural deficit, when you consider the worthy and warranted spending that’s in the budget, and increased borrowing costs is one of those additional pressures.’

Dr Chalmers will release his first budget in October.

The high price of iron ore also helped with the strong budget result, but Dr Chalmers said commodity prices are volatile which has ‘implications for the budget’ 

Opposition Leader Peter Dutton (pictured) wants the federal government to double aged pension income

Opposition Leader Peter Dutton told News Corp Australia he wanted the federal government to double the amount pensioners could earn without reducing pension payments to $600 a fortnight.

It would aim to ease chronic labour shortages that are being seen across the economy.

Dr Chalmers said both sides of the parliament were looking at this before the election because there was a need to build a bigger pool of available workers.

‘I’ve had good, productive conversations with National Seniors and others about whether or not we can do something here,’ he said.

‘Even an idea like this, which appears to be relatively modest, it still comes with a relatively hefty price tag.’

It is an issue that will come up for discussion at the government’s Jobs Summit in September, which will bring together business and unions.

Dr Chalmers will also hand down an economic update in a ministerial statement when parliament returns in July, which will include the government’s forecasts for inflation.

‘What that will show is that inflation will get worse before it gets better,’ he said.

‘That’s the expectation across the board now, and so that’s a difficult situation that we need to deal with before inflation hopefully moderates throughout the course of next year.’