Federal Budget 2024-25: Predictions And What To Expect

It’s almost that time of year again. All eyes will be on Treasurer Jim Chalmers as he delivers federal budget 2024-25 on Tuesday 14th May.

Both the Prime Minister and Treasurer, in pre-budget speeches, have given some indication of expenditure and economic initiatives: investment in local manufacturing capability and economic sovereignty, the Net Zero emissions goal, remodelled Stage 3 tax cuts and superannuation on paid parental leave. As usual, expenditure on health and defence are also likely to be significant.     

Triple threat facing the federal budget 2024-25

These three economic challenges are likely to have been on Jim Chalmers’ mind as he crunched the numbers for this year’s budget:

• Global uncertainty as a result of conflict in the Middle East, the Russia-Ukraine war, China’s economic woes and the upcoming US presidential elections.
• Slowing economic growth, both globally and in Australia.
• Continuing cost of living increases, as monitored by the ABS, especially in housing, food and insurance. 

Mitigation initiatives already announced

The government has already responded to this triple threat – uncertainty, slowdown and price hikes – by announcing measures which will feature in the federal budget 2024-25, including:

•  Defence spending to increase by $50 billion over the next decade.
• Stage 3 income tax cuts coming into effect on 1st July 2024. Given the Treasurer’s statement that “There will not be big cash splashes in the budget, simple as that”, it is unlikely that there will be any additional tax system reform announced in the 2024 budget. However, further cost of living help has been flagged.
• Superannuation on government Paid Parental Leave, to be applied from July 2025.

Additional expenditure likely to be in the budget

Further to what has already been included in budget announcements, economic and political analysts are predicting a budget based on the following key areas of spending:

• Green energy

Australia is keen to play a part on the world stage, and must therefore strive, along with its peers, to meet its Net Zero emissions targets. The government’s latest efforts in this field are concentrated in the proposed Future Made in Australia Act, and Jim Chalmers says that it will play a key part in the budget. 

The aim is to secure greater sovereignty over Australia’s resources and critical minerals, and promote advanced local manufacturing, all while reducing carbon emissions. This means that the federal budget 2024-25 may include additional investment in the Critical Minerals Strategy 2023-2030, the National Battery Strategy, hydrogen to ammonia conversion projects, and green metals. 

• Infrastructure

Support for infrastructure projects in the budget will depend on several factors, including how well they meet productivity and sustainability aims, but in particular whether they are delivering value for money in an inflationary era by staying within their original cost estimate.

Budget papers for 2023-24 detailed infrastructure projects amounting to $61bn over the following four years, as part of a 10-year pipeline totalling $120bn. However, an audit conducted late last year revealed a $33bn cost blowout, which may lead to further cancellations of projects originally criticised for $16.3bn worth of support in this year’s budget. 

• Defence

Defence Minister Richard Marles’ budget announcement that defence spending will double to $100bn within the next decade, largely in response to China’s military intensification, leaves little doubt that there will be an increased focus on defence this year. An extra $5.7bn will be spent over the next four years, and an additional $50bn during the coming decade, including the $11.1bn already announced for the navy’s surface fleet. 

• NDIS

The government is attempting to rein in the ballooning costs of the NDIS (currently estimated at $40bn annually) by placing an 8% target on the annual spending increase from 2026. However, there will be a higher growth rate this year, given the projected 2024-25 expenditure of $45.3bn.  

• Health

The 2023-24 budget included a whopping $27.9 billion for new investments in health care, but this year’s federal budget is expected to be more subdued.

However, the 2023 Intergenerational Report noted that spending on health and aged care is expected to grow significantly in the coming decades. Demographic ageing is estimated to account for around 40% of the increase in payments between now and 2062, so it’s likely that some of this will be reflected in projected spending this year.

Stay informed

Disclaimer: This information is general in nature and should not be relied on as advice. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs and seek professional advice before making any decisions based on this information.