The Coalition’s costings finally reveal that in the next two years it will have a bigger deficit than Labor. In the second half of the four-year projection, the forecast net positive impact from the Coalition’s policy changes is questionable.

At last, only two days before the election, the Coalition finally produced its election costings and budget projections.

According to the Coalition, they will restore “responsible budget management” and “return the Budget to balance and deliver sustainable structural budget surpluses as soon as possible.”

But how credible are these projections, especially as their late release limits the scope for critical analysis?

Projected budget deficits continue

The Coalition’s own budget numbers show the overall net impact of their policy decisions as announced would only reduce the underlying budget cash deficit by $13,850 million over the next four years.

Frankly, this apparent reduction would not return the budget to surplus. Even in the fourth year from now (2028-29), according to the Coalition, their projected budget deficit would still be around $24 billion.

Most importantly, compared to the budget outcome under a Labor Government, the Coalition’s own costings show that they would actually have a bigger budget deficit than Labor in each of the next two years – $5.8 billion bigger in 2025-26 and $2.3 billion bigger in 2026-27. Further, the confidence in budget projections for the third and fourth years is always less than for the projections for the next year or two.

Credibility of Coalition’s budget projections

The other critical question is how can the Coalition’s lower deficits, compared to Labor, actually be achieved? Can we be confident that the costings are realistic?

The first, and most obvious doubtful savings measure, is the Coalition’s proposal to reduce the number of public servants in the APS by 41,000 over time through natural attrition. The Coalition projects that this measure will be saving $6.7 billion annually by 2028-29.

As I argued in a previous article, this supposed reduction in the Canberra-based public service is not going to happen. The Coalition is effectively assuming that nearly 70% of these public servants are going to willingly resign in the next four years, which they won’t. Further, even if only one third left, it would devastate the policy capacity advising the government. But without this saving, the improvement in the Coalition’s budget deficit, even as far out as 2028-29, will be only $4.1 billion, not the claimed $10.8 billion.

The other major saving that the Coalition proposes is to drop Labor’s legislated personal income tax cut, which the Coalition estimates will improve the budget bottom line by $7.4 billion in 2028-29.

On the other hand, the Coalition is proposing to offer some immediate tax relief, with a reduction in fuel excise, costing $7.4 billion in 2025-26, and a cost-of-living tax offset in 2026-27, costing $9.1 billion. But each of these tax relief measures are planned to only last one year, after which the tax revenue goes back up.

In short, according to the Coalition’s own figures, taxes will be higher under them than under Labor in the second half of the four-year projection period and beyond. This is surely a strange way for a Coalition Government to try and balance the budget, but otherwise every year ahead the Coalition would have a bigger budget deficit than Labor.

Apart from these major taxes and expenditures on the public service, the differences between the Coalition and Labor do not make much difference to their eventual budget balances.

Both major political parties are proposing to provide additional assistance to home buyers. The form is significantly different, but the overall cost is not so different. Similarly, their infrastructure spending favours different projects and locations, but the amounts involved are not substantially different.

Where the two parties differ most in their values is shown by the Coalition’s intention to not proceed with Labor’s proposed reduction in student debt and free TAFE.

Perhaps, most significantly, the Coalition proposes to drop key parts of Labor’s response to climate change. For example, the Coalition intends to make major savings by:

• redirecting the funding for Labor’s home batteries program;
• removing the tax breaks for electric vehicles; and
• dropping the assistance under Labor’s Future Made in Australia program designed to encourage activities such as the development of critical minerals and green hydrogen production.

On the other hand, the Coalition would spend these savings through various forms of extra assistance to small business and a yet-to-be-defined major increase in defence expenditure. Overall, the Coalition is, in effect, adding back to the budget deficit what it proposes to save from Labor’s social agenda and climate change strategy.

In sum, the only reason why the Coalition is able to project a smaller budget deficit in the second half of the four years to 2028-29 is because people will have to pay higher taxes than under Labor and because of a quite unreal saving on the cost of public servants. On the other hand, in the next two years, the Coalition’s temporary tax relief measures mean they will have a bigger budget deficit.

This is hardly sound economic management. In addition, the Coalition’s spending and savings decisions represent a set of values which will seem out of date to many electors today.