Australia's finances have been slugged by a $21.8 billion downgrade over the next four years as spending rises and tax receipts plunge.
The degradation of the fiscal bottom line was laid bare in Wednesday's mid-year economic and fiscal outlook (MYEFO), which updates the forecasts made in May's federal budget.
The expected deficit for the current financial year — 2024/25 — improved by $1.4 billion to $26.9 billion.
But the underlying cash balance is set to worsen over the following three years, leading to a wider deficit of $31.7 billion in 2027/28 and gross debt to be $49 billion larger than was forecast in the budget.
The return to red ink in the government books follows two straight surpluses of $22 billion and $16 billion in 2022/23 and 2023/24, respectively.
Global uncertainty and spending pressures drove "some slippage" to the budget's bottom line, Finance Minister Katy Gallagher said.
"Despite the pressures coming at us, we're on track for a soft landing and our budget strategy is helping," she said.
Spending is set to increase by $25 billion from the budget forecast, including $16.3 billion in "automatic" increases through indexation and other boosts to pensions, veteran support and disaster relief funding, among other payments.
It also includes $8.8 billion on "unavoidable" increases, including extending measures such as Pharmaceutical Benefit Scheme listings and aged care programs that were facing funding cliffs.
Previously the government has been able to bank on revenue upgrades, mainly due to tax boosts from strong minerals demand from China, to pay for ballooning spending.
Wednesday's update ends a string of huge upward revisions on tax receipts across the last four MYEFOs, which averaged $80 billion per year.
Company tax receipts have been downgraded by $8.5 billion over the four-year budget cycle — the first downward revision since 2020/21 — largely in part to China's sluggish growth prospects.
The government's "responsible budget management" had helped inflation come down since the 2022 election while providing cost-of-living relief to Australians, Treasurer Jim Chalmers said.
