Will a surprise surplus drive new election promises?

Could the Albanese government have a secret ace in the hole to reveal during the coming election campaign?

While the “unofficial” campaign has been going for quite a while already, there are always plenty of surprises being held back to be revealed when the campaign ramps up in earnest.

And perhaps the most surprising of all at a time of such tight household budgets could be a surprise budget surplus at the federal government level.

While Treasurer Jim Chalmers has predicted a deficit this financial year of $26.9 billion as recently as the December budget update, a combination of a strong jobs market, a weak Australian dollar and strong mining exports and company tax collections means there is still a fighting chance of a surprise third surplus.

Tax collections ramping up

Tax collections traditionally ramp up as we get closer to the middle of the year but already the budget is around $14.5 billion above where it should have been on initial predictions.

That means there is a chance for a surplus to back up the $22.1 billion surplus and $15.8 billion surplus delivered over the past two years.

Now most of us recognise the dangers of turning a surprise surplus into recurrent expenditure, with all of the state budgets with the exception of Western Australia being very salient examples – but government’s don’t always think that way, especially when they are the underdog in a looming election.

No point leaving unspent dollars on the table

Which means that any windfall gains that suddenly appear on the bottom line are very likely to be used to support some electorally appealing political promise.

After all, what is the benefit of leaving extra money on the table if someone else wins the election?

Naturally, another benefit of running a surplus is that it adds to the argument that the current government is a good economic manager, although in this case there has been some strong economic tailwinds that have perhaps flattered Dr Chalmers’ reputation.

There has certainly not been a lot of evidence of too much thrift on the expenditure side with large multi-billion-dollar blowouts in areas including aged care, child care, disability and medicines – along with $7.4 billion in unbudgeted public sector pay rises that will hit the bottom line in 2025-26.

An extra million workers paying taxes

However, having an extra 1 million employed workers paying taxes and higher than expected commodity export prices covers a lot of cracks and has also allowed for a $177 billion cut in debt levels, reducing interest costs.

Many of the election promises outlined so far will also happen in future tax years, such as the $7.2 billion promised to upgrade the Bruce Highway in Queensland.

The prospect of a much lower deficit or possibly even a third surplus leaves a lot of room for further spending promises which we will no doubt hear about as the election campaign becomes official.

Almost everywhere you look across the budget receipts are up, including taxes on individuals, superannuation, companies, goods and services while total expenses for the first five months of the year were also $3 billion below expectations due to lower grants to the states.

We will get another look at just how well the budget is travelling in the federal budget which is scheduled for March 25 or if the election has been called, in the official Pre-election Economic and Fiscal Outlook (PEFO).