‘Unavoidable’: MYEFO update to reveal massive $25bn hit in spending from pension increase, new PBS meds

Upward revisions in pensioner payments and childcare subsidies, plus billions in “unavoidable spending” will dent the budget bottom line by more than $25bn, Labor has warned ahead of its mid-year budget update.

The additional spending is almost guaranteed to be seized by the Coalition, as the government moves to dampen expectations ahead of Wednesday’s Mid-Year Economic and Fiscal Outlook (MYEFO) release.

Finance Minister Katy Gallagher has flagged indexation and funding increases for government payments and services, which are automatically calculated, will add a $16.3bn strain on the budget bottom line.

This includes $3.6bn increases for pension payments which are indexed according to the consumer price index, $3.1bn in additional childcare subsidy payments and $1.8bn in extra funding for communities impacted by natural disasters.

Labor’s policy to increase the number of Pharmaceutical Benefits Scheme (PBS) listed medicines available on a 60-day prescription, and bulk-billing initiatives have also come at a cost of $2.3bn.

On top of the $16.3bn is also a $1.8bn increase in estimates for payments to veterans, following a backlog of claims banked up under a Coalition government.

The government has also flagged $8.8bn in “unavoidable spending,” including $2.5bn in new PBS-listed medicines, $719m in cost pressures from the Infrastructure Investment Program, and $249m in Avian Influenza safeguards.

However the additional spending will be buoyed by $14.6bn in additional savings and other reprioritisations, including $5.2bn from its co-contribution aged care reforms, and $1.6bn redirected defence spending.

Finance Minister Katy Gallagher said the government had made “responsible savings” in order to fund “priority investments”.

“In this update, we have worked hard to find responsible savings while also dealing with the significant spending pressures we are facing,” she said.

“We are doing the right thing by our veterans, pensioners, school kids and Australians who rely on essential health programs, but the Coalition’s plan to cut $315 billion in spending would see cuts across all of these areas.”

Wednesday’s update will also reveal a $108.5bn hit to Australia’s revenue over the next four years due to downward revisions on company tax receipts and mining exports spurred on by a weakened Chinese economy.

Jim Chalmers said he was still “very optimistic about the future of our resources sector.

“This just reflects the reality of less demand out of China largely and a couple of other less substantial factors,” he said

“But broadly, what we’re seeing here, we’ve seen the price for a lot of our resources bounce around over the course of the year. As you know, the iron ore price, for example, has been down, recovered a little bit in more recent times.”

The Treasurer also confirmed he was monitoring developments in China “very closely,” especially around government efforts to bolster its flailing property market, which has smashed demand for Australian iron ore and copper.

Shadow Treasurer Angus Taylor said the government was blaming external factors, zoning in on excess spending in the budget.

Labor has countered this attack stating cuts to spending would limit essential services and cost-of-living relief.

“The simple message from this is: Take responsibility,”

“The first thing they could do is stop the reckless growth in spending. We’re seeing a rapid growth spending. That’s why we’ve opposed over $100bn of spending through the budget.

“Households are having to manage their budgets carefully, but this government is not managing its budget, and that means all Australians pay a high price for homegrown inflation.”