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Federal Budget Insights 2022-23

A stronger-than-expected Australian economy underpins the Federal Budget's short-term cost-of-living measures and long-term commitments for defence, cybersecurity and regional infrastructure

As a collection of spending and expenditure initiatives, a Budget needs a coordinating ‘theme’ or narrative.

If there is a theme to Josh Frydenberg’s 2022-23 Federal Budget, it is resilience and security.

The Treasurer marveled at the resilience of the Australian economy and the pace of the economic rebound from a COVID-induced recession of 2020.

Australia’s economy has grown faster than any of its peers. Nominal GDP will increase this year by 10 ¾ per cent, around double the usual rate, fueled in large part by a boom in the prices we receive for our coal, iron ore, metals and agricultural exports. Australia’s Terms of Trade is higher now than during both the mining boom of the early 2000s and even the wool boom of the 1950s.

Economic resilience throughout the pandemic combined with the high commodity prices has delivered a sizeable Budget dividend. Since the Mid-Year Economic and Fiscal Outlook was released, only in December, the Budget’s underlying cash balance (over the five years to 2025-26) has improved by $103.6 billion. This means government debt will now peak lower, at 44.9 per cent of GDP, and earlier, in 2025, than previously forecast. For every six months commodity prices stay at current ‘elevated’ levels, the Budget position improves by nearly $30 billion.

The economy has been producing jobs at a record clip. Unemployment is now expected to dip below 4 per cent later this calendar year, the lowest rate in nearly half a century. Low unemployment is undoubtedly good news, but skills and labour force capability gaps are likely to be continuing challenges for businesses — and could be a drag on our capacity to deliver on the infrastructure initiatives flagged in the Budget.

Meanwhile, despite record-low unemployment, low wages growth and emerging inflationary pressures (including for key household expenditures like fuel) are creating cost of living challenges for many households.

Resilience and security featured in many of the Budget’s headline expenditure initiatives, acknowledging the continuing impacts of the COVID-19 pandemic, natural disasters, and the global challenge of climate change, while also clearly being part of the Government’s strategy for the upcoming Federal election.

With the backdrop of Russia’s invasion of Ukraine, and geopolitical tensions even closer to our region, the Budget’s emphasis on national security was both unsurprising and unprecedented in scale. A $270 billion investment in defence capability, including a $9.9 billion investment in Australia’s cyber security capabilities, will be delivered over the next decade.

Supply chain resilience was found wanting during the pandemic. The Government’s response includes a range of initiatives to address vulnerabilities in supply chains and improve Australia’s self-reliance. Encouraging local manufacturing is a particular focus, including domestic vaccine manufacture.

In infrastructure, ‘enhancing drought resilience’ has a Budget price tag of $7.4 billion for new and expanded dam projects, and increasing water security.

And our communities, still recovering from recent floods and bushfires, will receive financial assistance for both immediate disaster response, and adaptation and disaster preparedness. More than $6 billion is to be directed in support to affected individuals, families, businesses and communities in disaster support and other payments.

The Budget also places some important markers in sectors where Australia needs to succeed in the future — in critical minerals, in advanced manufacturing, and in digital adoption by businesses and cyber preparedness.

Delivering on these aspirations will require sustained commitment, over multiple Budgets, whilst continuing to deliver on a strategy to return the Budget to balance (or better) over the medium term. Resilience is a long game.

Hear from our experts on their first reactions to this year's Budget

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A Budget underpinned by a stronger-than-expected economy

A stronger-than-expected Australian economy has underpinned the Federal Budget’s short-term measures to support the cost of living, as well as huge long-term commitments to defence, cybersecurity and regional infrastructure, according to PwC’s Chief Economist Jeremy Thorpe.

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Boosting cybersecurity and technology

Australia’s cybersecurity capabilities have been significantly boosted in this year’s Federal Budget, however there’s a critical shortage of skilled talent to support the new measures, according to PwC Cybersecurity & Digital Trust Partner, Pip Wyrdeman.

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Driving business cash flow and cutting red tape

How will the Federal Budget help businesses to improve their cash flow and invest in innovation? PwC Tax Partner, Trinh Hua, summarises the key tax measures from this year’s Federal Budget.

Contact us

Tom Seymour

Chief Executive Officer, PwC Australia

Tel: +61 7 3257 8623

Pete Calleja

Managing Partner, Financial Advisory, PwC Australia

Tel: +61 2 8266 8837

Jeremy Thorpe

PwC Chief Economist, PwC Australia

Tel: +61 416 245 535

Liza Maimone

Chief Operating Officer and ESG Executive, PwC Australia

Tel: +61 3 8603 2008