Budget deficits across the nation are expected to improve as Australia emerges from the coronavirus pandemic, the independent Parliamentary Budget Office says.
In its latest national fiscal outlook, which provides a combined outlook across all levels of Australian government, it shows the country recovered swiftly in the wake of the initial outbreak of COVID-19.
It expects the national net operating balance to improve from a cumulative $171 billion deficit in 2020/21, or 8.3 per cent of gross domestic product, to a $43 billion deficit in 2024/25 or 1.8 per cent of GDP.
"Due to the better-than-expected recovery from the first wave of the pandemic, national revenue was revised up by $33 billion for 2020/21," the PBO said.
"National expenditure was revised down by $18 billion."
Despite this improvement, debt is is expected to climb, albeit at a slower pace than previously thought.
National net debt is forecast to increase from $774 billion in 2020/21 (38 per cent of GDP) to $1.3 trillion by 2024/25 (55 per cent of GDP).
This is $103 billion smaller for 2020/21 than previously thought and $68 billion lower for the 2023/24 forecast.
However, the PBO warns that many budgets were released before the Delta COVID-19 variant outbreaks struck, making it unlikely that forecasts will materialise as expected, at least for the 2020/21 financial year.
"The pandemic continues to mean economic and fiscal forecasts can have short shelf lives," the PBO said.
Treasurer Josh Frydenberg will hand down the midyear federal budget update on December 16.
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