Australia sees second straight budget surplus, inflation easing sharply

SYDNEY (Reuters) - Australia's government will boast a second consecutive budget surplus on Tuesday, courtesy of strong employment and high commodity prices, giving it cash to afford more cost of living relief and industry incentives.

Figures from Treasury showed the government is expected to post a surplus of A$9.3 billion ($6.14 billion) for the fiscal year to June 2024, after a A$22.1 surplus last year, marking the first back-to-back budgets in the black in nearly two decades.

The strong fiscal position will allow the centre-left Labor government to cut taxes and provide more cost of living relief that Treasurer Jim Chalmers expects will help tame inflation.

Details on the costs of living relief are not clear yet, but the government predicts inflation could ease to the central bank's 2-3% target band by the end of this year, helped by measures Canberra plans to introduce to cool prices.

That would be a welcome surprise for the Reserve Bank of Australia (RBA), which does not expect inflation to return to target until late 2025.

"Another surplus is a powerful demonstration of Labor's responsible economic management, which makes room for cost-of-living relief and investments in the future," said Chalmers.

"Despite the substantial progress we've made, spending pressures continue to intensify and there's more work to do."

Details of the budget will be announced by Chalmers in parliament at 0930 GMT.

Indeed, the government expects the budget bottomline to worsen in the years ahead, with more investments made to fund Labor's Future Made in Australia subsidy programme to help domestic industries, as well as more defence funding and measures to cut costs for higher education.

The ambitious inflation projections come as Prime Minister Anthony Albanese's government faces growing criticism over soaring prices for household goods and services. A surprisingly strong first-quarter inflation report has also raised the risk of another rise in interest rates.

Chalmers is under pressure to curb spending to avoid stirring up inflation, but he has defended the measures as "unavoidable" and "warranted". Australians are due to head to polls again by early next year.

Australia's defence spending is also expected to expand significantly over the next decade as it upgrades its missiles, drones and warships.

($1 = 1.5156 Australian dollars)

(Reporting by Stella Qiu; Editing by Sam Holmes)