Australia gets unexpected $6 billion federal budget boost
The federal budget’s bottom line has come in better than expected, but some economists warn Australia is not out of the woods yet.
The final budget figures for 2025-26 released on Monday showed the underlying deficit is about $6 billion smaller than the $28.3 billion forecast when the budget was handed down in May.
Treasurer Jim Chalmers has revealed a $6 billion budget boost. Alex Ellinghausen
Treasurer Jim Chalmers and Finance Minister Katy Gallagher attributed this to a $1.4 billion cut in government spending from aged care, the PBS, childcare and national partnership payments and $4.6 billion more receipts from tax on higher superannuation and investor income.
“Despite this very welcome improvement in the budget, we know that pressures are intensifying rather than easing,” Chalmers said.
“Responsible economic management is a defining feature of this government.
“You can see that in the final budget outcome, and we’ll see that in the difficult months ahead as well.”
Chalmers, who is facing pressure to help curb above-target inflation cent and bring down public spending, hit back at suggestions the government was making life harder for Australians.
“Our inflation challenge is partly domestic, but it is made much worse by global conditions,” he said.
“And from an economic point of view, the war in the Middle East has been absolutely disastrous for family budgets in Australia.”
The treasurer said households would be anxiously awaiting the Reserve Bank of Australia’s interest rate decision on Tuesday, when the central bank is likely to hand down a 25-basis-point hike to bring rates to a15-year high of 4.60 per cent.
“Any increase in interest rates obviously puts additional pressure on people,” he said.
AMP chief economist Shane Oliver said Monday’s figures are unlikely to deter the board from further tightening as inflation remains too high.
“I think the RBA and the money markets already knew that the deficit was running better than expected, reflecting a continuing surge in taxes, particularly on the back of higher than expected commodity prices and employment, and therefore it’s not really a surprise,” he told nine.com.au.
Oliver said government spending was still one of the main factors impacting persistently high inflation, alongside high public and private demand and state infrastructure projects.
“The basic problem the RBA had was the demand was just too strong in the economy, and government spending was part of that,” he said.
New research from the e61 Institute found the federal budget made no explicit allowance for the routine major economic shocks that have hit the country since 2008 – a deep recession, a global bond market breakdown and a geopolitical crisis in the Asia-Pacific.
It found that each risk carries an expected cost of about 0.8 per cent of GDP a year over the long term.
“Debt never got back to its pre-GFC level before COVID hit, so we went into the pandemic from a much higher base,” e61 senior research economist Aaron Wong said.
“If that pattern repeats, each crisis leaves us less able to handle the next one.”
Wong said the federal government is the only insurer big enough to spread the cost of a hit on the economy.
“But an insurer that never rebuilds its reserves between claims eventually runs out of room,” he said.
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