10 things to know about the Federal Budget 2025-26

1. The context

This is the budget that nobody wanted. It was only necessary because of the partial delay in the calling of the election due to Cyclone Alfred in Queensland. This makes it Treasurer ‘Sunny Jim’ Chalmers’s 4th budget when normally the Treasurer would only bring down three in a normal term of government. 

2. The macroeconomic outcomes present a good story

Treasury forecasts expect inflation to be lower than expected, back to its 2-3 per cent range required by agreement with the Reserve Bank of Australia (RBA). In the labour market, unemployment is expected to be lower than expected (4 ¼ instead of 4.5 per cent) while real wages are expected grow and real GDP is expected to be back up to the 2-3 per cent range.

Given it’s 5 years since COVID-19, and the subsequent impact of slower economic growth and the spurt of high inflation, this outcome, if achieved, would be a beautiful set of numbers.

3. The numbers on the fiscal bottom line are a different story

The budget is expected to return to deficit territory after two surpluses in a row. Whether the surpluses were achieved through good luck (higher commodity prices and revenues) or good management is debatable but still gives the Albanese Labor government some political capital leading into an election.

4. The Treasurer has promised a kinder, gentler budget

Spending on Medicare is up, childcare is up, and the Pharmaceutical Benefits Scheme (PBS) has been given a boost. But spending on aged care is down, spending on the National Disability Insurance Scheme (NDIS) is down after the government needed to fix some structural problems and the government is paying down debt faster.

5. The big surprise was $17.1 billion worth of tax cuts targeted at middle income Australia

There were of course the expected tax cuts but the unexpected (but moderate) tax cuts caught some of the media and the opposition by surprise. The shadow Treasurer Angus Taylor seemed to rule out matching the tax cuts and the Opposition Leader’s traditional reply to the Budget on Thursday, delivered by Peter Dutton, will need to be a strong performance to make up for Taylor being wrong footed in response to the government’s tax offering.

Surprise tax cuts are always a good idea just before an election, as it gives the opposition little time to put up a counter proposal, and especially when they have been reluctant to release policies.  

6. The surprise tax cuts and energy relief package are clearly aimed at cost-of-living pressures

However, some critics believe the rising energy prices may be a consequence of net zero policies of the government, so the Treasurer is just giving households and businesses compensation for the consequences of policies they have caused in the first place. 

7. This is a budget for prosperity at a time of uncertainty

What that means is it’s a budget for the Trump tariffs following the Beijing tariffs. In short, it’s a budget for a trade war. The global uncertainty emanating from the use of tariffs by the Trump administration for geopolitical ends, which followed on from China’s tariffs on Australia for calling for an inquiry into the causes of COVID-19 in Wuhan, puts at risk the stability of the world trade system and the consequences for markets and alliances.

The Trump administration may think tariffs will help boost revenue, but as the great depression showed, a rise in global protection ultimately makes all countries worse off. 

8. Global unrest means increased defence spending

A global trade war might be one thing but there is also real war happening throughout the world in Russia and Ukraine, the Middle East and tensions elsewhere. Hence the need for increased defence spending in the budget, a trend occurring elsewhere, particularly in the UK, Europe and Canada due to Trump’s foreign policy and trade policy stances. 

9. Immigration is set to be an election issue

Of course, there’s things mentioned ‘off budget’ that matter and will be revealed in days to come by seasonal analysts. Another thing not highlighted on budget night was the impact of higher than expected immigration on housing, employment and infrastructure that may actually be more important than some more regionally focused wars. Expect more discussion of immigration in the budget analysis as immigration will definitely be an election issue.

10. This is a budget for an election

No ifs, no buts. As Jim Chalmers said on budget night, “If you get the economics right then the politics looks after itself”, which is a bit like when as Treasurer Paul Keating said, “Good policy is good politics”. Well, Chalmers may be Treasurer but he is a politician, so he’s in the game of winning elections. That’s his main job and therefore that’s what the budget is all about. Will he be successful? We will find out in about 6 weeks’ time.