The Fourth Chalmers Budget and its Macro Implications

Our Chief Economist Brian Parker provides an economic analysis of the 2025-26 Federal Budget.

While Australia and a range of other economies have managed to successfully bring inflation down to at least within striking distance of policy targets, that has generally been achieved without serious economic harm. In other words, the world’s major central banks have managed to achieve a soft landing – at least so far.

The Budget has been delivered at a time of heightened uncertainty for the global economy. The magnitude and likely impacts of the Trump Administration’s tariff measures remains highly uncertain. Tariffs add to inflation and hurt growth prospects. While the Budget Papers and the Treasurer’s comments indicate (rightly) that Australia is relatively well placed to absorb the adverse impacts of ongoing trade wars as an open economy we will not be immune to the impacts.

The Budget is clearly (and unsurprisingly) crafted with a near term election in mind and is mildly stimulatory for the economy.

Since the Mid-Year Economic and Fiscal Outlook (MYEFO) new policy decisions:

• have firstly increased total payments by $7.1 billion in 2025–26 and by $20.7 billion over five years from 2024–25 to 2028–29. New spending measures are focused in healthcare (including the PBS), infrastructure and education as well as extending energy rebates in a bid to provide further cost of living relief;
• have secondly reduced receipts by a modest $103 million in 2025-26 and by $14.2 billion over the five years from 2024–25 to 2028–29. The announcement of modest income tax cuts from 1 July 2026 was a surprise in a budget with few of them;
• which together widened the deficit by $34.9 billion over the five years to 2028-29.

However, offsetting these policy driven changes to the budget outlook are changes in “parameters and other variations” – largely changes in underlying economic forecasts and other assumptions. Collectively, these impacts boost receipts and reduce payments and thus reduce the deficit by $36.4 billion over the next five years, allowing the Treasurer to report a modest improvement in the total budget deficit over the coming five years.

Much will be made of the fact that there is no sign of a return to sustained surplus in sight. However, the size of the Budget deficit is expected to narrow from a forecast $42.1 billion in 2025-26 (1.5% of GDP) to $36.9 billion in 2028-29 (1.1% of GDP). This is not ideal for an economy operating around full employment but it’s a set of numbers that still puts Australia in a favourable fiscal light on international comparisons.

The estimates for GDP growth and other variables over the coming years appear reasonable. Headline inflation is forecast to be just below 3 per cent through the year to the June quarter 2026 and then be around the middle of the RBA’s target band for the remainder of the forecast period. The Government clearly believes that a modest fiscal boost will not threaten the inflation outlook unduly nor particularly trouble the RBA at this point, and that seems a reasonable assumption.

What does it mean for how we invest your money?

We’ve indicated in previous post-budget reports that the Federal Budget rarely makes any difference to the way Australian Retirement Trust or indeed any other major superannuation fund invests your money. For the most part, it’s the medium to long term outlook for the Australian and world economies, inflation, interest rates and corporate earnings that are critical in determining what kind of investment returns our members will achieve, not what happens on budget night. And on that score, this year’s budget is no different.

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Personal financial advice may help you make informed, confident decisions and achieve your goals. Deciding what is best for you will depend on your personal circumstances and you may want to seek personal financial advice to get the most from your superannuation. You can find out more about financial advice options at qsuper.qld.gov.au/advice

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This document been prepared and issued by Australian Retirement Trust Pty Ltd (ABN 88 010 720 840 AFSL No. 228975), the trustee of Australian Retirement Trust (ABN 60 905 115 063) (Fund). It contains general advice and does not take into account the investment objectives, financial situation or needs of any particular individual. You should consider if the advice is appropriate to your own circumstances before acting on it. You should also consider the relevant Product Disclosure Statement (PDS) before deciding to acquire or continue to hold any financial product and also the relevant Target Market Determination (TMD). We are committed to respecting your privacy. Our privacy policy sets out how we do this. For a copy of the PDS, TMD or privacy policy, visit art.com.au or call 13 11 84.