Against the backdrop of a looming federal election and increased global uncertainty contributed to by tariffs from the United States, Treasurer Jim Chalmers has this evening handed down the 2025–26 Budget which confirmed the shift from back-to-back budget surpluses to the first in a series of forecast budget deficits. This year’s deficit is estimated at $27.6 billion, and $179.5 over four years. Including ‘off budget’ spending, such as the investment in the National Broadband Network and Whyalla Steelworks, the deficit is estimated at $65.2 billion and $283.4 billion over four years.

Over the past few weeks, the Treasurer has framed the surrounding narrative of this year’s budget, emphasising the economic impact of Ex-Tropical Cyclone Alfred, the uncertainty caused by a slowing global economy, and lingering concerns about cost of living and inflation. This year’s budget is set in a difficult international economic context and challenging domestic circumstances; the result is a budget that attempts to address immediate cost of living pressures, promote the strength in Australia’s economy, and secure Australia’s position in the Indo-Pacific and the world more broadly.

Even though the Treasurer can rightly be praised for steering the economy away from an inflation-induced recession, the increase in cost of living over the past three years continues to bite and consumer sentiment remains subdued. Despite this, the Budget shows that Australia’s economy remains – at least according to the fundamentals – comparatively sound. Inflation, a key concern for voters due to face the ballot box in the coming weeks, is expected to grow by just 1.5 per cent in 2024–25, while wage growth will increase by 3 per cent. Additionally, Australia’s employment market remains strong, with unemployment forecast at 4.25 per cent.

Moderating inflation, steady wage growth, and a strong labour market all contribute to the forecast growth in the Australian economy of 1.5 per cent in 2024–25, 2.25 per cent in 2025–26, and 2.5 per cent in 2026–27. However, gross debt is forecast to increase from $940 billion in 2024-25 to just over $1 trillion in 2025-26, representing 35.5 per cent of GDP.

Public opinion polling has consistently demonstrated that cost of living is the most important issue affecting voters as we draw closer to the federal election – something this budget seeks to further address. In his speech, the Treasurer made the surprise announcement of new personal income tax cuts which will see the first marginal tax rate reduced from 16 to 14 per cent over two years. The Opposition has been quick to criticise the cuts claiming they “will not support these tax changes that do nothing to address the collapse in living standards under Labor”. The Treasurer also confirmed the Government will provide an additional $150 energy bill rebate, which the Coalition will not oppose. Subject to the passage of legislation, the measure will come into effect from 1 July and is expected to cost $1.8 billion over the forward estimates. Treasury estimates the rebate will reduce household bills by 7.5 per cent and headline inflation by 0.5 per cent. And, in an effort to ensure the Prime Minister passes the pub test at the upcoming election, the Government will pause indexation on draught beer excise for a two year period, from August.

The Treasurer also confirmed an increase to the income caps and property prices under the Help to Buy Scheme. While this will be a boon for first home buyers at auctions across Australia, the Budget does little to address supply side issues, with state and territory governments set to share in just $54 million set aside to grow the prefabricated and modular home sector.

Included in the Budget is the Labor Government’s $8.5 billion commitment to expand bulk-billing incentives to all Australians. The Budget also includes $785 million to reduce the cost of scripts under the Pharmaceutical Benefits Scheme to $25, which, from 1 May , will also include the contraceptive pill, endometriosis treatments, and cancer-related listings. Additionally, $658 million has been earmarked to open an extra 50 Medicare Urgent Care Clinics.

In recent weeks Australia’s security has come to the forefront of political debate following missile tests and the circumnavigation of Australia by a Chinese fleet as well as pressure from the US to increase spending to 3 per cent of GDP. However, despite recent reporting of a ‘khaki-tinged election’, defence spending is expected to remain steady, with the Government instead bringing forward $1 billion of investment in Defence capabilities and setting aside $24 million to support the development of AUKUS-related industrial initiatives.

Following the imposition of tariffs on Australian steel and aluminium, the Government has unveiled its “new” Buy Australia Plan. The Buy Australia Plan will see $20 million allocated to the Department of Prime Minister and Cabinet which will be used to encourage consumers to buy Australian made products.

The Government will achieve savings of $719 million by reducing spending on consultants, contractors, and labour hire firms, bringing total savings on labour to $4.7 billion since 2022–23. Additionally, the Government will defer the start date of the amendments to the foreign resident capital gains tax regime and confirmed it will ban foreigners from purchasing established dwellings for two years from 1 April.