Australia’s government has introduced tax cuts and other incentives in a pre-election budget designed to address voters' cost-of-living concerns and boost Prime Minister Anthony Albanese’s chances of securing a second term.
Consequently, the government's finances are projected to show a deficit of A$42.1 billion ($26.5 billion), or 1.5% of GDP, for the year ending June 2026, slightly higher than the forecast A$40 billion.
The shortfall for fiscal 2025 is expected to be A$27.6 billion, following two years of surpluses as the Labor government worked to control inflation, Bloomberg reports.
The budget received a largely negative response from industry groups and some economists, who criticised its lack of bold policies to stimulate economic growth and address declining productivity.
They highlighted that this is especially crucial amid rising global uncertainty, particularly due to potential fallout from US tariff plans.
It “fails to fully address Australia’s long-term economic challenges. The continued high spending and subsidies could make things tricky for the Reserve Bank of Australia — with an already uncertain global economic backdrop,” said Devika Shivadekar, an economist at consultancy RSM Australia.
With an election potentially just days away, Labor is focusing on winning back voters frustrated by rising consumer prices, high interest rates, and a housing shortage.
As inflation shows signs of easing, evidenced by unexpectedly lower monthly data, and the Reserve Bank of Australia (RBA) reduced borrowing costs last month, Labor is seeking to capitalise on the improved economic outlook.
Finance Minister Katy Gallagher, who worked with Treasurer Jim Chalmers on the budget, acknowledged that the reduction in the lowest tax rate from 16% to 14% by mid-2027 was modest.
However, she told Bloomberg Television in Canberra on Wednesday that it still offered some relief to households.
“They’re a top up to the tax cuts that were passed and started flowing in July last year.”
The budget revealed that government spending as a percentage of economic output is expected to remain high at around 26%-27%, surpassing the long-term average of 25.1%.
Economists noted that a more accurate reflection of the government's fiscal policy is the headline cash balance, which is increasing at a faster rate than the budget bottom line typically emphasised by treasurers.
The headline figure encompasses the cost of initiatives like student debt relief, the national broadband network, and various infrastructure programs, and is usually subject to less scrutiny.
Furthermore, back in 2022, the Albanese government inherited approximately A$33 billion in off-budget spending over the forecast period, according to independent economist Chris Richardson. This figure has now surpassed A$100 billion in the current budget.