Today, the Australian government has introduced new tax cuts and additional cost-of-living measures as part of a strategic effort to regain the support of dissatisfied voters, which will result in a budget deficit.
Prime Minister Anthony Albanese’s administration is aiming for a second term in the upcoming May election and is currently in a tight race with the conservative Coalition opposition, according to recent polls.
In his fourth budget presentation, Treasurer Jim Chalmers revealed strategies aimed at enhancing economic resilience and competitiveness, recognizing the growing global risks associated with trade disputes and geopolitical tensions.
“This budget serves as a foundation for prosperity amid a new landscape of uncertainties,” Chalmers stated during a press conference. “It acknowledges that the cost of living is a top concern for many Australians.”
Nevertheless, the announcement of two additional rounds of tax cuts, totaling A$17.1 billion ($10.7 billion), came as a pleasant surprise and expands upon previous cuts made last year.
By reducing the tax rate in the lowest bracket, an average-earning worker will receive an additional A$268 in tax relief for the fiscal year ending in June 2027 and A$536 for the subsequent year, which is less than the A$1,654 relief provided by tax cuts this fiscal year.
This budget also allocates A$8.5 billion towards public healthcare initiatives. Furthermore, it will extend electricity rebates until the year’s end, provide funding for public educational institutions, and alleviate student debt.
As a result, the underlying budget balance for the 2025 fiscal year is projected to return to a deficit after two consecutive years of surpluses.
The projected deficit of A$27.6 billion is slightly worse than the government’s December estimate of A$26.9 billion. Most analysts had anticipated an improved fiscal outlook.
Overall, deficits are expected to total A$179.5 billion across the forward projections.
‘Australian Exceptionalism’
The budget also comprises A$3 billion in investments aimed at supporting domestic production of green metals, A$20 million to motivate consumers to purchase Australian-made products, and other initiatives designed to enhance economic competitiveness.
This expenditure will be partially financed by unexpected tax revenues stemming from a tight labor market and sustained mining profits. It now anticipates a lower peak unemployment rate of 4.25% and has revised its short-term forecast for corporate tax receipts due to resilient commodity prices.
In his budget address, Chalmers asserted a strong outlook for the Australian economy despite rising global economic challenges. The economy has recently rebounded, experiencing its fastest growth in two years last quarter, while the unemployment rate remains low at 4.1%.
It is projected that the higher US tariffs will have a modest impact on Australia by 2030.
“This is truly a narrative of Australian exceptionalism amid global economic uncertainties,” Chalmers stated.
However, the combination of increased government spending and a strong labor market suggests that inflation is likely to rise again to 3% over the upcoming fiscal year, reaching the upper limit of the central bank’s target range of 2-3%, before settling at around 2.5%.
This development could pose concerns for the Reserve Bank of Australia, which has cautioned that further policy easing is not assured, having just reduced interest rates for the first time in over four years.
