Credit: Marija Ercegovac
Treasurer Jim Chalmers has delivered his fourth budget amid what he calls a “new world of uncertainty”. There’s plenty of evidence to support that claim: Australia’s economy is recovering after two years in the slow lane, Donald Trump’s tariff policies have cast a shadow over global growth and a closely contested federal election will shortly be called.
And yet, Chalmers claims Australia is “well-placed” to prosper despite the turmoil.
Here are seven key budget charts that shed light on the nation’s finances, the economic outlook and what lies ahead for households and consumers.
From black to red
The federal budget has just had a two-year stint in surplus following a decade and half in deficit. But the government’s finances are again forecast to slump into the red for the foreseeable future.
A deficit of $42 billion is predicted next financial year followed by a shortfall of about $36 billion the year after that.
Over the five-year budget period, Treasury is predicting a cumulative total of $180 billion in federal budget deficits and the red ink is set to continue. Last week Chalmers said it remained to be seen when federal finances would return to surplus.
Trump’s tariffs cast a shadow
Chalmers used his budget speech to warn “storm clouds are gathering” over the global economy.
The budget papers do not mention US President Donald Trump by name, but they warn that his signature policy to hike tariffs on US imports will take an economic toll.
“Escalating trade tensions have significantly magnified uncertainty in the global economy and volatility in global markets, and could disrupt trade, investment, economic activity and push up prices,” the budget says.
Treasury expects the world economy to grow by just over 3 per cent for the next three years – the worst since the 1990s. It also forecasts the world’s two biggest economies – the US and China – will slow during the next year.
These global developments pose a threat to Australia.
“The use of tariffs by major trading partners could lead to higher import prices and temporarily higher inflation and lower growth,” the budget papers warn.
Even so, the budget forecasts that Australia’s economy will slowly gain momentum over 2025 as private final demand recovers. Gross domestic product growth is expected to accelerate from 1.5 per cent this financial year to 2.25 per cent in 2025-26.
The unemployment rate, now around 4 per cent, is forecast to edge up to 4.25 per cent over the next year.
Inflation versus wages
Elevated inflation in 2022 and 2023 meant prices were rising faster than wages for a considerable period. The subsequent cost-of-living pressures have been the No.1 concern of voters for several years. Rising interest rates added to the financial crunch.
Since late 2023 wages have been growing faster than inflation – meaning they have been growing in real terms.
The good news for consumers is that the budget predicts this trend will continue for the next four years, leading to more real wage increases.
In February, the Reserve Bank cut interest rates by 0.25 of a percentage point. The budget forecasts inflation to remain within the Reserve Bank’s target band of between 2 and 3 per cent in coming years, which could provide scope for further interest rate relief.
Where the money goes
The government is forecast to spend $786 billion next financial year, up from $763 billion this year. That equates to around 27 per cent of the annual output of the national economy. Annual federal spending is forecast to top $800 billion for the first time in 2026-27.
The single biggest expenditure program is expected to be the payments the federal government makes to states for them to deliver basic services ($100 billion). Second largest will be support for seniors, including the aged pension, ($65 billion) while the third largest is the National Disability Insurance Scheme ($52 billion).
Also among the 20 biggest forecast expense programs are servicing federal debt ($28 billion), funding for non-government schools ($20 billion) and childcare subsidies ($16 billion).
More than a third of federal spending is allocated to social security and welfare.
The interactive graph below lets you delve even deeper into how the spending breaks down:
Debt and interest payments rising
Two decades ago, Australia had zero net debt. But the federal borrowings have risen steadily since the global financial crisis and the COVID pandemic.
According to the latest predictions, net debt – which factors in offsetting financial assets – is expected to reach $556 billion by the middle of this year and climb to $620 billion by June 2026. That’s equivalent to about 20 per cent of the annual output of the national economy.
Rising debt and higher global interest rates mean the cost of servicing federal borrowing is rising. In 2023-24, net interest payments (the difference between interest payments and interest receipts) totalled $12.5 billion, but by next financial year that will be $18.5 billion.