Australia's Treasurer Jim Chalmers confirmed that there will be a deficit in the Budget handed down next Tuesday in his address to the Queensland Press Club earlier today.
According to Chalmers, the deficit will be close to the A$26.9 billion predicted at the December update and flagged that windfall tax gains from the commodity process and a booming jobs market are a thing of the past.
Chalmers said the deficit is in part due to the uncertain economic landscape created by United States President Donald Trump’s tariffs, which Australia failed to gain an exemption from.
"In a world of retaliation and escalation, the impacts of tariffs are amplified, they linger for longer, resulting in a bigger reduction in GDP and a bigger increase in prices," he said.
"The direct impacts are concerning but manageable. It's the broader, indirect impacts that come from, you know, this serious escalation of trade tensions around the world, which is much more concerning to us."
While ex-tropical Cyclone Alfred caused the Labor government to scramble to finalise the Budget, Chalmers said it gave them a welcome opportunity to put the economy front and centre of their campaign.
According to the Treasurer, inflation is down, incomes are strengthening, unemployment is low, interest rates are coming down debt is down and growth is picking up thanks to the efforts of the Labor government.
“This is a remarkable combination, and it’s exceptional; exceptional when you look around the world and when you look back through history,” he said, pointing to New Zealand’s struggle with recession.
Chalmers said that the revenue updates have come off significantly since the highs of October 2022.
“Treasury doesn’t expect the bottom line this year or over the forward estimates to change very substantially from Myefo,” he said.
This year’s deficit comes off the back of back-to-back surpluses in 2023 and 2024, creating an opportunity for the Coalition to attack Labor.
However, Labor has found itself in a more favourable position than the Liberal Party according to recent polls. Key reasons Labor has gained support recently include RBA rate cuts and their response to Cyclone Alfred.
According to Chalmers, the Australian economy has turned a corner.
“We saw that in the most recent national accounts which showed growth in our economy rebounded solidly,” he said.
“At the same time, real wages and living standards are growing again, supported by our tax cuts and the interest rate cut, and sentiment has been zigzagging up overall, as a consequence.
“These are all early and encouraging signs that momentum is building. We know people are still doing it tough and that’s why cost of living continues to be our major focus.”
Chalmers is set to hand down the official Budget at 7.30pm (AEDT). He said it would contain provisions for further announcements to be made in the election campaign and down played expectations of any new major spending.
