Australia Watch: Budget review: Fiscal support to delay disinflation

Research evidence excerpt

Australia Watch: Budget review: Fiscal support to delay disinflation

ial yearthis as highly ambitious and difficult to deliver in practice, which implies upside risks to

near-term deficits (Exhibit 2). New tax cuts were a surprise, and while relatively modest MYEFO: Mid-Year Economic and

(WATO up to $250 a year, but costing $3bn), will add to demand over 2027-28 and work Fiscal Outlook

against the RBA’s medium-term disinflation.

RBA: Reserve Bank of Australia

Expansionary fiscal stance; no major RBA implications

GP = General practitioner

The structural (cyclically adjusted) budget deficit is set to decline by 0.9ppt of GDP

between FY24-25 and FY25-26, suggesting a positive fiscal impulse which will support NDIS = National disability insurance

demand. We think the broad contours of the Budget were largely factored into the RBA’s scheme

latest forecasts in May, which had real public demand growing 3.7% y/y in 2Q26.

Consequently, the Budget does not materially shift our near-term RBA outlook. WATO = working Australians tax

offset

AOFM funding task to fall, pay 3y swap EFP AOFM = Australian office of financial

For this financial year 2025/26 net issuance has been revised down $11bn to $53bn management

(from $64bn as at MYEFO). We continue to expect a cash drawdown of around $17bn,

implying an AOFM funding task of around $115bn for the current financial year ($125bn ACGB = Australia Government Bond

prior). Although near-term deficit reduction was slightly below consensus estimates, the

EFP = Exchange for physicallong-run structural budget balance has improved in this budget and gross debt is

marginally lower compared with the MYEFO update. The divergence between spreads

and improvements in fiscal sustainability continues to be primarily attributable to

offshore trends (i.e.