As anticipated, this budget lacks inspiration and appears primarily driven by three core objectives:

Securing the government’s re-election.
Offering additional cost-of-living support.
Preparing Australia for potential economic impacts from Trump’s tariffs and impending trade conflicts.

Key Budget Measures

Most of the key measures, many of which were previously announced, include:

Tax Cuts: $17.1 billion over the next four years, reducing the 16% tax rate to 14%. However, the savings are minimal—around $5.15 per week from July next year and $10.30 per week from July 2027.
Healthcare Funding: An investment of $7.9 billion to boost bulk billing, $1.8 billion for public hospitals, $644 million for new urgent care clinics, and $793 million dedicated to women's health.
Infrastructure Projects: An allocation of $7.2 billion for the Bruce Highway, alongside various other road and rail projects.
Cost of Living Relief: Extended electricity rebates for an additional six months at $150 per household and small business ($1.8 billion total) and $689 million to reduce PBS drug prices from $31.60 to $25.
Housing Support: $800 million to raise income and price caps for the Help to Buy shared equity scheme (capped at 40,000 places over four years) and $54 million for pre-fabricated and modular homes.
Disaster Relief: An additional $1.2 billion for recovery and rebuilding after Cyclone Alfred.
Excise and Subsidy Measures: Continued freezes on deeming rates and a two-year pause on beer indexation, plus subsidies for industries affected by Trump’s tariffs and support for the Whyalla steelworks, alongside a $20 million “Buy Australian” campaign.
Election Promises: A provision of $1.5 billion over five years for “decisions made but not yet announced,” likely reserved for election commitments.

Economic Assumptions

Despite global uncertainty stemming from Trump’s tariffs, the government projects moderate growth in the coming years, with inflation remaining within the 2-3% target range. Cost-of-living measures are expected to reduce inflation by approximately 0.5% this year. Excluding energy rebates, inflation should hover around the target from mid-year onward. The unemployment forecast has been slightly adjusted down to 4.25%.

Immigration is predicted to reach 335,000 this financial year (down from the previous estimate of 340,000) and decrease to 225,000 by 2026-27, resulting in population growth falling from 2.4% to around 1.2%. The iron ore price assumption remains conservative at $US60/tonne through March 2026, while current prices sit significantly higher at around $US100.

Budget Deficits and Fiscal Outlook

The government continues to benefit from unexpected revenue from higher employment rates and elevated commodity prices, leading to surpluses in 2022-23 and 2023-24 of $22 billion and $16 billion, respectively. However, as windfalls diminish, increasing spending will likely result in budget deficits for the next decade.

Winners and Losers

Winners: Households, taxpayers, pensioners, beer drinkers, patients requiring affordable medicine, low-income renters, home builders, first-time buyers in the Help to Buy scheme, and local manufacturers.

Losers: Tax evaders, scammers, and consultants, as the government introduces measures to curtail these practices.

Budget Assessment

The budget has a few positives, including modest tax cuts that address bracket creep, cost-of-living relief to mitigate inflation, and a deficit and debt profile that remains more favorable than many OECD countries. Additionally, cautious commodity price assumptions provide room for potential revenue gains.

However, there are several weaknesses:

Inflation and RBA Challenges: The budget’s stimulus measures and shift from surplus to deficit will add demand to the economy, complicating the RBA’s efforts to manage inflation.
Structural Deficits: The lack of long-term savings planning leaves the budget vulnerable to economic downturns, with ongoing spending being funded by temporary revenue windfalls.
Reliance on Bracket Creep: The strategy to use tax bracket creep for revenue growth post-2028-29 is unsustainable and unfair, particularly to Millennials and Gen Z.
Off-Budget Spending: Increasing off-budget expenditures pose risks, as many of these “investments” are not financially prudent, adding to public debt.
Expanding Government Size: Spending as a percentage of GDP has risen significantly post-pandemic, which could hinder productivity growth, especially if defense spending surges to 3% of GDP.
Protectionism Concerns: Initiatives like “Buy Australian” are popular but potentially counterproductive, as they risk harming long-term productivity and competitiveness.
Lack of Productivity Measures: Despite talk of reforms, the budget lacks concrete strategies to address Australia’s lagging productivity, particularly in tax policy, competition, industrial relations, and energy production.
Housing Shortfalls: While promoting pre-fabricated housing is promising, it may not suffice to meet the ambitious target of 1.2 million new homes over five years.

Implications for the RBA

While cost-of-living measures may keep headline inflation in check, underlying inflation pressures remain due to increased government spending, posing challenges for rate cuts.

Implications for Australian Assets

Cash and Deposits: Returns may have peaked with RBA rate cuts, though the budget could keep them elevated.
Bonds: Medium-term deficits may exert upward pressure on yields.
Shares: Positive for retail shares due to increased spending but possibly offset by higher rates. Some manufacturers might benefit from subsidies.
Property: Housing measures are unlikely to substantially impact home prices, which are expected to see modest growth.
Australian Dollar: The budget is not expected to significantly affect the AUD’s trajectory.

Conclusion

This budget is an uninspiring combination of election-driven incentives and limited economic foresight. While it provides some immediate relief and infrastructure investment, the lack of substantial long-term planning and productivity improvements remains a fundamental issue. The government’s reliance on favorable economic conditions and temporary windfalls to maintain budget stability could prove precarious if circumstances change.

Rick Maggi CFP, Financial Advisor Perth, Westmount Financial

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Note: Excerpts taken from AMP update ‘The 2025-26 Federal Budget - pretty uninspiring, with deficits for years’.

Disclaimer
This document has been carefully prepared by Westmount Securities Pty Ltd (ABN 42 090 595 289, AFSL 225715) for general information purposes only. However, neither Westmount Securities Pty Ltd nor any of its affiliates guarantee the accuracy or completeness of any statements contained herein, including any forecasts. It is important to note that past performance is not a reliable indicator of future outcomes. This material does not consider the specific objectives, financial circumstances, or needs of any particular investor. Therefore, before making any investment decisions, investors should assess the relevance of this information to their individual situation and consult professional advice, taking into account their unique objectives, financial position, and needs.