Surprisingly big spending budget ratchets RBA pressure in Australia

Access the research report to learn more about the key points outlined below:

• The Federal government has changed tack on fiscal policy, signalling it will run a much easier stance of policy from next financial year. While some of the cost-of-living relief delivered by the Budget will mechanically lower inflation in FY25, these policies are unquestionably stimulatory. Overall, the Budget has provided some support to the outlook for growth in FY25. But it does little to ease core inflation. Indeed, the forthcoming boost to household incomes means we are pushing out our expected timing for the first RBA rate cut to 2025.

• Another upside surprise to revenues has pushed the Treasury’s projection for the budget balance back into surplus in FY24. Income tax has outpaced expectations due to strong wage and labour force growth, while company tax receipts have been again bolstered by better-than-expected terms of trade. Unlike the past two budgets, the Treasurer has opted to loosen the purse strings in response to this windfall. The government is set to run slightly larger deficits from FY25 onwards compared to the last budget update. Coupled with the stronger starting position, this means a larger, positive fiscal impulse will come through in the coming years.