Debt, deficit, wages – a visual breakdown of Jim Chalmers’ budget
Finance Minister Jim Chalmers is trying to navigate the federal budget through choppy economic waters that are expected to get rougher in the coming months.
The energy crisis caused by the Iran war has already made oil more expensive, and the Treasury says households will soon face further price increases, including on food.
“The world gives us so much and this budget is about helping Australia meet those challenges,” Chalmers said.
The Finance Minister said the budget has drawn up a plan to ease the pressure on households while saving money to make the government’s finances more sustainable.
Here are the charts that explain the budget’s outlook for the economy and households.
War in the Middle East hits the economy
The government says Australia will not be immune from the economic damage inflicted by the war on the global economy and that the effects will be felt “for some time”.
The Treasury now expects the growth rate of our economy to slow from 2.25 percent in fiscal year 2025-26 to 1.75 percent in 2026-27; this is a decrease from last year’s estimate.
If the war drags on, the economic blow will be even worse. The Treasury assumes oil prices will begin to fall from the middle of this year, but there is also a more negative scenario in which the war would be prolonged or escalated, causing oil prices to rise to a peak of $200 per barrel, close to twice current prices.
In this dire scenario, the Treasury says inflation will peak at around 7.25 per cent, economic growth will slow to 1.25 per cent in 2026-27 and unemployment will rise to around 5 per cent.
Real wages will fall
In unwelcome news for households, wages are expected to lag behind inflation next fiscal year, thanks to recent increases in consumer prices.
Average wages have been rising faster than inflation since late 2023, helping to alleviate some of the cost-of-living pressure. However, the budget estimates that with inflation reaching 5 percent, the expected 3.25 percent wage increase will be more than erased by the high prices faced by households.
Although consumers are already feeling the pain of high oil prices, the Treasury says price increases caused by the war, especially food costs, will increase in the coming months.
Despite this, the government is signaling a return to lower inflation next fiscal year. The consumer price index is expected to return to 2.5 percent (middle of the Central Bank’s target) by the 2026-27 fiscal year.
more open
As interest rates rise sharply this year, debate grows about whether government spending is contributing to the country’s inflation problem.
In response, Chalmers said the government had found significant savings but also limited the increase in spending. Chalmers says government spending as a share of the economy will gradually fall from 26.8 percent to 26.2 percent by 2030.
However, the budget still forecasts a deficit for the next four years. For the upcoming 2026-27 financial year, the Treasury projects a deficit of $31.5 billion, an improvement of $2.8 billion over previous estimates for the mid-year economic and fiscal outlook.
As the chart below shows, federal governments have run more deficits than any other so far this century.
Where the money is spent
The federal government expects to spend $833.3 billion in 2026-27, and that figure is expected to rise 12 percent to more than $930 billion by the end of the decade.
The chart below visualizes 2026-27 spending at the most granular level in the budget, with the size of each bubble representing the total amount. You can also click on each colored bubble for a more detailed breakdown of each spending category.
As you can see, social security and welfare, the biggest bubble on the chart, represents more than a third of total spending and includes $115.6 billion in aid to the elderly, $98.1 billion in aid to the disabled, and $53.9 billion in aid to families with children.
Debt will continue to grow
To finance years-long budget deficits, the government is borrowing more, and the pile of borrowed money is expected to grow further in the coming years.
Net debt, including the write-off of financial assets held by the government, is expected to rise from $556 billion this fiscal year to $616.6 billion in 2026-27 and to $767.8 billion in subsequent years by 2029-30.
Gross debt is expected to exceed $1 trillion in the next year 2026-27, accounting for 34 percent of the economy.
While debt is expected to continue rising, Chalmers says the debt is improving. He said the forecast gross debt was lower than it was in the government’s mid-year update and was also lower than when Labor formed government. He said lower debt in the medium term provides a more sustainable budget position and “creates more room for tax cuts in the future”.
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Clancy Yeates is deputy business editor. He covered banking and financial services and was previously a national business correspondent in the Canberra bureau.Connect with: X or email.
