Budget update to reveal Australia’s fiscal fortunes

The extra spending is hurting the profitability of the federal budget, but a stronger-than-expected tax levy should soften the blow when the treasurer announces his mid-year budget update.

Jim Chalmers has already announced a $12.7 billion explosion in “inevitable” spending; half of which natural disaster relief proved more costly than expected.

Wednesday’s budget update will also spend billions of dollars on election promises the government wants to fulfill.

The majority of the $13 billion set aside for campaign pledges will go to states and territories to build up to 100,000 new homes for first-home buyers alone.

Dr Chalmers announced on Sunday that he had set aside $20 billion in savings over the next four years to help make ends meet.

“We have now found savings in each of our seven budgets and budget updates,” he told Sky News.

“This mid-year budget update, like the government, will be defined by economic responsibility.”

He downplayed expectations for new announcements, saying it was “not a mini budget, there’s not a lot of new stuff here.”

While Dr Chalmers has already ruled out extending energy rebates beyond this year, he said changes to rates would lead to cuts in pension payments for wealthy pensioners.

The squeeze is also on federal department spending, leaving the question of how this will affect the profitability of the government books.

AMP chief economist Shane Oliver predicts the 2025/26 deficit will narrow to around $37bn from the $42.1bn forecast in the March budget, as company and personal income taxes continue to beat the Treasury’s expectations.

Senior budget watchdog Chris Richardson predicted an improvement in profits of close to $10 billion for the fiscal year, forecasting the budget deficit rising to $32.6 billion.

Mr Richardson expects this improvement to be driven by a $14 billion increase in revenue, driven by strong taxes on high-performing super funds, partially offset by a $4 billion increase in spending.

It estimates the headline deficit, which includes “off-budget” spending the government uses to push away items loosely classified as investments, will be $55.7 billion.

The budget documents will also include the Treasury’s updated forecasts on economic indicators such as inflation, unemployment and GDP growth.

They should also include upward revisions to price growth following the revival of the inflation dragon in the September quarter.

Dr Chalmers also said an upward revision to business investment forecasts was expected this financial year, from 1.5 per cent to 3 per cent, which would reflect a stronger than expected build-up of data centres.

There is no further official economic data to expect next week as Christmas approaches.

The Westpac-Melbourne Institute consumer sentiment survey on Tuesday is likely to show a big drop in confidence in response to comments by Reserve Bank governor Michele Bullock ruling out further rate cuts.

While a few months ago markets were pricing in one or two more rate cuts in 2026, expectations are now for one or two rate hikes instead.

RBA officials Andrew Brischetto and Brad Jones will speak on Monday and Tuesday respectively, but their speeches are not expected to shed new light on the direction of monetary policy.

Markets in the US were closed on Friday due to fears of a bubble in AI-related stocks.

The Dow Jones Industrial Average fell 245.96 points, or 0.51 percent, to 48,458.05 points, while the S&P 500 lost 73.59 points, or 1.07 percent, to 6,827.41 points.

The tech-heavy Nasdaq Composite lost 398.69 points, or 1.69 percent, to 23,195.17 points.

Australian share futures fell 51 points, or 0.59 percent, to 8,659.

Stocks finished the week higher, boosted by mining gains; The S&P/ASX200 rose 105.3 points, or 1.23 per cent, to 8,697.3 points on Friday, while the broader All Ordinaries rose 105.8 points, or 1.19 per cent, to 8,983.3 points.

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