Global tensions
The conflict in the Middle East has triggered substantial economic and energy disruptions across the world, driving global inflation higher, global growth lower, and compounding uncertainty and volatility. The impacts on the Australian economy will be felt for some time.
Growth
Higher inflation is expected to impact on growth in real incomes and household consumption.
As a result, growth in the Australian economy is forecast to slow from 2.25% in 2025-26 to 1.75% in 2026-27.
Growth in the Australian economy is expected to increase to 2.25% in 2027-28.
More deficits to come
The budget deficit for 2026–27 is forecast to be $31.5 billion, which represents an improvement of $2.8 billion compared to the Mid-Year Economic and Fiscal Outlook (MYEFO).
The budget is projected to return to balance in 2034–35 and a surplus of 0.8% of GDP in 2036–37.
Debt
Gross debt is estimated to reach $1,051 billion (that’s over $1 trillion) at 30 June 2027. This represents 34% of GDP.
This figure is expected to increase to $1,249 billion (35.6% of GDP) at 30 June 2030.
Net debt in 2026–27 is expected to be 19.9% of GDP.
Interest payments on Australian Government Securities are estimated to be $27.7 billion in 2026–27, increasing to $40.4 billion by 2029–30.
Employment
The unemployment rate has been broadly stable over the last year and is expected to remain relatively low by historical standards.
The unemployment rate is expected to rise gradually from 4.25% in the June quarter 2026 to 4.5% in the June quarter 2027.
Employment is forecast to grow by 1.5% through the year to the June quarter 2026 and the June quarter 2027 and 1.75% through the year to the June quarter 2028.
Wages
The Wage Price Index is forecast to grow by 3.25% through the year to the June quarter 2026, before increasing to 3.5% through the year to the June quarter 2027 and the June quarter 2028.
The recent increase in inflation is expected to result in a decline in real wages over 2025–26. Real wages are forecast to grow again in 2026–27 and 2027–28 as inflationary pressures ease.
Inflation
Headline inflation is forecast to be 5% through the year to the June quarter 2026.
Headline inflation is forecast to decline to 2.5% by the June quarter 2027, but this is based on the assumption that global oil prices will ease over 2026-27, which remains to be seen.
| Resources Budget Paper No. 1 |