How Trump and Alfred will both wreak havoc on budget the PM did not want to have

“I hate to predict things like that,” he said.

“There is a period of transition, because what we’re doing is very big. We’re bringing wealth back to America. That’s a big thing, and there are always periods of, it takes a little time. It takes a little time, but I think it should be great for us.”

The combined impact of Trump’s tariffs and a US recession are being carefully examined by Treasury as it pulls together its final forecasts for the March 25 budget. Both scenarios would have a direct impact on the federal budget bottom line due to a slowdown in demand for key Australian exports.

Reserve Bank deputy governor Andrew Hauser last week noted that while the direct impact of Trump’s tariffs on its imports would have a muted direct effect, Australia would face financial headwinds because of the way the country was integrated into the global economy.

“The bigger macroeconomic risk for us would be if the imposition of US tariffs on third countries triggered a global trade war that impaired our trade and financial linkages more broadly,” he said.

There is also the linked threat of a slowdown in the economy of China that has, even before Trump’s tariffs on its exports into the US, shown signs of trouble. Data at the weekend showed prices down by 0.7 per cent in February, suggesting tepid spending by the country’s consumers.

Treasury is also working to determine the fallout from the flooding caused by ex-tropical cyclone Alfred, which is expected to have undermined key pieces of infrastructure across South East Queensland into northern NSW.

Both the tariffs and floods are likely to force the government to downgrade its economic forecasts. It had expected the economy to expand by 2.25 per cent in 2025-26 after expanding by 1.75 per cent this financial year.

The budget will be used by Chalmers to focus on the government’s spending on housing. Since his first budget in 2022 housing has been a central theme, including an initial target of building 1 million homes.

But the Australian Council of Social Services will on Tuesday release research advocating major changes to negative gearing and the capital gains tax concession in a bid to provide more funding for social and affordable housing.

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The research found since the CGT concession was introduced in 1999 it had contributed to house price surges driven by investors. Four out of five investment loans are for existing properties rather than being used to build new stock.

It said the CGT concession should be halved, negative gearing restricted to new homes and discounts on capital gains enjoyed by superannuation funds reduced with the extra revenue raised by the changes used to build 47,000 social and affordable homes a year.

Halving the CGT discount and limiting negative gearing would reduce home prices by up to 4 per cent.

ACOSS Cassandra Goldie said the nation’s “absurdly” generous tax breaks had super-charged the housing market.

“As long as our tax system encourages speculative investment in housing, the housing affordability crisis won’t be solved just by building more homes.”

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