Australia’s budget has weathered storms both political and actual, with a tropical cyclone and geopolitical waves both battering the nation’s finances.
Yet despite the turmoil, the treasurer insists Australia’s economy has turned a corner.
A sluggish Chinese economy, a new US administration turning international trade on its head and general political division have made the global economy increasingly unpredictable, Treasurer Jim Chalmers will say in his budget preview speech.
“This is a time of serious volatility,” he said in prepared remarks for an address at the Queensland Media Club on Tuesday
“The whole world has changed.”
Global growth over the next three years is expected to be its weakest since the 1990s as trade barriers, such as America’s new 25 per cent tariffs on steel and aluminium, pull the handbrake on growth.
While tariffs will directly impact Australian GDP by less than 0.02 per cent by 2030, the indirect consequences could result in a 0.1 per cent hit to GDP by the end of the decade, according to Treasury estimates.
“In a world of retaliation and escalation, the impacts of tariffs are amplified, they linger for longer,” Dr Chalmers will say.
“Our response to this will not be a race to the bottom on tariffs.
“We’ll go for more resilience, not more retaliation.”
Australia has already reached out to other nations affected by the tariffs in a bid to diversify and expand trading relationships, and the prime minister has hinted the budget will include money for a “buy Australian” campaign in a boost to local producers.
Dr Chalmers is also expected to announce extra recovery funds in the aftermath of ex-tropical cyclone Alfred.
The disaster’s financial impacts are still being calculated, but it has already dealt a billion-dollar hit to GDP, caused the economy to shed 12 million work hours, and could dent quarterly growth or heat up inflation.
It is unclear exactly how much will be earmarked in the budget but it is expected to cost at least $1.2 billion, on top of $11.6 billion blocked out for disaster support at the mid-year economic and fiscal outlook.
Since MYEFO in December, the government has already announced more than $18 billion in new spending, including its $8.5 billion boost to Medicare, student debt relief and $7.2 billion for the Bruce Highway.
The Deloitte Access Economics’ Budget Monitor forecasts a $26.1 billion underlying cash deficit and revenue downgrades of $11.3 billion over four years.
The projection is slightly smaller than the $26.9 billion deficit predicted in the December mid-year economic and fiscal outlook.
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