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The third Chalmers Budget and its macro implications

Australian Retirement Trust Chief Economist, Brian Parker, provides an economic analysis of the Federal Budget.

15 May 2024

The Budget has been delivered at an extraordinarily challenging time for policymakers. The world’s central banks, including Australia’s Reserve Bank, have raised official interest rates aggressively in recent years in a bid to slow growth in demand and bring inflation back to target. And inflation has indeed fallen substantially, while global economic conditions have remained, for the most part, reasonably robust, especially in the US.

Here in Australia, growth has slowed significantly, but there is still growth, and labour market conditions remain tight, with our unemployment rate remaining below 4% for 24 of the last 25 months. However, the fastest population growth Australia has ever experienced has flattered our headline growth figures – per capita measures make for much more sobering reading.

And while inflation has declined, it remains well above the Reserve Bank’s target band, largely due to persistent pressures on services prices.

And while higher commodity prices and strong employment growth have provided a substantial boost to government revenue this year, the Budget remains in structural deficit i.e. over the course of an economic cycle, revenue is likely to be insufficient to cover expenditure, particular given the well-publicised demands on the budget from defence, healthcare and the NDIS.

The estimates for GDP growth over the coming years appear reasonable. However, much has been made of the difference in inflation forecasts between the Treasury and the RBA – with the latter having a more pessimistic view on the pace at which inflation is likely to fall. The Government’s cost of living measures in this Budget are designed to reduce energy bills and hence they do directly reduce measured inflation over the coming year or so.

Since the 2023 Budget and the last Budget update – the Mid-Year Economic and Fiscal Outlook (MYEFO) released late in 2023 – higher than expected receipts have clearly boosted the Government’s coffers. This explains why they’ve been able to deliver back-to-back surpluses. It also largely explains why the Budget is forecast to return to deficit over the coming year, as the Treasury prudently assumes the largesse from global commodity markets doesn’t persist.

However, fiscal policy is also being eased in this Budget – not massively to be sure, the effect of the overall policy changes on the Budget (as opposed to changes in parameters such as GDP growth and commodity prices) widens the deficit amounts by around 0.3% of GDP in the coming fiscal year and 0.4% the next. But this is happening at a time when the economy is operating at, or around full employment and inflation is above the RBA’s target. While we don’t expect this kind of fiscal expansion to trouble the RBA unduly, it doesn’t make the RBA’s job any easier.

What does it mean for how we invest your money?

We’ve indicated in previous post-Budget reports that the Federal Budget rarely makes any difference to the way Australian Retirement Trust or indeed any other major superannuation fund invests members’ money. For the most part, it’s the medium to long-term outlook for the Australian and world economies, inflation, interest rates, corporate earnings that are critical in determining what kind of investment returns our members will achieve, not what happens on Budget night. And on that score, tonight’s Budget is no different. However, in our longer-term assumptions we have long assumed while inflation and interest rates are likely to fall from the levels of recent years, they are nevertheless likely to remain at somewhat higher levels than those we experienced prior to the COVID pandemic.

This document has been prepared and issued by Australian Retirement Trust Pty Ltd (ABN 88 010 720 840 AFSL No. 228975), the trustee of Australian Retirement Trust (ABN 60 905 115 063) (Fund). This is general information only, so it does not take into account your personal objectives, financial situation, or needs. Before acquiring or continuing to hold any financial product, you should consider whether the product is right for you by reading the relevant product disclosure statement (PDS) and also the relevant Target Market Determination (TMD). For a copy of the PDS and TMD visit or call 13 11 84.