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Updated May 12, 2026 — 8:29pm,first published 7:53pm
The treasurer says the budget sets out a plan to take some pressure off households while finding savings to make the government’s financial position more sustainable.
Here are the charts that explain the budget’s outlook for the economy and households.
War in the Middle East hits the economy
Australia won’t be immune from the economic damage the war has inflicted on the global economy, and these effects will be felt “for some time”, the government says.
Treasury now expects our economy’s growth rate will slow from 2.25 per cent in the 2025-26 financial year to 1.75 per cent in 2026-27, a reduction from last year’s forecast.
If the war is prolonged, the economic hit would be worse. Treasury is assuming the price of oil will start declining from the middle of this year, but it also has a more downbeat scenario in which the war is protracted or it escalates, causing oil prices to surge to a peak $US200 a barrel, close to double current prices.
In this grim scenario, Treasury says inflation would peak at about 7.25 per cent, economic growth would slow to 1.25 per cent in 2026-27, while unemployment would rise to about 5 per cent.
Real wages to fall
In unwelcome news for households, wages are expected to fall behind inflation next financial year, thanks to the recent jump in consumer prices.
Since late 2023, average wages have been growing faster than inflation, helping to ease some of the cost-of-living pressure. But the budget forecasts that with inflation hitting 5 per cent, expected wage growth of 3.25 per cent will be more than wiped out by the higher prices facing households.
While consumers have already felt the sting of high petrol prices, Treasury says price rises caused by the war will broaden in the months ahead, especially food costs.
Even so, the government is tipping a return to lower inflation next financial year. It’s tipping that the consumer price index returns to 2.5 per cent – the middle of the Reserve Bank’s target – by the 2026-27 financial year.
More deficits
As interest rates have shot up this year, there’s been growing debate over whether government spending is adding to the country’s inflation problem.
In response, Chalmers says the government has found significant savings, while also limiting growth in spending. Chalmers says government spending as a share of the economy will gradually fall from 26.8 per cent to 26.2 per cent by 2030.
But the budget is still forecasting deficits over the next four years. For the coming 2026-27 financial year, Treasury is forecasting a $31.5 billion deficit, a $2.8 billion improvement on the previous forecasts from the mid-year economic and fiscal outlook.
As the graph below shows, federal governments have been racking up far more deficits than surpluses so far this century.
Where the money is being spent
The federal government expects to spend $833.3 billion in 2026-27, with that figure expected to rise 12 per cent to more than $930 billion at the end of the decade.
The graph below visualises the spending in 2026-27 at the most detailed level available in the budget, with the size of each bubble representing the total amount. You can also click each coloured bubble for a more detailed breakdown of each category of spending.
As you can see, social security and welfare is the largest bubble in the graph, representing more than a third of total expenses, and includes $115.6 billion for assistance to the aged, $98.1 billion for assistance to people with disabilities and $53.9 billion for assistance to families with children.
Debt to keep growing
To finance years of budget deficits, the government has been taking on more debt, and that pile of borrowed money is expected to grow further over the coming years.
Net debt – which includes offsetting financial assets held by the government – is expected to climb from $556 billion this financial year to $616.6 billion in 2026-27, and then rise in the subsequent years to $767.8 billion by 2029-30.
Gross debt is forecast to break through the $1 trillion mark in the coming 2026-27 year, making up 34 per cent of the economy.
While debt is expected to keep rising, Chalmers says it has improved. He says projected gross debt is lower than it was in the government’s mid-year update, and it’s also lower than when Labor formed government. He said that lower debt over the medium term made for a more sustainable budget position, “creating more room for future tax relief”.
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