in brief
- The treasurer says the upcoming May budget will show "restraint" as the government manages global economic shocks.
- Economists say the negative impacts from overseas conflicts will be felt even more in the coming months.
The upcoming federal budget will reflect tougher economic conditions — including slower growth, lower employment, and increasingly expensive exports — with revenue predictions downgraded due to global economic volatility, the government has said.
Costs in areas such as health and defence have increased, partly triggered by events such as the war in the Middle East, Treasury warned in a recent statement sent to the media.
Treasurer Jim Chalmers has said "responsible economic management and spending restraint" would be "defining features" of the 12 May budget.
"That will be crucial in the context of important and unavoidable spending pressures," Chalmers said in a statement released on Friday.
Chalmers said his government was "making space in the budget for things that matter" — citing hospitals, defence, natural disasters, Pharmaceutical Benefits Scheme (PBS) listings, and a response to the Bondi terror attack — but warned budgetary allocations in these areas would not be as large as the government previously hoped.
"The conflict in the Middle East also means higher borrowing costs on the debt that we inherited will hit the budget hard, and higher inflation that will flow through to higher payment costs," he added.
Some of the biggest pressures on the budget will be expenditure on hospitals, defence investment, and PBS listings, new Treasury and Finance figures show.
Also foreshadowing difficult fiscal decisions, Finance Minister Katy Gallagher warned "there are ongoing budget pressures and global uncertainty we have to manage" and said the budget "will continue to be about responsible choices".
Slower hiring expected to hit employment rate
While the Australian Bureau of Statistics (ABS) recently reported that Australia's seasonally adjusted unemployment rate remained unchanged at 4.3 per cent in March, some economists are warning that the nation's historically strong employment rate could be at risk.
Westpac senior associate economist Ryan Wells said economic shocks typically hit the labour market with some lag and doesn't expect the unemployment rate to remain at its current level.
"Higher fuel costs and global uncertainty take time to work through household spending, into margins, and eventually decisions around investment and staffing," he said in a labour force analysis video.
"While employers may pause new hiring fairly quickly, they are often reluctant to cut headcount due to the difficulty and costs involved in securing and training new staff."
Wells said he expected the unemployment rate to rise due to slower hiring, rather than mass job losses.
"We expect the unemployment rate to rise to around 5 per cent in 2026, and stay around that level in 2027," he said.
However, fuel-reliant industries like logistics, construction and tourism would likely feel employment pressures sooner, he added.
Inflation has risen to its highest level since 2023, surging from 3.7 per cent to 4.6 per cent in March.
New data released by the ABS on Wednesday shows that rising fuel costs, driven by the war in the Middle East, have pushed the Consumer Price Index up 0.9 per cent.
Energy Minister Chris Bowen said on Saturday that Australia was "very well-placed to weather this storm" but warned that even if the war in the Middle East was resolved today, economic disruption would continue.
"Even if the Strait of Hormuz opened tonight, there would still be impacts on supply chains," he said — referring to the crucial oil and fertiliser transport route that has been largely closed by Iranian and United States blockades since the war began.
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