Australia Faces Budget Dilemma, Deficit Falls but Inflation Remains High

Australia is expected to record a smaller budget deficit compared to the government’s previous projections. This situation is supported by the rise in global commodity prices, which has driven up state revenues. Nevertheless, the Australian government still faces pressure due to economic slowdown and inflation that remains high. The government is scheduled to release the fifth budget of the Anthony Albanese era on Tuesday this week. Australian Finance Minister Jim Chalmers stated that this year’s budget remains disciplined in spending but still includes major reform agendas, particularly in the taxation sector. “The public should not expect large expenditures in the short term in this budget. This is a very responsible budget. There are many spending restraints,” Chalmers told SBS News on Sunday (10/5/2026). The Reserve Bank of Australia (RBA) has raised interest rates three times throughout this year to curb the impact of energy price surges due to the war. The RBA also warned that Australia’s economic growth is expected to remain weak, while the unemployment rate could potentially increase. In the mid-year economic projections in December 2025, the Australian government estimated the budget deficit for the 2025/2026 fiscal year to reach AUD 36.8 billion, or approximately Rp 415.4 trillion, with an exchange rate of 1 AUD equivalent to Rp 11,290. However, several economists predict that the actual deficit figure will be smaller due to increased state revenues from inflation and high commodity prices. Commonwealth Bank of Australia estimates the deficit at AUD 29 billion, or approximately Rp 327.4 trillion. UBS estimates the deficit at AUD 25 billion, or approximately Rp 282.2 trillion. Meanwhile, Westpac estimates the deficit at AUD 23.8 billion, or approximately Rp 268.7 trillion. “There is an opportunity to provide more tax reforms or to maintain a stronger overall structural budget position. Too much new spending would undermine this and risk fuelling inflation and interest rates,” said Yeaman.