Federal Budget 2025: Five things to watch for in Labor’s fourth economic blueprint

For six hours today, much of Australia’s media will be locked down and essentially shut off from the outside world when they’re given strictly embargoed budget papers.

No mobile phones or smart watches are permitted inside the “budget lock up”, and laptops must be disconnected from the internet.

Before Jim Chalmers gets to his feet at 7.30pm, journalists will pore over hundreds of pages of documents and pepper departmental officials with questions as they wait for the Treasurer and Finance Minister Katy Gallagher to walk through their bureau.

Given that the Government had not been planning on handing down a Budget until ex-tropical cyclone Alfred disrupted plans for an April 12 election, the Budget isn’t expected to tell us much that we don’t already know.

Expectation management

After two back-to-back surpluses, this budget is set to forecast years of deficits to come.

With global uncertainty aplenty and cost-of-living still biting households and businesses, Dr Chalmers has declared his fourth budget will be “responsible”.

It will offer targeted relief while ensuring the economy is “more resilient” in the face of great unpredictability.

Prime Minister Anthony Albanese is expected to officially trigger the election as soon as this weekend, so much of the Government’s messaging will be about walking that tightrope.

Cost-of-living

Many of Labor’s cost-of-living measures have already been announced, including the $150, six-month extension of power bill rebates, which will cost $1.8 billion.

That, and other promises like the $25 cap on PBS medicines, the $8.5 billion boost to expand Medicare bulk-billing and the 20 per cent reduction in student debts are all contingent on Labor being re-elected.

Anything else in the Government’s promised “substantial” cost of living support package could be saved for the election campaign, so eagle-eyed budget watchers will be looking closely at the budget war chest, better known as “decisions taken but not yet announced”.

Defence

With all the talk about America’s strong urging for Australia to lift its defence spend to at least three per cent of GDP, Tuesday’s budget is unlikely to please the Trump administration or defence experts.

Defence Minister Richard Marles revealed on Monday the Government would bring forward $1bn in funding to bolster the near-term defence budget, bringing it to $10.6bn over the next four years.

That extra money, he says, will go towards improving Perth’s HMAS Stirling naval base for the upcoming rotation of US submarines (per the AUKUS agreement), progressing the guided weapons enterprise plan, and speeding up the purchase of new general-purpose frigates.

Mr Marles said the funding increase was “the most significant increase” in defence spending in peacetime Australia since the end of the World War II. Defence pundits will look to the ten-year forecasts.

Buy Australia

With another, more damaging, round of Trump tariffs due to take effect next month – in addition to the 25 per cent steel and aluminum imposts now in place – the Government has flagged the Budget will provide additional support for the Buy Australian campaign.

“We will have more to say about buy Australian, about making sure that Australian consumers can play their role in assisting the creation and maintenance of Australian jobs and Australian economic activity,” Mr Albanese said last Tuesday.

“That will be part of the Budget, but more broadly, making the economy more resilient means that Future Made in Australia,” Dr Chalmers said on Sunday.

The numbers

Economists predict the deficit won’t be as bad as the $26.9b predicted in the mid-year fiscal update. ANZ Research expects the deficit to hit $20b for 2024-25 and $40b (lower than the MYEFO $46.9b forecast) the next year; AMP predicts $17b and then $42b; while the Commonwealth Bank expects a $22.5b hit this year.

Tax burden will be another number to watch. The budget is expected to show tax as a proportion of the economy has declined to 23.1 per cent this financial year – lower than the 23.7 per cent forecast in last year’s budget and the 23.4 per cent predicted in the mid-year update. The Coalition has pledged to restore a 23.9 per cent tax-to-GDP cap.

On revenue more broadly, the budget will reveal how much is flowing into the Treasury coffers. Dr Chalmers has hinted revenue upgrades in this budget would be smaller than in recent years. The so-called “table of truth” will reveal how much of the upgrades are being spent, and how much — if any — it is saving to pay down debt and reduce the deficit.

On debt, Australia’s level remains modest by international standards with gross debt at about 34 per cent of GDP (per MYEFO), compared to about 100 per cent for the United States and United Kingdom. MYEFO forecasted gross debt would stabilise at 36.7 per cent by 2027, and then fall to 31.4 per cent by 2035.

Debt is one of the big five pressures on the Budget, and Senator Gallagher says the two surpluses have helped reduce this burden.

“We’ve seen a big improvement in the Budget and in lowering the debt and lowering the interest on our debt, because we have been so responsible in our budgets,” she said.

“Where we’ve had upwards revisions, we’ve paid down debt, we’ve banked that and we haven’t spent it.”

The size of spending will be another figure closely analysed.

The Albanese Government has overseen a significant ramp up in spending, forecast to hit about 27 per cent of GDP in the coming financial year.

The Budget will show whether Labor still believes that will stabilise and come under control in the coming.

The Budget will also factor in Labor’s $25b of election-related spending already announced this year, including the Medicare announcement, billions of dollars in infrastructure commitments, $1.7b to bail out the Whyalla steelworks, and extending the power bill rebates.

The Government has found $95b in savings, which may offset some of this spending.