Federal Budget 2026: Jim Chalmers says Australia will be resilient as war sparks food, building increases
Aussies will be paying more at the bowser, checkout and building site but the Treasurer is optimistic the Middle East war won’t significantly damage the economy.
Aussie families should brace for further pain at the bowser, checkout, and building homes; yet Treasurer Jim Chalmers is optimistic the economy will avoid major damage from the Middle East War.
Dr Chalmers was on Tuesday night confident the country would avoid recession even if the conflict between the United States, Israel and Iran escalates and rages on much longer.
But as he talked up the nation’s resilience the Treasurer also delivered a warning: Australia would not be immune from global cost pressure.
Sign up to The Nightly's newsletters.
Get the first look at the digital newspaper, curated daily stories and breaking headlines delivered to your inbox.
By continuing you agree to our Terms and Privacy Policy.The economic impact of blocked traffic through the crucial Strait of Hormuz energy route will get worse before it gets better.
Food prices are set to be “particularly” hard hit thanks to conflict-driven spikes of fuel and fertiliser costs. Building materials including plastic were also likely on the way up, the budget expected.
“Australians have been paying a hefty price for this war, at the bowser and beyond,” Dr Chalmers said.
“War in the Middle East has been pushing up prices, pushing down growth, and punishing Australians.
“It has exposed weaknesses in the global economy and intensified longstanding challenges here at home.”
The Treasurer had played down hopes of a windfall due to the Middle East war but his budget shows revenue will be $11 billion higher over the next five years.
The biggest contributors will be gas exporters paying more company income tax.
Oil is predicted to remain above $US100 per barrel until the end of June and then gradually fall to $US80/b over the next year.
That means petrol prices will likely stay elevated well into 2027. A temporary excise cut of about 32 cents per litre is due to expire at the end of next month and there’s no sign if will be extended.
Inflation will hit 5 per cent for the 12 months to June 2026 — and rather ambitiously was forecast to ease to 2.5 per cent through next financial year.
Economic growth is also expected to slow to 1.75 per cent in the year ahead.
Yet even as families feel the pinch, there was reason for optimism that the country will steer through the crisis without significant damage.
The jobless rate was only projected to rise modestly to 4.5 per cent. Household spending, and investment into new homes, will both slow but not fall.
In a worst-case scenario of oil prices hitting $US 200 per tonne, Australia was expected to avoid recession — though inflation would hit a punishing high of 7 per cent, close to the peak pain of 2022.
Treasury’s analysis shows truckies, farmers, miners and builders will be the hardest hit from rising fuel costs.
Diesel surged to $3/L across the country in recent weeks due to the closure of the Strait.
About 10 per cent of the price of road transport is fuel and Treasury predicts the pressure will flow on widely to other products.
WA’s massive resources industry was expected to remain in reasonably good nick.
Top export partner China will slow modestly with growth of 4.5 per cent in the year ahead, with government stimulus keeping the country afloat.
“China is relatively well positioned to navigate the effects of the Middle East conflict, with its longstanding focus on energy security resulting in substantial energy reserves and diversified supply,” the budget papers said.
