Grand presentation conceals major flaws.
Chalmers presented an outlook for lower growth and higher inflation. He explained these results by talking up the effects of "The War".
He did not mention that in March 2026, Australia had an inflation rate of 4.6%. This compares with 3.3% for the UK and the US, 3.0% for the Euro Area and 1.8% in Singapore. Clearly, there is more to Australian inflation than the Middle East.
Jim Chalmers tells us that he is addressing "intergenerational equity" by reducing the capital gains tax discount, increasing taxes on family trusts and dramatically reducing the use of negative gearing for individual purchases of housing.
Each of these actions increases the tax on savings. As savings fall, investment must fall. The result is that the economy must fall. As private investment falls, capital stocks will fall, relative to the number of workers. This means that productivity will fall and living standards will also fall. It is difficult to see how this will benefit a younger generation of workers.
Nevertheless, it must be the case that the increase in the effective rate of capital gains tax must cut the number of technology startups. It must also cut private investment in housing. The reduction of negative gearing for established housing will do the same.
Perhaps, Chalmers is trying to remove private competition in the market for established housing with government equity purchases of established housing as part of the 5% equity scheme for first time home buyers.
GDP growth softens from 2.25% in 2025/26 to 1.75% in 2026/27. A recovery in the world economy then sees growth recover to 2.25% in 2027/28 and 2.5% in 2028/29.
Despite that recovery in growth, unemployment finds its low at 4.25% in 2025/26. It then rises to 4.45% in 2026/27, staying at that level until 2028/29. Inflation peaks at 5% in 2025/26, before softening to 2.5% in 2026/27. Our own view is that this softening in inflation is too optimistic.
In 2024/25, the underlying cash balance was a deficit of $10 billion. This widens to $28.3 billion in 2025/26. It widens again to $31.5 billion in 2026/27. These numbers represent a continuing structural deficit of 1% of GDP. This continues at around that level to the end of the decade. The result is that debt rises to 35.8% of GDP by 2028/29. Rather hopefully, the medium-term estimates show the deficit returning to balance in 2036/37.
Overwhelmingly, the largest component of spending is Social Security and Welfare. This consumes $308.7 billion in 2026/27, or 37.1% of total spending. Health is next with $136.9 billion (16.4%), followed by Education at $57.4 billion (6.9%) and Defence at $52.0 billion (6.2%).
The most interesting increase in spending is for Housing and community amenities - up $2.6 billion, a 29.7% rise. This is where 5% equity ownership spending is hiding. This area can be expanded to grow rapidly as the government expands this program to pick up established houses being sold by private sector owners because of the impost of much larger capital gains tax.
Jim Chalmers gave a presentation which would have been applauded by PT Barnum. He presented an outlook for lower growth and higher inflation, blaming it all on the war in the Middle East.
He did not mention that this higher inflation in Australia could be caused by the continual structural deficit of 1% of GDP, at a time of low unemployment of 4.25%.
It did not occur to him that the tax increases on savings caused by reducing the capital gains tax discount, increasing taxes on family trusts, and excluding many investors from negative gearing, would generate a fall in private investment and that this would lead to a fall in productivity and a fall in living standards.
This is something we are all about to discover in the immediate future of the Australian economy.
