2026 budget ‘must avoid adding to inflation’: EY
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The news: EY chief economist Cherelle Murphy has urged the federal government to avoid adding to upwards pressure on inflation when handing down the 2026 budget on Tuesday.
Murphy said the impact of the Middle East conflict and the rise in oil prices means the Australian inflation problem has “only gotten worse from an already elevated level”.
“Government spending, which is at a record high as a share of the economy, must avoid adding to inflation. We know some cost-of-living measures are planned but hope anything further is targeted only to those in need to avoid exacerbating the problem,” Murphy said.
The numbers: Murphy noted that Department of Finance data indicates a “much smaller” deficit for 2026 than initially forecast, with the year-to-March underlying cash deficit at $30.4 billion or about $17 billion smaller than forecast in the mid-year economic and fiscal outlook (MYEFO).
“This gives the government some flexibility with policy in the short term as new policies can be introduced without making the budget deficit worse,” she said.
“At MYEFO, Australia’s gross debt was projected to exceed $1 trillion in FY27, rising to more than $1.2 trillion by FY29.
“Higher interest rates and bond yields will lift the cost of issuance and refinancing even higher, increasing debt servicing pressures.”
She warned that, alongside persistent deficits, this could risk “undermining Australia’s AAA rating and shifting a larger share of revenue toward interest payments rather than funding essential government services and investing in future priorities”.
EY’s 2026 budget wishlist recommends the government does not add to spending unless it offsets it elsewhere, changes existing policy to lower spending and find new sources of ongoing revenue, and puts into place reforms to assist the private sector to invest and drive productivity growth.
What they said: “Three ambitious reform packages have been promised by the treasurer in his fifth budget. These are centered around savings; productivity and investment; and tax,” Murphy said in a statement.
“As well, intergenerational fairness and supporting new housing have been identified by the government as priorities. It all adds up to a big task, and certainly one that is possible. We welcome all positive policy changes but fear the reforms will not reach as far as they need to,” she said.
The source: EY media statement
