Middle East war to drive $30b federal budget improvement by 2028-29: Chris Richardson
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The news: The upcoming 2026 federal budget is expected to unveil a $30 billion improvement in the budget bottom line over the forward estimates.
Independent economist Chris Richardson has tipped the improvements in new forecasts released on Sunday evening. The change is expected to be driven by the war in the Middle East’s impacts on crucial export costs, the price of gold and higher inflation leading to a rising tax take.
The numbers: The forecasts show an expected $6 billion decrease in the expected deficit for 2025-26, a $20 billion decline in the deficit in 2026-27 and a $9.6 billion improvement in 2027-28. But the progress ends on 2028-29 as “war-driven budgetary positives pass”. This will reduce net debt.
The context: Richardson said aiming for “inflation neutral” would be more important than “budget neutral” in the upcoming 12 May budget.
"The budget will reveal a notable improvement relative to the most recent official update,” he said.
“But simply handing some of that back as cost of living support ... would be to make the same mistake Australia made in the wake of the war on Ukraine.”
Richardson has long warned that much of the budgetary windfall is due to circumstances outside of government control and should be handled carefully.
He further said government measures that effectively hand out cost of living support needs to be matched with cuts to spending or tax increases to offset the inflation risk.
On Sunday morning, Infrastructure Minister Catherine King said the government may contemplate further cost of living support to offset the impacts of the Middle East war.
What they said: “The uncomfortable fact is that war is a moneymaker for the Australian federal budget — partly because war boosts inflation (which effectively acts as a tax), but mostly because the war has bid up the price of what Australia sells to the world,” Richardson said in his analysis.
“Over and above war-driven challenges, Australia faces worsening problems,” he said, pointing to sluggish productivity growth and “terrible” tax arrangements.
“Given the political opportunity of the moment — including an opposition in disarray — I really hope the government doesn’t waste this crisis.”
The source: Rich Insight report
