Budgets are built on forecasts. But whatever Chalmers predicts, it keeps getting worse

Updated April 20, 2026 — 3:58pm,first published 11:40am

You have reached your maximum number of saved items.

Remove items from your saved list to add more.

Save this article for later

Add articles to your saved list and come back to them anytime.

Jim Chalmers’ fifth budget was always going to be one of the most important fiscal blueprints this century.

Prime Minister Anthony Albanese’s emphatic 2025 re-election gave Labor the opportunity to realise long-delayed economic reforms, ranging from the tax system to a Ponzi scheme-adjacent housing market, means this year’s budget has to contain a mix of difficult reforms and savings.

But the war launched by the United States and Israel on Iran at the end of February, and the enormous economic tremor it has sent through the world, has taken the May 12 budget to the highest degree of difficulty.

A visibly tired Chalmers, who made a dash to Washington last week for a series of key International Monetary Fund meetings, on Monday morning gave the clearest indication so far of how the war is upending the plans that he, Finance Minister Katy Gallagher and Albanese had been shaping for this year’s budget.

His extended press conference, which warmed up by admitting the economic outlook is grim and got bleaker from there, was the start of a three-week budget education campaign to soften up voters for what will be revealed on May 12.

Australia’s debt hits $1 trillion this year - what did we spend it on?

A budget is built upon its key economic forecasts. But making forecasts is extraordinarily difficult when the global economy is at the whim of US President Donald Trump’s Truth Social account.

For instance, over the past 72 hours, the price of oil swung from $US100 a barrel to $US86 a barrel to $US95 a barrel – all due to expectations around the movement of oil through the Strait of Hormuz.

Treasury is putting together scenarios for the budget that will be effective best guesses at how the economy looks if the geopolitical outlook improves or deteriorates. A deterioration is likely to be very sober reading.

Chalmers, who warned the budget is on track to show higher inflation, lower growth and an uptick in unemployment, noted the government has no control over the economic fallout caused by the war.

“The key factors which will determine whether we get a bit more inflation or a lot more inflation, a bit less growth or a lot less growth, will be how long the war continues, how long it takes to reopen the [Strait of Hormuz] ... and how long it takes for the global economy to get back to something that looks a little bit more like normal,” he said.

HSBC chief economist Paul Bloxham on Monday said there was now a real risk of stagflation – higher inflation as an economy slows – facing Australia because of the way the war has hit energy prices.

“Because Australia’s economy has little or no spare capacity, there is a higher risk than in many other countries that the sharp fuel-related rise in inflation will more quickly end up in higher inflation expectations,” he said.

“In a tight jobs market, there is a higher likelihood that workers will be able to successfully demand higher wage claims in the face of the inflation surge. An economy with little spare capacity may also be one where businesses have more pricing power than otherwise.”

Making the case for reform and savings with an economy and budget in flux is not easy.

Chalmers admitted as much.

“The savings package won’t be exactly the same as we might have been thinking a few months ago,” he said.

But he didn’t back away from change. He effectively doubled-down on the case to make much-needed reforms to the NDIS, arguing the important piece of the welfare support “is growing too fast for Australians to afford”.

Cutting expenditure is one thing. Overhauling the tax system is another.

Earlier on Monday, this masthead revealed that the treasurer is leaning towards a return to the pre-1999 capital gains tax system that would reduce some of the incentives for property investors to buy existing homes.

Jim, this is the most important budget this century. You’d better not bottle it

Shane WrightSenior economics correspondent

Senior economics correspondent

Chalmers admitted the government is looking at ways to make the housing and tax system fairer for young people.

“I think the housing market is where some of those intergenerational issues are most obvious, and so we are working through a range of options to see if we can deal with them or address them in a responsible way,” he said.

But any change around the property sector, particularly relating to tax, is likely to generate some heated – and outrageous – pushback from those with skin in the game.

The war’s impact on the economy is outside Chalmers’ control. Also outside his control is Albanese’s political nerve.

It’s the prime minister who decides how brave a government can be in its budget.

But it is the treasurer who has to carry the load of explaining the government’s economic agenda, the pressures on that agenda and how it affects the nation’s voters.

It’s not going to get any easier from here.

Cut through the noise of federal politics with news, views and expert analysis. Subscribers can sign up to our weekly Inside Politics newsletter.

You have reached your maximum number of saved items.

Remove items from your saved list to add more.

© The Age