A budget with a dollop of optimism on inflation & economic growth

Added: 2026-05-12

[00:00:00]Good day taxpayers, I'm on the road again, but the budget still happened, of course. And look, I think there's some some good signs in the budget. That there's the spending cuts, a little range of productivity reforms that will take a little bit of while before I get much traction. Uh tax reforms which are adding to fairness in the tax system. And basically, the bottom line of the budget is that the deficits are smaller.

[00:00:29]The contribution to economic growth from the government sector is being curtailed.

[00:00:34]And shame on the RBA for having its board meeting a week before the budget.

[00:00:39]That was really dumb. And I've got a sneaking suspicion that Treasury Secretary Jenny Wilkinson was the one who voted against the rate hike cuz she knew that this budget was going to boost productivity, trim government spending, have smaller deficits, and have a lower inflation forecast cuz she knew broadly what was going to be in the budget. So, the RBA hiked interest rates not knowing this important, critically important piece of news. So, in terms of some of the numbers, Treasury's got a forecast for the inflation rate to fall a little sooner and a little more acutely than the RBA does. Peak at 5%, that's baked into the cake, of course, but nonetheless, they've got inflation back to 2.5% next year and staying there. So, that's great news because they've got the tightening in fiscal policy and the productivity measures that are there, the tax measures that are there as well.

[00:01:30]Uh they've got economic growth a little bit stronger than the RBA was forecasting, in fact, quite a deal stronger. They've got GDP at 2%. RBA was under 1.5%, so Treasury's actually seeing some of the rewards of its of its efforts coming through, and fair enough, too, because these are meaningful changes.

[00:01:46]Uh we've also got Treasury forecasting a lower unemployment than the rate than the RBA. So, when you package up who's going to win this forecasting competition, well, as I said, silly old RBA made all its forecasts without knowing what a huge part of the economy is going to be doing, fiscal policy.

[00:02:04]And Treasury has made it knowing that the RBA has hiked rates in May and know what's in the budget. So, I'll put my money on Treasury being right with their forecast profile.

[00:02:14]And one other small aside, another important issue that's there in the budget is that net migration numbers have been trimmed down to 225,000 over the medium term. That's actually a very moderate rate of population growth from a trimming in net migration. So, it puts a bit of a rocket up One Nation and the coalition policies will be arguing for lower migration. The difference between what they're probably going to propose and the 225,000 isn't isn't all that much, but the government's well aware that the lower migration will help the housing shortage as in to eliminate the housing shortage sooner rather than later.

[00:02:51]Take a bit of pressure off the downward pressure off wages, which is a good thing when you're trying to get some cost of living measures through to the population. So, all up, a really good macro mix of news. And if the Treasury is more right than the RBA, and I suspect they will, with obviously a big caveat about what happens internationally with Donald Trump and whatnot and the oil price, but from what the government can do about managing the economy in that difficult circumstance, it's a mighty fine effort. And if Treasury have more right than not, we can expect to see growth not being quite as weak as I feared, inflation coming down sooner than the RBA were thinking.

[00:03:33]And the unemployment rate to be probably not quite as bad. So, all up, decent effort.