Budget 25: a budget in three frames

There are three frames through which we can look at the Australian federal budget: the political frame, the strategic frame and the cyclical frame. All matter for the outlook in their own way.

The budget is always an economic document, with a wrapping of politics. The line item “decisions taken but not yet announced” gives a sense of how much additional policy might be to come in the campaign. This is largely a wash on the revenue side. On the expenditure side, they are a fraction of a per cent of gross domestic product – and so not meaningful.

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The surprise policy package is the cuts to the lowest personal-income tax rate from July 2025. They are projected to help keep total revenue below the 2023/24 peak of a smidge under 26 per cent of GDP. That area is sure to be a debating point, as is where the government has chosen to spend some of its additional revenue.

Which brings us to the strategic frame. This budget continues many of the areas of fiscal focus that have evolved over the past handful of years.

Cost of living is one. Household energy bill rebates are being extended to the end of calendar 2025. There is an additional $A4.8 billion for health in the next two years.

There is some more on housing. And some focus, but not material new funding, for the Future Made in Australia policy that is a response to the more uncertain strategic environment.

As such, this budget mostly delivers into pre-existing streams of strategic intent. The rails for the debate have been set down.

Which brings us to the final frame. The Australian economy has been recovering gradually since 2024’s low point, and our expectation is that will continue over 2025.

At the margin the budget makes us more comfortable with those expectations. Consumer spending is a key driver of the recovery, and the tax cuts announced in the budget provide an additional boost.

Monetary policy therefore remains in a very modest easing cycle. ANZ Research expects only one further cut.

Global factors occupy most of the attention when we consider what might drive the bank to deliver a bit more easing than that. And those global factors are sure to feature in the news over the next eight weeks.

Richard Yetsenga is Chief Economist at ANZ