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Inflation projected to be under control by end of year

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The federal budget has forecast inflation to dip below 3% by the end of this year.
What does the budget say about the future of the economy?

Tonight, the Federal Government delivered its annual budget.

The Government, led by Prime Minister Anthony Albanese, has two big decisions to make: what to spend money on, and where to get that money from.

In this piece, we will look at what the budget has projected for the future of the economy.

Inflation

Inflation is another term for rising prices. Australia and many other countries have battled historically high inflation in recent years.

The Reserve Bank of Australia (RBA) has raised the ‘cash rate’ (the interest it charges other banks for borrowing money) 13 times in the last two years.

These rate rises have been aimed at discouraging Australians from spending, with a goal of slowing inflation.

The current inflation rate is 3.6%. The RBA has set a target to return inflation to between 2-3%.

What does the budget say about the future of the economy?

The Government has projected that the inflation rate could return to its target band (2-3%) by the end of this year. It believes its cost-of-living measures, including changes to the Stage 3 tax cuts and energy bill relief, will help moderate inflation.

Prior to the Budget, the RBA’s latest projections estimated that inflation would return to between 2-3% in the second half of 2025.

Unemployment

The unemployment rate is currently 3.8%.

The Government expects unemployment to rise over the next 12 month but remain below pre-pandemic levels.

It projects unemployment to reach over 4% in the year, but said it doesn’t expect the figure to increase above 4.5% over the next four years.

This is consistent with the RBA’s projections.

GDP

Gross domestic product (GDP) refers to the value of goods and services produced in a country over a certain time. GDP generally rises when countries are in an economically strong position.

The Government has projected GDP to grow by at least 2% across the next three financial years.

It believes historically high wage growth, employment growth and cost-of-living measures will increase household incomes, and encourage spending.

Future budgets

The Federal Budget delivered a $9 billion surplus – meaning the Government collected $9 billion more than it spent in the Budget.

This was the second consecutive Budget surplus – the first time in nearly two decades that this has been achieved.

However, the Government has forecast a $28 billion deficit for the next financial year. A deficit is when the Government spends more than it has earnt, meaning it has to take on interest-accruing debt to pay for the programs it wishes to fund.

The Government projects it to enter over one trillion dollars of debt during the 2025/26 financial year. Current debts have surpassed $900 billion.

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