Federal Budget: Commonwealth Bank predicts deficit will double to $50b

Next week’s Federal Budget will reveal a deficit of nearly $50 billion for 2025-26 as surging post-pandemic government spending takes its toll, according to Commonwealth Bank forecasts.

CBA predicts an underlying cash deficit of $49.5b — slightly higher than projections in December and roughly double the figure for this financial year.

Prime Minister Anthony Albanese and Treasurer Jim Chalmers have already revealed a swag of big new spending pledges in the lead up to the Federal election, including $8b for Medicare and $7.2b to upgrade Queensland’s Bruce Highway.

But the pivot towards big spending has been bipartisan. The previous Morrison government’s 2022 pre-election Budget committed $17.7b over five years for aged care and an extra $40b for the National Disability Insurance Scheme.

CBA economists reckon a big part of the latest splurge has been covered by higher tax receipts, but not all of it.

It means the looming deficit will be about $2.6b higher than previously expected.

“Significant commitments have already been announced this year,” chief economist Luke Yearman said.

“While the Government will be tempted to spend more ahead of an election, they won’t want to be accused of adding to inflationary pressures or giving the RBA a reason to delay further interest rate cuts.

“Overall, we expect the Government to resist temptation and show spending restraint.”

He predicted a cost-of-living package with a fresh $300 power bill rebate.

ANZ’s assessment on Tuesday was marginally less bleak, projecting an underlying deficit of $40b for the 2026 financial year.

Dr Chalmers was also spruiking his financial credibility in front of the Queensland Media Club on Tuesday.

“We delivered the first two surpluses in almost two decades,” he said.

“Our predecessors promised a surplus in their first year and every year thereafter, and went precisely none for nine.

“We have helped engineer a $200b turnaround in the Budget.”

Shadow treasurer Angus Taylor hit back on Wednesday, arguing the Coalition had opposed $100b of new spending by the Government.