It’s no secret that the war in the Middle East is unpredictable. The instability that comes with President Trump in the White House has clearly impacted the Federal Government’s 2026-27 Budget. Treasurer Jim Chalmers has provided Australians with two forecasts of the economy: the primary prediction, and one for extreme conditions if all goes South.

Australia’s inflation is predicted to peak at around 5 per cent mid-2026. The unemployment rate is forecasted to settle at 4.5 per cent for the 2026-27 time period, and settle on that figure until the 2028-29 time period.

At the start of the year, the global oil price sat at $60, now it’s above $100. Treasury predicts it will stay this way until the end of June, and will drop down to $80 this time next year.

In the case of a severe scenario where the oil price peaks at $200 and takes three years to return to a more stable price, the Government believes Australia would still avoid a recession.

In the same breath, the Government has predicted that unemployment would jump to pre-pandemic levels and inflation would peak above 7 per cent, if the extreme scenario was to play out.

“We didn’t decide when this war began and have no control over when it will properly end,” Treasurer Jim Chalmers said.

Additionally, Treasury is expecting global growth to decrease from 3.5 per cent last year to 3 per cent this year.

Funding for the Fuel Crisis

A $2.9 billion package has been introduced to more than halve the fuel excise. Excise on petrol and diesel has fallen from 52.6 to 20.6 cents per litre.

The states and territories will help the federal government deal with costly fuel by contributing up to $400 million to support the fuel excise reduction.

Tax Cuts to Combat the Cost of Living

Low-income earners can expect tax cuts from this year’s federal budget.

An additional tax cut of up to $250 for working Australians, on top of tax cuts from previous budgets will benefit over 13 million workers. This will make up the annual tax offset from the 2027-28 income year.97 per cent of the 13 million are expected to receive the full $250 offset.

Subsequently, the effective tax-free threshold will increase by nearly $1800 to $19,985 (or up to $24,985 for workers eligible for the Low Income Tax Offset), meaning Australians will have an additional $1800 in non-taxable income. This will create a shift in the tax brackets, helping adjust to rising inflation rates, and is the largest permanent increase in the effective tax-free threshold since 2012-13.

On top of this, from July 1, 2026, the 16 per cent tax rate on taxable income between $18,201 and $45,000 will drop to 15 per cent. From July 1, 2027, this will drop again to 14 per cent.

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