The federal government’s mid-year budget update shows a modest improvement in the deficit forecast in 2025–26, but much of this comes from a larger-than-forecast tax take.

The update, known as the Mid-Year Economic and Fiscal Outlook (MYEFO), estimates a deficit for 2025–26 at A$37 billion, or 1.3% of gross domestic product (GDP). This is down from the $42 billion forecast in the March 2025 federal budget and the Pre-election Economic and Fiscal Outlook (PEFO) issued before the May election.

The drivers of the $5 billion improvement in the bottom line are largely outside government control – higher global commodity prices, and a higher income tax take. That’s due to a stronger jobs market and higher wages growth than previously forecast.

The Australian government’s gross debt is projected to exceed $1 trillion for the first time by mid-2027.

Treasurer Jim Chalmers described the update as being “all about delivery, responsibility and restraint”.

MYEFO is required by the Charter of Budget Honesty Act 1998 to be tabled in parliament by the end of January. In recent years it has mostly been released in mid-December.

The document can be merely a technical update of the estimates for economic changes, or an opportunity for policy announcements to reset the government’s budget plans.

The 2025........

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