Treasurer Jim Chalmers flags a ‘fourth economy’ budget shaped by global shocks

Global conflicts, energy market disruptions, rising inflation and global fragmentation have required repeated recalibration of fiscal plans right up to the final weeks before budget night, Treasurer Jim Chalmers says, cautioning it will be some time before things return to normal.

“Ordinarily budgets are sketched out in summer, locked down in autumn,” he said. “This one is being recalibrated even in autumn, and that's different to normal”. 

It will also be a budget framed around the challenges of what he’s calling Australia’s “fourth economy”, the main yardsticks will be an improvement in national resilience, social cohesion and economic reforms that boost productivity.

Why this budget looks different

Speaking on a special edition of the CommBank View: Economics & Markets podcast, the Treasurer said the escalation of conflict in the Middle East has materially complicated the economic outlook, particularly through its impact on global energy markets, inflation risks and confidence. 

While the reopening of key shipping routes such as the Strait of Hormuz would be welcome, he cautioned against assuming a rapid return to normal conditions.

“The reopening of the Strait, won't mean an instantaneous normalisation of the global economy,” he said, pointing to lasting damage to energy infrastructure, higher insurance costs and ongoing supply‑chain disruption. 

Those dynamics, he said, are central to the way Treasury is modelling the economic outlook and shaping fiscal choices in the budget.

No automatic revenue windfall 

The Treasurer pushed back against speculation that global energy shocks would automatically translate into a large boost to government revenue, warning that budget impacts run in both directions.

“People often count the upside and not the downside,” he said. 

While higher commodity prices can support revenues in some years, Chalmers said global disruption also weighs on growth, fuel uncertainty and can affect employment and exchange rates – all of which flow through to the budget.

“My current expectation is that some years will be worse, will be downgraded, and some years might be very slightly upgraded,” he said. “But nobody should anticipate a big upward revision to revenue.” 

Savings under pressure

On the spending side, Chalmers acknowledged structural pressures remain intense, particularly across health, disability and aged care. 

He said reforms to the National Disability Insurance Scheme (NDIS) would represent the single largest saving in the budget, describing them as essential to putting the scheme on a sustainable footing.

“They will be extremely difficult to land,” he said. “But we can't leave it to the next generation to fix.” 

Even with those savings, the Treasurer said significant pressures – including hospital funding and demographic change – mean budget repair must be delivered over time, not in any one budget. 

“Budget repair is a direction, not a destination,” he said. 

Alongside spending restraint, Chalmers said the government is also continuing to work through longer‑term issues in the tax system, including housing-related settings such as negative gearing and capital gains tax. He stressed that this work is not about endorsing any specific proposal, but about addressing underlying fairness issues over time. “Without signing up to a particular model or to any part of this speculation, we’ve made it really clear for some time now that we think there are intergenerational issues in the tax system and in the housing market,” he said. “We’re working through ways to try and address that.”

A budget anchored in Australia’s ‘fourth economy’ 

Beyond the immediate pressures, Chalmers said the budget will also be framed around preparing Australia for what he describes as its “fourth economy”.

After phases driven first by colonial trade, then industrialisation and a shift to services, he said the next era of growth will be powered by cheaper and cleaner energy, transformed by technology and judged by whether it improves social cohesion. 

“The thing that I have learned is to take a longer term view, to try and impose some direction on the disruption,” he said, “to make sure people are beneficiaries of change, rather than victims of that change.”

That framing, he said, explains why productivity‑enhancing measures remain central to the budget, even as government responds to near‑term global shocks. 

“The speed limit on our economy is too low,” Chalmers said. “Our overarching goal here is to lift the speed limit on the economy so we can grow more quickly with lower inflation.”

Australia’s place in a fragmented world 

Chalmers said Australia’s fiscal position is comparatively strong, giving the government greater flexibility as the global economy becomes more fragmented.

“We've got one of the three strongest budgets in the G20, we've got lower gross debt-to-GDP than any major advanced economy, so we’ve got a lot of advantages” he said. 

Australia’s trade exposure means global instability matters deeply for domestic outcomes, but the Treasurer said the country also brings clear advantages – including critical minerals, energy resources and institutional stability.

As a middle power, “we play the cards we're dealt to some extent, but we bring a lot to the table as well”, he said. He said Australia has made progress stabilising its economic relationship with China, while maintaining strong ties with the United States, even as geopolitical uncertainty increases. 

A budget built for uncertainty

Chalmers said the defining challenge for this budget – and those that follow – is managing a world where shocks are no longer the exception, but the norm. 

“Shocks used to punctuate long periods of calm,” he said. “Now, these periods of calm punctuate long periods of shocks...It’s the normal now.”

That shift, he said, means fiscal settings must be flexible enough to respond to near‑term risks, while still supporting productivity, resilience and long‑term growth amid accelerating structural change.