The Trump administration said Australian government policies and practices had failed to enforce a ban on slavery, which made it difficult for US businesses to compete.

"The failure of our most important trading partners to address the importation of goods made with forced labour is unacceptable.  This creates a dynamic where American workers are forced to compete globally on an unlevel playing field," US trade ambassador Jamieson Greer said.

"We will no longer tolerate this disparity.  Some trading partners have taken initial steps to prevent the importation of forced labour goods, including through USMCA and commitments in Agreements on Reciprocal Trade.  However, each of our trading partners must do more to ensure that trade does not perversely encourage and entrench forced labour globally."

When questioned about the report and potential new tariffs, Treasurer Jim Chalmers slammed the allegations.

"We maintain the position that these tariffs are unwarranted, they're unjustified, and they're inconsistent with our free trade agreement with the US, and we've made that case repeatedly," Chalmers said.

"Now, when it comes to the specifics of the modern slavery laws, we've got world-leading legislation in place already to combat the evils of modern slavery. This is the issue that the trade representative has raised.

"So we will continue to take every opportunity that we can to stand up for Australian exporters and to stand up for the workers and businesses in those industries, who would be right to consider these tariffs as unjustified, unwarranted, unnecessary, and inconsistent with our free trade agreement."

"Economic growth slowed in the March quarter, with modest household and public sector expenditure as well as cyclone disruptions to mining and export activities," ABS head of national accounts Grace Kim said.

Household spending rose 0.5% in the March quarter. This growth includes elevated spending on electricity, gas and other fuels (up 11.7%) as government rebates ceased, raising out-of-pocket expenditure for households.

Household spending on essential goods and services increased by 0.8%, while discretionary spending rose by 0.1%.

"Rising interest rates and significantly higher fuel costs in the March month likely created an environment for more cautious consumer behaviour. This resulted in reduced spending across a range of household expenditure categories," Kim added.

Convera head of market insights Steven Dooley said the GDP figures paint a relatively flat picture.

"Growth was stalled due to weaker trade, subdued government spending, and a cautious consumer, all pulled in the same direction," Dooley said.

"The single biggest drag came from trade. Australia's import bill jumped, partly because of higher fuel prices from the conflict in the Middle East, and partly because of record purchases of computer servers for the data centres being built in New South Wales and Victoria."

Dooley said the easing of growth is a positive sign the Reserve Bank of Australia's (RBA) interest rate hikes have been working.

"Three rate rises this year have taken the cash rate to 4.35%, fully unwinding the cuts that came before. The bank's own forecasts already expect growth to slow further, to around 1.3% by the end of the year. With the economy this soft, another rate rise looks unlikely," Dooley said.

"From here, the more probable path is a long hold. However, the question is more about how many months the bank stays on the sidelines before it can start cutting."

However, VanEck head of investments and capital markets Russel Chesler warned Australia may now be entering a "stagflationary regime".

"GDP growth is slowing, unemployment is rising and inflation remains elevated," Chesler said.

"Even though inflation is high and likely to remain stubborn, we do not expect the increase in trimmed mean inflation to 3.4%, combined with the added pressure from yesterday's wage decision, to be enough for the RBA to move again in June.

"The RBA will be carefully monitoring the overall health of the economy, including employment, before making another move. Our view remains that the terminal rate for this hiking cycle is either the current cash rate of 4.35%, or possibly 4.60% if the RBA delivers one more hike later this year."

Senior economist Benjamin Trevis and economist Marco Santaniello said output per capita which speaks to living standards would fall in most destination economies as productivity gains from improved labour market allocation would be lost.

The report highlighted the size of the hit would vary based on the working-age share of each country's migrant inflows.

"Output per capita falls by around 12% by 2060 in Spain, reflecting heavy reliance on working-age migrants, while there is a more modest decline of around 1% in the US as its inflows are more mixed in age composition," the report read.

Australia and Canada stood out as exceptions, with output per capita rising around 1% and 4% respectively.

"Both countries receive a high share of inflows that are largely outside the labour force; removing these inflows reduces population more than it reduces the workforce, so the capital stock is shared among a workforce that is only slightly smaller, lifting capital per worker and pushing output per capita above our baseline," the report read.

The report noted in the near-term, no migration would have an impact on demand as migrants are "first and foremost consumers".

"Removing future inflows to destination economies forgoes would-be migrant spending on housing, goods, and services, dampening aggregate demand and weighing on inflation in the early years of the scenario," the report read.

"The drag on demand is partly cushioned by the fact that, although earnings vary across the skill distribution, migrants typically earn below the host-country average and are concentrated in lower-earning sectors."

In the long-run, however, the productivity hit would compound the labour supply shock.

The report states the productivity impact would be seen through two channels: high-skilled migrants generating knowledge transfer and innovation spillovers and migrants at all skill levels who fill structural gaps and free domestic workers to move into more productive roles.

"Total factor productivity is smaller in the near term but builds over time, becoming a material drag from the 2030s onwards as the loss of knowledge transfer and labour market allocation gains compounds," the report read.

Origin countries would have a positive outcome in this scenario, particularly those that have historically seen large numbers of workers move abroad such as Pakistan, the Philippines, and parts of Eastern Europe as migrants stay back and lift aggregate output.

Output gains, however, are limited as the productivity channels are markedly weaker than in destination economies, where larger inflows and a higher concentration of high skilled migrants amplify the uplift.

The report noted ageing economies will face sharper fiscal challenges without migration as immigrants tend to arrive at prime working age, contributing more to taxes and social contributions than they receive in social protection, housing, health, and education spending.

The "zero migration" scenario is an extreme, the report said, and its value lies in quantifying the contribution that migration makes to long-run growth, against which actual outcomes and policy responses can be benchmarked.

ABS head of prices and statistics Sue-Ellen said housing remained the largest contributor to annual inflation, rising 6.3% over the year, followed by transport costs, which increased 6.6%, easing from an 8.9% rise in March, electricity prices grew 22.5% higher compared to a year ago following the expiry of Commonwealth and state government rebates, while rents and new dwelling construction also continued to drive housing inflation higher.

Underlying inflationary pressures also remained elevated. Trimmed mean annual inflation closely watched by the Reserve Bank of Australia (RBA) as a measure of underlying price growth, edged up to 3.4% in the 12 months to April 2026, up from 3.3% in the 12 months to March 2026.

The ABS noted automotive fuel was excluded from the trimmed mean calculation in both March and April after significant prince swings linked to geopolitical tensions and changes to fuel excise arrangements.

Automotive fuel prices fell 7.0 per cent from March to April, following the halving of the fuel excise on 1 April, although prices remain 23.5 per cent higher than they were before the escalation of conflict in the Middle East.

Convera head of market insights Steven Dooley said the data shows inflation is easing slowly but remains persistent, with underlying pressures still rising.

Dooley noted this creates a dilemma for the RBA as inflation risks become entrenched.

"This is impacting growth as well, and we are seeing it globally. The manufacturing sector is holding on because services activity is collapsing as higher prices hit consumers," Dooley said.

"That is the main difficulty facing the RBA. Having already lifted its official interest rate three times this year to 4.35%, the board has to weigh a real risk that inflation becomes entrenched against equally real evidence that households and businesses are already under significant strain."

He adds that globally, weaker services activity signals slowing growth, while Australia's divergence from other economies, which are cutting rates, is supporting the Australian dollar, now at a multi-year high.

"The broader takeaway is that Australia is now genuinely out of step with the global rate cycle. That divergence offers some support for the currency but creates a real headwind for domestic earnings and household balance sheets. How well businesses adapt to that gap will define the second half of 2026," he said.

Wee Khoon Chong, APAC macro strategist at BNY Australia said they expect the RBA to hold rates in June, while maintaining a hawkish bias, with markets pricing one more hike and risks tilted toward further tightening.

Similarly, Deloitte Access Economics partner Stephen Smith also expects the RBA to hold rates in June, as recent labour market data shows a softening economy, with rising unemployment and weaker hiring. However, Smith added that an August rate hike remains likely if inflation proves stubborn.

"With growth already weak and the RBA's latest forecasts subdued, the Monetary Policy Board will be mindful that tighter policy could do more damage to activity than is needed to bring inflation back under control," Smith said.

"That said, the RBA must also be true to its mandate. If inflation does not moderate, or if energy-driven price rises become embedded in expectations and wage-setting, the board will need to act.

"Fiscal policy adds to that challenge. The latest Federal Budget puts additional money into the economy next financial year, meaning monetary policy may have to work harder if inflation remains stubborn."

In contrast, VanEck head of investments and capital markets, Russel Chesler said the RBA is unlikely to hike rates in June, as current inflation trends and softer unemployment are already factored in, though one more increase later in the year remains possible.

"We do not expect the lift in trimmed mean inflation to be enough for the RBA to move again in June. Much of the recent inflation pressure has already been built into its expectations, and with softer April unemployment numbers, we do not see a strong case for another increase in the near term," Chesler said.

"Our view remains that the terminal rate for this hiking cycle is either the current cash rate of 4.35%, or possibly 4.6% if the RBA delivers one more hike later this year."

Diana Mousina, deputy chief economist at AMP, said the current economic cycle is unlike any other she's experienced where "things are completely up in the air and seem very tribal."

She told the annual Stockbrokers and Investment Advisers Association (SIAA) Conference that it is a difficult time for investors who are trying to digest the tumult triggered by the geopolitics of the day.

"For us, we're trying to distil what is noise here and what is signal. We know that geopolitics is becoming more of a factor in markets," she said, pointing to defence and warfare as some key drivers. Then there is the case of the US government.

"Unfortunately, I don't think that the tribal times are going away anywhere. This is going to be a factor, whether Trump's in power, whether someone else in the US is in power," she said.

"This is a natural change in our world as a result of the global economy moving from a new polar to a multipolar world - that we have more of these areas where we can have trouble around the world.

"This is a problem because for investors it means more volatile markets, particularly in equities."

However, a "geopolitical risk premium" in the markets is filtering through.

"Despite all this clear evidence that policy uncertainty is moving up, we have seen complete resilience in markets over 2026 - to everything that's been happening in the Middle East, but also to the general fear that the economic cycle is not as straightforward as perhaps where it once was," Mousina said.

The S&P 500, for example, is up nearly 8% year-to-date after falling about 8% at the start of the US-Israel war in the Middle East.

The US market is outperforming relative to its peers, Europe is struggling, while China is faring well, she said.

In essence, Mousina reasons the fundamental economic backdrop around the world is driving resilience. Another reason why markets are overlooking global tensions is companies continuing to generate profits.

"The latest profit season in the US was incredibly strong. Earnings growth across the board was up more than 20% year on year before the profit season started," she said.

"Most analysts were looking for profit growth about 10% or so. If you look at the tech sector, profit growth there is more like 40% over the past year, so it is the tech story that's booming, but broader than that as well."

Australia, though, is an outlier compared to its peers.

Over the next 12 months, Mousina predicts the Reserve Bank of Australia will raise the base rate twice. At the May meeting, interest rates rose by 25bps to 4.35%.

"That is going to put a handbrake on the economy. We think that growth here is going to soften to about 1% to 1.5% in terms of GDP growth. That's low for Australia. That will mean that our population is running above our level of economic growth, which means that per person we're going backwards again. That is disappointing after we had this resurgence in growth last year, but maybe it's what's needed to get inflation down," she said.

Financial Standard is the official media partner of the 2026 SIAA Conference.

Speaking at the Bloomberg Forum for Investment Managers event in Sydney, Hunter said RBA's reports suggest some firms have responded already, with fuel surcharges raised by firms at the start of supply chains that flow into a broad set of industries.

"Expectations for pass-through to consumer prices vary, but we are hearing from some firms that they plan to increase their retail prices," Hunter said.

"For example, some construction firms - who have been relatively highly exposed to transport and oil-derived raw materials cost increases - are reviewing prices for new contracts."

This has pushed the RBA to revise its inflation forecast higher in the near term. It expects the oil prices shock to put upward pressure on inflation over the next year, contributing around 0.4% to underlying inflation in the March quarter of 2027.

Hunter said the oil price shock will have a direct and indirect impact on consumers, with the increase in the cost of filling cars with fuel flowing directly through to higher headline inflation in Australia.

Indirectly, a rise in oil prices will impact the cost of producing and distributing goods and services. Domestically fuel accounts for around 2% to 2.5% of the cost of producing and distributing other goods and services in the inflation data.

"Components that are more exposed to fuel prices include travel, transport and postal services, some groceries items and new dwelling construction," Hunter said.

"In addition, oil is also an input in global supply chains and will influence imported goods prices. For example, oil and gas are used in the manufacture of fertilisers and plastics, and the cost of these goods has started to rise."

These estimates by the RBA assume the conflict in the Middle East will get resolved soon causing a fallback in oil prices.

However, Hunter said oil prices could stay elevated for longer than implied by market pricing, and the Iran conflict could lead to broader, more persistent supply disruptions, adding to inflation.

"Cost pass-through may also be stronger than assumed, and higher fuel prices could lift and embed higher inflation expectations, which RBA research shows are particularly sensitive to fuel, perpetuating the inflationary shock," she said.

Inflation may be lower, Hunter said, if households and businesses cut back on consumption and investment by more than the RBA anticipates in response to cost-of-living pressures and uncertainty.

Speaking at the Bloomberg Forum for Investment Managers event in Sydney, Chalmers addressed concerns on the application of CGT on all assets such as shares and not just real estate.

Chalmers explained the CGT changes are about more accurately compensating investors for inflation and to help ensure investment decisions are driven by economic outcomes, not tax outcomes.

"We recognise that a distorted tax system means distorted investment decisions," Chalmers said.

"We want to encourage investment for good economic reasons and not necessarily just for good tax reasons."

He noted the impact of the changes will depend on multiple factors such as the rate of return, the inflation rate and marginal tax rates. This would inherently mean some investments will do better under the new arrangement than under the current arrangement, he said.

However, Chalmers said if there is a comparison of the average impact of the current arrangement versus that of the new arrangement in the last 20 years, investors in shares would have been equal to or a bit better off with a discount based on indexation compared to the existing policy.

"Making changes to the CGT settings for one type of asset and not another type of asset, we think would just introduce new distortions, and ultimately that's bad for investors and for the economy," he said, noting if a company generates high returns from capital gains it will still generate a better post-tax return than a company with lower returns.

On the comparison of the effective capital gains tax compared to other jurisdictions in the world, Chalmers said it overlooked the difference between tax rates on real gains versus nominal gains.

"Even for an asset with gains of 10% the effective tax rate on the nominal gain after adjusting for inflation in the past decade would be less than 37%," he said.

"That's less than the rate in other jurisdictions, including California, which is a bit higher than 37% on average."

Chalmers added standalone housing tends to have strong capital gains relative to other assets, as well as more scope for leverage, which has been a recipe for the kinds of distortion seen in recent decades.

"The combination of our changes to CGT and negative gearing will reduce the incentives for excessive leverage to buy established housing, and this will help balance the system, not just towards new housing, which is obviously very important, but also to investments like shares and new businesses, where leverage doesn't play as big a role," he said.

Treasurer Jim Chalmers' Strengthening Australia's Fuel Resilience package promises to deliver more fuel for drivers and related industries, along with more fertiliser for farmers and ultimately fuel security for the country.

The package includes a $10 billion investment in immediate fuel supplies and a permanent Australian Fuel Security Reserve to obtain fuels and fertiliser.

"We're helping businesses and manufacturers bolster supply chains, with $1 billion in interest free loans through the National Reconstruction Fund and incentives to get more freight moving on trains and ships," he said.

"Targeted support for electric vehicles, building more charging stations, and heavy vehicle reform are all investments in our long-term fuel resilience. We'll produce more fuel through our $1.1 billion Cleaner Fuels Program, backed with reforms to our low carbon liquid fuels market to support demand."

Furthermore, some 20% of the country's gas exports will be reserved for Australian users.

"And we're making more progress on our Future Made in Australia agenda, supporting mining and processing through our Critical Minerals Strategic Reserve, and investments in domestic smelting and manufacturing," he said.

Reacting to the global oil shock sparked by the ongoing Israel-US war on Iran, Chalmers will use

Export Finance Australia's $7.5 billion Fuel and Fertiliser Security Facility to strengthen longer-term fuel security with the $3.2 billion Australian Fuel Security Reserve, "boosting energy sovereignty by making more clean fuels here, promoting electrification, and implementing a 20% gas reservation."

Climate Council Councillor Nicki Hutley said gas export taxes remain unchanged, despite analysis indicating an improved gas export levy could generate $17 billion annually, representing upwards of $50 billion in foregone revenue over the forward estimates - funding that could instead support cost-of-living relief and energy security.

The $10 billion to add just 10 days to the fuel storage was also a "missed opportunity" that could have invested more in electrifying trucks and heavy machinery that use most of Australia's diesel.

"This Federal Budget includes serious tax reform to deal with the housing crisis, but a patchwork of fossil fuel subsidies and short-term handouts that keep us dependent on fossil fuels from volatile regions," Hutley said.

At a critical moment in Australia's energy transition, Investor Group on Climate Change (IGCC) executive director of policy Frankie Muskovic said this budget presents some very mixed messages to investors.

The $1 billion cut to Australia's disaster readiness, no funding for the National Adaptation Plan and the $2 billion slashed from programs accelerating the rollout of new clean energy systems were criticised by the network of institutional investors.
Conversely, maintaining the Cheaper Home Batteries program and boosting the cap on the asset size eligible for favourable tax treatment by $260 million for research and development investment concessions were welcomed.

"Overall, this budget is a big step backwards for clean energy, climate solutions, energy security and Australia's readiness for a changing climate," said Muskovic.

"The welcome fuel security package should be a shot in the arm for Future Made in Australia. Now we need to see the detail on how this will drive early-stage demand for renewable diesel and sustainable aviation fuel that could help free us up from relying on imported fossil fuels."

"It's no longer possible to separate cyclical and structural change, or to deal with one then the other. If you wait for perfect stability to reform, you'll be waiting forever," Chalmers said.

"This global turbulence is no excuse to roll up into a little ball and hope it passes quickly, if anything it's a reason to do more on resilience and more on reform, more urgently."

Chalmers added he would rather defend a shift in policy than leave a broken status quo in place to do more damage and marginalise more people over time.

"It would have been easier to see what's happening around the world as an excuse to leave some of the most difficult challenges in our economy for someone else to fix later," he said.

"We made a different more difficult choice in this budget: to accelerate reform not just absorb the shock."

Due to the Middle East conflict, he said, the emphasis on fuel security also became a much bigger part of the story.

"The way we thought about cost-of-living help changed when the fuel tax cut became necessary, and we had to find almost $3 billion to fund it," he said.

"Some good ideas were delayed for more work, and for understandable reasons. The core remained intact and for good reasons as well."

Budgets are typically sketched out in summer and locked in autumn. Chalmers noted a large part of the work done prior to the Middle East conflict did feature in the Federal Budget presented on May 12.

"Nobody here would be surprised they weren't identical to what we would have done in February, it would be pretty strange if they were," he said.

"What might surprise you is how much we retained."

Chalmers said the Budget retained its initial intent with its five core objectives: getting through the global oil shock, taking the immediate pressure off people, making the economy more productive and competitive, reforming the tax system for workers, first home buyers, businesses and future generations, and making the budget stronger, more sustainable and helping to take the pressure off inflation.

These objectives put focus on an overhaul of the capital gains tax (CGT) discount and negative gearing, tax on discretionary trusts to address intergenerational inequity, pushing for investment risk taking and increased savings from programs like the National Disability Insurance Scheme (NDIS).

These policies, Chalmers said, will help deal with the collapse in housing affordability which has disproportionately impacted younger Australians. The reforms are about rebalancing a tax system that favours assets over workers as well as concessions that have fundamentally distorted the housing market, he added.

"Of all the fine balances we struck... perhaps the most essential was between responding to the demands of the here-and-now while taking seriously our intergenerational obligations," Chalmers said.

"These changes and this intergenerational focus aren't about putting older and younger people at 10 paces. We recognise and respect the really big contribution that older Australians have made and continue to make to our country and our economy."

Last night, Treasurer Jim Chalmers' jampacked "five budgets in one" covered housing, fuel security, cost-of-living relief, tax reforms and productivity improvement.

The highly anticipated overhauls to the capital gains tax (CGT) discount and negative gearing, which aim to "level the playing field for first home buyers," captured much of wealth managers' attention as many clients will now have to reassess their investment vehicles and tax structures.

The 50% CGT discount will be replaced with inflation-adjusted indexation as the federal government seeks to restore the taxation of real gains across all asset classes. The new rules will apply from 1 July 2027. Changes to negative gearing reforms are also set to take effect on this date.

Residential property will be limited to new builds that genuinely add to housing supply. Properties held as of 12 May 2026, meanwhile, will be exempt and arrangements will not change for existing investors.

Discretionary trusts, meanwhile, are set for a shakeup after being slapped with a 30% minimum tax.

From 1 July 2028, Chalmers proposes to introduce the new tax that will be paid by trustees given they control distributions.

Beneficiaries will still need to declare the income in their tax returns. Beneficiaries, other than corporate beneficiaries, will receive non-refundable credits for the tax payable by the trustee, which can be used to offset current year income tax liabilities.

"The minimum tax will mean a fairer rate of tax is paid on income from discretionary trusts, more closely aligning the tax rates for trusts with the rates paid by workers who earn a living from wages," he explained.

In a bid to protect more investors, Treasury pledged $10.3 million to ASIC to better data use when supervising managed investment schemes.

This comes as the government launched a review to focus on governance and oversight of registered MISs used by retail investors following the collapses of First Guardian and Shield Master Funds.

The aged care sector will receive a $3.7 billion boost to increase the supply of residential aged care accommodation, accelerate the release of Support at Home packages and enhance the quality and affordability of services.

The government will tighten the reins on the National Disability Insurance Scheme (NDIS) eligibility and compliance, saying it will revert to "original intent" by delivering quality services, clarifying eligibility requirements, slow rapid cost increases and address fraud.

This means NDIS payments will reduce by $37.8 billion over the next four years.

The government will provide $19.2 million over four years to establish a technical advisory group and to ensure representative organisations can facilitate community consultation on the reforms.

To encourage investment in startups, the government will adjust asset and fund size caps for venture capital to compensate for inflation since they were last set, starting July 2027.

For small businesses, the $20,000 instant asset write-off will be extended from July 2026.

Among the losers, the ban on foreign investors purchasing existing homes will be extended until mid-2029 as part of a sweeping housing and tax reform package aimed at improving affordability and lifting home ownership.

Meanwhile, the new $2 billion Local Infrastructure Fund hopes to accelerate housing delivery and easing development delays, supporting local governments and state utilities providers in delivering essential "last mile" infrastructure, like water, power, sewerage and road connections needed to unlock new housing developments.

'Generation-defining reset' for investors

The tax changes will have far and reaching consequences for investors, several experts and stakeholders in financial services say.

RSM Australia national tax technical partner Liam Telford said: "This is the most significant structural change to how investment income, capital gains and family-owned businesses are taxed since the introduction of the 50% CGT discount in 1999."

"Three of the foundations of how Australian families and businesses have organised their affairs for the past quarter-century are being rewritten at once. The interactions between the measures are as important as the measures themselves."

The Australian Shareholders' Association (ASA) chief executive Rachel Waterhouse said the CGT discount reforms undermine confidence in long-term investing.

While the changes are not comprehensive tax reform, Waterhouse said they are "a significant tax package affecting how Australians invest, hold assets, rebalance portfolios, manage small business structures and plan for retirement."

"Much of the public debate has focused on housing, but these measures also affect shareholders, small business owners, younger Australians saving and investing for a home deposit, working professionals building wealth outside the family home and self-funded retirees managing long-held investments," she said.

This is particularly concerning as young Australians turn to shares and ETFs as a practical way to try and build a home deposit or create wealth "when property ownership feels increasingly difficult."

"Tax changes should not make that pathway harder," Waterhouse added.

Experts in financial services, such as financial advisers and accountants, will have their work cut out, scrambling to help clients get their affairs in order prior to several changes slated for mid-2027.

Telford warns that business owners, investors and family enterprises face fundamental change, and a compressed window to reassess their structures before the changes take effect, saying this is "an unprecedented, potentially generation-defining reset of investor and business tax settings."

On discretionary trusts tax changes, Holding Redlich tax partner Dhanushka Jayawardena said the government has done what 25 years of tax reform reviews recommended and neutralised the tax advantage of discretionary trusts over companies.

"With both vehicles now sitting at or around 30%, and small business companies sitting below that at 25%, the case for a discretionary trust collapses to non-tax considerations. Asset protection and succession planning remain valid reasons to choose a trust. Tax efficiency is no longer one of them," Jayawardena said.

"We expect a meaningful migration into corporate structures over the three-year rollover window, and a near-universal default to companies for new structures from 2026 onwards."

Hamilton Wealth Partners financial adviser and managing director Will Hamilton slammed the tax reforms.

"The government does not have a mandate for these changes. The Prime Minister stated clearly that taxes would not be raised and key settings such as negative gearing would not be altered. That promise has been broken, there is no more generous interpretation available," he said.

"This is tax reform in name only. Higher taxes, no meaningful reduction in personal tax brackets, a company tax rate well above the OECD average, and new complexity for small businesses and family enterprises."

Financial Services Council (FSC) chief executive Blake Briggs is concerned about the proposed CGT changes applying to all asset classes rather than being targeted at the housing market.

"The Treasurer has used the well-established inequity in the housing market as a stalking-horse for tax increases on investments in asset classes that would play an important role in lifting Australia's economic growth," he said.

Furthermore, Briggs pointed to Australia's economic growth being downgraded to 1.75% in the coming financial year.

However, the Treasurer has elected to increase taxes on investments in productive areas of the economy, he said, which discourages Australians to invest in shares, managed funds and other high growth sectors, such as venture capital, and "will only serve to reduce access to capital for the engine room of the domestic economy."

The ABA said the Federal Budget has laid the groundwork to push productivity across financial services.

ABA chief executive Simon Birmingham said increasing the focus on improving productivity and regulatory reform would be crucial to supporting business investment, creating jobs, lifting living standards and driving stronger economic growth.

"At a time when Australians continue to face cost-of-living pressures, lifting productivity is essential to sustainably growing wages and improving living standards," Birmingham said.

"Budget measures that support productivity growth across the financial services sector are vital to maintaining a strong and competitive banking system."

ABA also welcomed the projected improvements to the overall budget position through lower deficits and a more sustainable fiscal trajectory.

"The government's broader productivity package aimed at reducing red tape and regulatory costs is encouraging, alongside reforms that incentivise business investment and innovation, such as making the instant asset write-off permanent," Birmingham said.

"However, productivity reform must not be set and forget. An ongoing and ambitious reform agenda is required to deliver long-lasting productivity improvements."

The Actuaries Institute also acknowledged the steps announced in the budget to begin tackling structural reforms aiming to improve resilience and strengthen the economy over the long term.

"While there are constraints and competing priorities, the government is taking meaningful steps in this Federal Budget to address today's long-term challenges," Actuaries Institute chief executive Elayne Grace said.

"Sustained focus will be needed to build Australia's long-term resilience to cope with mounting economic, environmental, geopolitical and social stresses."

The government said it will reduce regulatory costs by $10.2 billion each year, boost long-run GDP by around $13 billion a year and promote $400 million more investment in R&D by young firms each year.

"Our reforms make substantial progress on 13 of the 17 reform areas identified in the Productivity Commission's inquiries into Australia's productivity agenda, progressing the majority of near-term recommendations for the Commonwealth," Treasurer Jim Chalmers said.

The changes are expected to reduce growth in NDIS payments by $37.8 billion over the next four years.

"The government will design a standardised, evidence-based assessment of functional capacity to determine scheme access," the budget read.

The government will provide $19.2 million over four years to establish a technical advisory group and to ensure representative organisations can facilitate community consultation on the reforms.

"NDIS market settings have resulted in provider viability challenges, variable quality and poor outcomes for some participants," the budget read.

To address this, the government will provide $49.4 million over four years to the National Disability Insurance Agency (NDIA) to ensure participants receive the best supports and to address provider viability challenges. NDIA is expected to introduce differentiated pricing for some support delivered by unregistered providers.

The government will also provide $200 million over three years to rebuild community organisations capabilities to host genuine participation activities.

Unscheduled reassessments, the government said, has been the major driver of spending growth in the program, an average reassessment resulting in a 20% increase in plan value.

To address this, the government will tighten criteria for plan reassessment and strengthen guidance on what is "reasonable and necessary supports".

"Budgets for social, civic and community participation and capacity building daily activities will be reset and New Framework Planning will deliver more equitable, consistent and sustainable participants plans from 1 April 2027," the budget read.

The government will invest $821.2 million over four years to expand the mandatory registration of providers, introduce a new enrolment system to increase oversight of payments, continue the Fraud Fusion Taskforce and strengthen the NDIA's investigative and enforcement capabilities.

"Fraud and non-compliance undermines the social licence of the NDIS and has a direct and devastating impact on the lives of participants and their families," the budget read.

Last month, Minister for health and ageing Mark Butler said NDIS is "one of Australia's great human rights achievements" and was created with goodwill, it has strayed too far away from the scheme's original intent.

He said the NDIS actuary has advised the government that spending has blown out by $13 billion over the next four years. The changes are expected to net savings of about $15 billion a year by the end of the decade; the scheme is currently estimated to cost $70 billion by 2030.

The NDIS will continue to grow each year and remain Australia's largest social program outside of the Age Pension, the government said.

The 2025/26 deficit came in at $28.3 billion, a far cry from the $36.8 billion that had been projected.

"The [government] is delivering a stronger and more sustainable Budget with smaller deficits, less debt and net policy decisions that improve the bottom line," Chalmers said.

"Responsible economic management is a defining feature of this government, and this Budget is our most responsible yet.

"Strong fiscal discipline is even more important at a time of heightened global uncertainty, and that's exactly what we're delivering."

Additionally, compared to the MYEFO, the Budget is $44.9 billion stronger than forecast.

"It is more than a quarter of a trillion dollars better than what the Coalition left us," Chalmers said.

"This is possible because of our responsible approach to finding savings and reprioritisations, spending restraint and banking all revenue upgrades."

Debt is down a further $18 billion in 2026-27 than forecast in the mid-year, saving the government $70 billion in interest costs over the decade.

The peak in gross debt is now forecast to be 35.8% of GDP, 1.2 percentage points below the mid-year update.

"Gross debt as a percentage of GDP remains below what we inherited in every single year," Chalmers said.

"We've found a further $63.8 billion in savings and reprioritisations, taking the total since coming to government to almost $180 billion."

Chalmers added net policy decisions are positive for the second consecutive update, with net decisions accounting for provisions totalling $26.1 billion over the forward estimates.

"For the first time on record, consecutive updates have returned every single dollar of revenue upgrade to the bottom line. This means the government has returned 76% of revenue upgrades," Chalmers said.

"Looking further ahead, the budget bottom line is better and debt is lower in every year of the medium term."

Chalmers said the revised forward estimates for the Budget are a result of "disciplined decisions" the government has made to "rebuild fiscal buffers".

Chalmers acknowledged global uncertainty has hit the economy, however Treasury are projecting the Budget will return to balance over the medium-term.

"Australia is not immune from uncertainty and volatility in the global economy as a result of conflict in the Middle East," Chalmers said.

"We are well placed and well prepared to confront these challenges with faster growth at the end of last year than any major advanced economy, low unemployment, solid wage growth and stronger public finances than most of the developed world."

The 50% CGT discount will be replaced with inflation-adjusted indexation as the federal government seeks to restore the taxation of real gains. This takes back the CGT discount to the pre-1999 framework where the cost base of an asset is adjusted for inflation. The new rules will apply from 1 July 2027.

The 50% CGT discount for individuals, trusts and partnerships will be replaced with cost base indexation and a 30% minimum tax rate.

"Cost base indexation will ensure that in future, only real capital gains are subject to tax, encouraging investment to flow to where it's most productive," Chalmers said.

"The minimum tax will complement these changes by reducing incentives to hold onto assets to realise a gain when it's most tax advantageous. The minimum tax will also support more consistent taxation of lifetime income by aligning the tax rate on real capital gains with the marginal tax rate faced by the average worker."

Chalmers introduced transitional arrangements to limit the impact on existing investments.

Investors who acquire new homes will be able to choose either the 50% CGT discount or the new arrangements when they sell the property.

Negative gearing reforms are also set to take effect on 1 July 2027.

Residential property will be limited to "new builds that genuinely add to housing supply."

Properties held as of 12 May 2026, meanwhile, will be exempt and arrangements will not change for existing investors.

Investments that support government housing programs, for example, through the provision of affordable housing, will also be exempt.

Chalmers said reforms to negative gearing and CGT are "prospective and respect previous investment decisions and will not impact the main residence CGT exemption or superannuation tax arrangements."

The exemption of superannuation was met with resounding relief.

The Association of Superannuation Funds of Australia (ASFA) chief executive Mary Delahunty said this is a win for 19 million Australians with a super account, who value stability in super's tax settings.

"Super offers every Australian a deal: if you set aside money for your retirement and reduce your future reliance on the age pension, you are rewarded by paying less tax. Australians rightly expect those tax concessions to remain stable, and that's what this Budget has delivered," Delahunty said.

For the next steps, Chalmers will consult with stakeholders on key details of the CGT reforms, including the treatment of early-stage and start-up businesses given the "unique features of the tech and start-up sector."

He calculates the changes to support some 75,000 additional first home buyers into the market over the next decade.

"Combined with additional housing supply measures, this Budget will support up to 30,000 new homes over the same period, and more as the benefit of productivity-enhancing reform flows through into the housing market," he said.

This hike has now fully reversed the 75bps of cuts delivered last year and the cash rate is now in-line with its peak during the post-COVID-19 pandemic tightening phase.

HSBC chief economist Paul Bloxham said the move marks a difference from other global central banks.

"The fact that the RBA has been hiking makes it an outlier amongst of the major global central banks, with all of the major central banks - including the US Fed, ECB, Bank of Japan and Bank of England - all holding their policy rates steady at their meetings last week," Bloxham said.

"Largely, this reflects the starting point for the Australian economy where, prior to the Middle East conflict, the economy was operating beyond its full capacity, with a tight jobs market and underlying inflation that is well above its 2.5% target midpoint."

The RBA also updated its forecasts for the Australian economy, now seeing growth revised down to 1.3% for 2026 and 1.4% for 2027.

On core inflation, the forecasts see a peak in the trimmed mean of 3.8% in Q2 2026, up from 3.7%, before it falls towards the 2.5% target of the mid-point over the following two years.

"The RBA's central case assumes that the Middle East conflict is resolved soon and that oil prices peak soon around US$100 a barrel before falling to just under US$90 a barrel by end 2026," Bloxham said.

"In our central case, the RBA keeps it cash rate steady at 4.35% in coming quarters.

"A key risk to our view is that the Federal budget, which is due to be delivered on 12 May, is more expansionary than we have been assuming and that this could force the RBA to have to hike further."

Betashares chief economist David Bassanese said the rate hike was expected and suggested another rate hike may do more harm than good.

"Although central banks often aim to 'look through' the impact of short-run energy price shocks on the economy, the RBA is especially concerned that the latest shock is coming at an inopportune time of already tight labour and product markets. With both business and labour likely feeling they have good bargaining power, there's a higher than usual risk that the energy price shock becomes embedded into inflation through a round-robin series of wage and price increases," Bassanese said.

"Ominously, the RBA forecasts also assume the cash rate will 'move in line with market expectations', which currently incorporate one to two more rate hikes this year.

"By contrast, my view is that if the RBA did deliver two further rate hikes this year, we're likely facing a recession. Will that be needed? We can only hope not."

Bassanese said he is expecting the three hikes already delivered this year to be sufficient to "take some of the wind from the economy".

"At the least, the RBA seems likely to hold rates steady at the next policy meeting in June, allowing for some time to assess the economic impact of the rapid-fire rate hikes already delivered," he said.

While nothing has been confirmed, and Treasury has yet to respond to Financial Standard's inquiries, multiple media outlets suggest the changes will be unveiled as the government focuses on Budget reform.

When asked about potential changes to negative gearing at a press conference in Canberra, Chalmers said there are genuine intergenerational concerns and pressures on the Budget, tax system and housing market the government seeks to address.

"A government like ours, a responsible government, cannot ignore the very real pressures and concerns that people have in our communities," Chalmers said.

"I think the intergenerational pressures are really serious. We recognise and respect the really big contribution that older Australians have made and continue to make to our country and to our economy. But a lot of Australians, and particularly younger Australians, are finding it really difficult to get into the housing market. That's not the fault of older Australians. It's the fault of successive Coalition governments who didn't take housing seriously enough.

"What we are thinking through as we finalise this Budget is not about, and never will be about, setting some Australians against other Australians. It's about recognising some of these legitimate intergenerational concerns which, in my experience, are often shared by older Australians as well."

Chalmers said the Budget will be "ambitious" and consider the real pressures and concerns broadly shared around the Australian community.

"Recognising that the first year was a year of delivery and the Budget will begin a year of more ambitious reform," Chalmers said.

Chalmers confirmed the Budget will include a productivity package and a tax reform package but did not delve into the details.

"The election began a year of delivery and the Budget will begin a year of more ambitious reform. Reform, which is made more, not less urgent, by global inflation and global economic uncertainty," he said.

"The Budget will be calibrated for the conditions, but it will also still be consistent with our ambitions. As you've seen in the year since the election, at the reform roundtable and subsequently, some of the themes of the Budget will be very familiar to you."

Speaking to Financial Standard, Wingate Group co-head of private wealth Joel Rosen explained the current dynamics between different locations across the nation. Although Sydney and Melbourne continue as powerhouses for entrepreneurship and investments, other states are slowly catching up.

He added it is very rare to have several cities or states across a country that have "so much embedded wealth".

"... how we view Australia as a country compared to these cities, is that people have realised each city has their own unique story and they're booming for very different reasons. It's unique that none of them are similar to the other, which is quite interesting," he said.

"If we use the example like Perth, which is a huge resource-driven economy, you'd be observing a host of economic activity based on a very resource-driven space. Whereas, moving to the likes of Sydney, not only have you seen a real estate boom, but you're also seeing the AI explosion and a tech entrepreneur boom."

Rosen said closing the gap will require more collaboration between local governments and the private sector across other states and territories, as well as increasing investment appeal for lesser-known locations.

"Internationally, the best outcomes have been achieved through public-private partnerships - it's got to be a joint initiative," Rosen said.

"When big industry players couple with local and state governments, and market the country as a safe haven, all these things historically has worked really well."

He noted that there are organic movements for Brisbane, attributed by the upcoming Olympics.

"... all this infrastructure spend, and they've had positive property growth... They need to take more of that narrative and push it out to the global audience to position themselves out of just Melbourne and Sydney when foreigners or the global markets are looking into Australia."

MA Financial chief executive Julian Biggins agrees but noted foreign investors are traditionally more tentative to engage with the capital cities.

The recent research from Knight Frank supports this, noting Sydney has become one of the favourite cities for commercial real estate among foreign investors, drawing almost half of the entire nation's cross-border investment in 2025 for the asset class.

"Foreign capital really wants to be in the big capital cities, while Brisbane and southeast Queensland are attracting a lot of domestic capital, there's only been a bit of foreign capital come in," Biggins said.

"New South Wales will always have a strong heartbeat because of the nature of the city... We've seen quite a few transactions happen in the last 12 months where you've seen foreign capital, whether it's South Korea, Japanese or Singaporean, it's mainly capital from around Asia now."

"But Melbourne is getting an overlay where the stamp duty, foreign tax, and the economic performance of the state have been pretty weak for a while."

Australia is seen as one of the top priorities for foreign investors, particularly across Asia, given the current uncertainty and volatility coming out of the US, Biggins added.

"Australia has climbed the ladder in terms of where it sits in conversations for Asian investors," Biggins said.

"And that's been demonstrated in real estate transactions that we've been involved in..."

For this, Rosen said it is now the time for other cities to shift the general perception of Australia to really capitalise on the attention drawn.

"And taking a couple of the pages out of the box of what got Sydney and Melbourne popular over the years, and what other cities are doing internationally to bring in focus, is what they need to do," Rosen continued.

"Because there's a key opportunity where we've got this window at the moment, where the whole world is looking into Australia, that if they are able to differentiate themselves, it will be a key opportunity to bring in this foreign direct investment."

"March CPI inflation of 4.6% is up from the 3.7% annual inflation to February. Annual CPI inflation is the highest it's been since September 2023," ABS head of prices statistics Sue-Ellen Luke said.

Trimmed mean annual inflation was unchanged at 3.3% in the 12 months to March 2026.

Housing, which is the highest weighted group in the CPI, was the largest contributor to annual inflation in March, with a rise of 6.5%. This was followed by an 8.95% rise in transport.

The rise in transport was due primarily to a 32.8% monthly increase in automotive fuel prices, as a result of the ongoing conflict in the Middle East.

"Automotive fuel prices rose 32.8% from February to March, which pre-dates the halving of the fuel excise on 1 April. The increase in March is the largest monthly increase since the series began in 2017, reflecting the impact of the conflict in the Middle East on fuel prices," Luke said.

BNY APAC macro strategist Wee Khoon Chong said the data reinforces market expectations that the Reserve Bank of Australia (RBA) will continue lifting the official cash rate.

"While business and market sentiment remain fragile amid geopolitical uncertainty, persistently high oil prices and a tight labour market are likely to sustain upward pressure on inflation, keeping the RBA hawkish. We expect a hawkish hike in May," Chong said.

"The focus will be on the updated forecasts in the Statement of Monetary Policy, particularly the near-term OCR path. Markets are currently pricing in just under three hikes by end-2026."

VanEck head of investments and capital markets Russel Chesler said today's inflation read was "no surprise".

"It is now very likely that the RBA will increase the cash rate to 4.35% at its meeting next week Tuesday," Chesler said.

"The full effect of the Iran war and the increase in the oil price continues to feed into the economy. We expect year-on-year inflation to move even higher when the figures for April are released."

Chesler said VanEck is also anticipating wages to start reacting to rising inflation.

"Fair Work is expected to release its decision on the minimum wage increase, which flows through to about 50% of wage earners early in June," he said.

"We expect the minimum wage increase which was 3.5% last year to come in higher this year and has the potential to be well above 4% and have a further knock-on effect to inflation."

Chesler said he anticipates three RBA rate hikes by the end of the year, bringing the cash rate to 4.85% - levels not seen since 2010.

"In our view, this may be overly aggressive. The RBA faces a difficult balancing act, containing inflation without placing excessive strain on an already stretched consumer and tipping the economy into recession," he said.

Pearce said that while there have been some ups and down associated with the conflict, he said this is another situation where a major geopolitical event has not translated into a lasting negative impact on the share market.

"In fact, I would suggest that fear levels didn't rise much at all. Why do I say that? It's because we're the finance industry. We measure fear," Pearce said.

Pearce said the VIX index - which measures market volatility - spiked far more on Liberation Day when US President Donald Trump announced his initial tariff plan than it has during this most recent episode.

"We see nowhere near the same level of fear, and in fact as we speak today, that fear has all but dissipated," Pearce said.

Additionally, Pearce said while oil prices have grown, and may remain elevated, it's unlikely to derail global growth.

"In particular, it won't be enough to derail the growth in corporate profits that are being driven by investment super cycles. We're talking about super cycles in AI, data centres, the energy transition, infrastructure," he said.

"All this is contributing to growth, and this is still happening regardless of what's happening in the Middle East."

Pearce said there were several takeaways from the crisis in the Middle East and how markets have reacted. The first being "beware the predictions of geopolitical experts".

"These predictions don't hold much value when the actors involved are irrational and unpredictable. There's a school of thought that Trump's administration acts with a 'grand master plan' in mind, that Trump himself plays 'four-dimensional chess', he's 'ahead of the game'. What nonsense," Pearce said.

"From the time this war started, it's pretty clear that it was devoid of a coherent strategy. It's been riddled with miscalculations from go to woe."

Pearce said another lesson, however, is despite the reservations and concerns the world might have with US leadership, in times of a crisis, global capital still flows to the US.

"And that's indeed what happened during the height of the recent panic. The death of US exceptionalism may indeed come one day, but it's not today," he said.

Pearce said in times of crisis, it's important to remember the only truly consistent, reliable, safe haven is the "humble cash account".

"When share markets were falling recently, gold prices were also falling. Bond prices were falling. These are traditional safe havens," he said.

Pearce added that while it is true that "cash is king", that may come at a cost and it's usually the cost of missing the recovery.

"Investing in the Australian market over the last 30 years-if you were fully invested in the Aussie market-your return would have been about 9.4% p.a. If you had just missed the 10 best days in that the 30 years, that return reduced to 7.5% p.a. That's a big drop when you think about the compounding impact of that. And that's just 10 days," he said.

"We know it's impossible to predict when those 10 days are going to happen. They happen often at the most unlikely of times. And it goes on. If you miss the best 20 days, the return goes to 6.1% p.a."

UniSuper members switching out of growth options into more defensive options like cash made up around $1.4 billion in member funds, but Pearce said around $300 million has since moved back.

"That means there's still a lot of money sitting on the sidelines. It's missed the recovery. It's not over yet, so those members might still get a chance to get back in at lower prices, but we just don't know. It's all a bit of a gamble," Pearce said.

Butler lamented that although the NDIS is "one of Australia's great human rights achievements" and was created with goodwill, it has strayed too far away from the scheme's original intent.

He said the NDIS actuary has advised the government that spending has blown out by $13 billion over the next four years. The changes are expected to net savings of about $15 billion a year by the end of the decade; the scheme is currently estimated to cost $70 billion by 2030.

The government says the scheme's growth rate will also be halved to 5% a year under the changes.

"Right now, the NDIS costs too much and is growing too fast, put alongside any comparable government program," Butler said.

"And unless we take action to make it sustainable, it simply will not be there in the future for the Australians who need it most.

"We can't afford for the NDIS to continue growing at its present rate."

Growing issues with the scheme include the surging number of recipients far exceeding what was anticipated, and "the lack of integrity" in the system that has opened the door to organised crime.

"The NDIS was originally intended to support around 410,000 people with a disability. Today there are 760,000 people on the scheme," Butler said.

"The Australian Criminal Intelligence Commission has told a review into NDIS integrity that criminals are paying cash kickbacks to participants and their families and sometimes resorting to intimidation and threats of violence towards vulnerable people."

The minister is set to table a Bill following next month's Budget to enforce a more stringent application process, which will strip off access to the NDIS from some 160,000 people.

"The Bill I intend to introduce in the Budget sittings will allow us to introduce standardised, evidence-based assessments of a person's functional capacity to determine access to the scheme," Butler said.

"This is a big change to the scheme - the details of which will be worked through carefully over coming months with a technical advisory group, members of the disability community and the states.

"While new eligibility rules need to be worked through, our initial modelling will see the number of people on the scheme reduce to around 600,000 by the end of the decade instead of growing to well over 900,000."

Further, Butler will establish programs with different states to conduct NDIS reviews to provide local support to people who are not given access to the NDIS.

"This work already has $6 billion allocated to it by earlier decisions of National Cabinet," he said.

"... this will see us rebuild systems that used to be there for people with less significant support needs in partnership with the community and states and territories.

"Systems that were unfortunately dismantled, leaving the NDIS as the only port in a storm for many Australians."

Butler will also reassess the management of payments and claims, where currently the scheme has "visibility" of evidence for 90% of claims that are made by plan managers or providers.

"That's around 600,000 claims every day without supporting evidence," he reiterated.

"This underlines the serious need for action to tackle the lack of integrity in the payment system.

"Enrolling providers in a digital payments system means the NDIA will be able to see evidence from every single provider and ensure that they're paid directly."

A boost for aged care

Alongside the restructuring of the NDIS, Butler has introduced measures to deliver new aged care packages.

Butler said the Budget will invest $3 billion in delivering more beds, packages and better care for older Australians, while $200 million will be invested to deliver 20 additional Specialist Dementia Care units to expand the Hospital to Aged Care Dementia Support Program.

He also said the increased rebate for Australians over 65 for private health insurance, introduced in 2004 under the Howard government, will no longer be available, stating those funds will be diverted back into aged care, while returning the rebate on the same level paid by everyone.

Dementia Australia welcomed the announcement.

"We know that people living with dementia are disproportionally impacted when demand for limited care places is high," Dementia Australia executive director services, engagement and research Kaele Stokes said.

"The number of Australians living with dementia is expected to increase to more than one million by 2065, so it is critical that care right across the spectrum is available."

However, she was more cautious when it came to the proposed NDIS measures.

"Dementia Australia recognises the government's commitment to ensuring the long-term sustainability of the NDIS scheme," Stokes said.

"It is too early to fully understand how these changes could impact people living with young onset dementia and their families. Dementia Australia will carefully consider the announced measures as more information becomes available.

"It will be particularly important that the new eligibility arrangements announced do not disadvantage people living with young onset dementia where functional capacity can fluctuate but care needs progressively increase over time."

The $1 billion Economic Resilience Program, $5 billion Net Zero Fund, and $150 million in concessional finance under the Forestry Growth Fund. These programs are all sub-funds under the government's $15 billion National Reconstruction Fund.

The Economic Resilience Program will provide zero interest loans to fuel, fertiliser and other critical supply chains businesses who are materially impacted by market disruptions related to current conflicts and global price rises for key inputs, the government said.

Eligible businesses seeking a loan of up to $5 million with no more than $100 million of annual turnover can have the loan directly administered by a participating bank, while those seeking a greater loan amount with higher annual turnovers will have their loans administered by the NRFC.

Banks participating in the program include the Commonwealth Bank, Westpac, NAB, ANZ, Bank of Queensland, and Bendigo.

Applications for loans open today.

Meanwhile, originally on track to open mid-year, the Net Zero Fund will open sooner to support new manufacturing investment and improvement of energy efficiency in hard-to-abate sectors, the government confirmed.

This includes scaling domestic manufacturing capabilities in clean energy supply chains - such as wind, solar and energy storage solutions - and the production of low carbon liquid fuels, it said.

Further, the Forestry Growth Fund will support timber processing for use in housing construction and investment in mills and processing facilities to move up the value chain.

Prime Minister Anthony Albanese said the accelerated delivery of funds will help protect local manufacturing and supply chain businesses from market disruptions, and support investments in increased production capability, capacity and decarbonisation efforts.

"Unprecedented events overseas continue to disrupt businesses here at home - the Economic Resilience Program is about investing in more production for fuel, fertiliser and logistics," Albanese said.

"We are serious about backing Australian jobs, businesses and industries. And today we are taking action to get this money flowing well ahead of schedule."

Speaking in Washington DC, Chalmers said the Budget has been under constant review as the conflict rages on but said he is still prepared to present it on May 12.

Chalmers has been in the US taking part in discussions with US Treasury Secretary Scott Bessent and other G20 nations.

"We will do our best to take into consideration all of the developments around the world and especially in the Middle East," Chalmers said.

"These developments are having a huge impact on our economy already and we expect that impact to continue. And so these discussions have helped us calibrate the Budget to the international conditions that make sure that we're striking all the right balances between near-term pressures, longer term obligations, resilience and reform.

"And I'm confident we can strike the right balance. But we are hostage to developments in the Middle East in particular, and that's why this engagement has been so important."

Chalmers also welcomed the news of progress and dialogue between the US and Iran, which he said will hopefully lead to the end of the war.

"From an economic point of view the end of the war can't come soon enough. The consequences of this conflict on the other side of the world are already very serious for Australians, and they risk becoming severe," he said.

"We welcome the news that there will be more dialogue and, ideally, more progress towards an enduring ceasefire, the end of the war and the opening of the Strait of Hormuz in an ongoing way."

Chalmers used strong language during the update from the discussions he was involved in, saying the global economy "desperately needs" to see free passage through the Strait.

"This is a dangerous moment in the global economy. As I said, the costs and consequences of this war are already serious. They do risk becoming severe," he said.

"Australians haven't chosen the circumstances of this war, but they are paying a very hefty price for it at the petrol bowser and beyond."

The IMF has downgraded its growth projections for 2026, expecting the global economy to slow down to 3.1% in the year from 3.4% in 2024-25.

This projection is a "reference forecast" and assumes the Middle East conflict will have limited duration, intensity, and scope, such that the disruptions will fade by mid-2026.

Under an adverse scenario with larger and more persistent increases in energy prices, global growth would slow further to 2.5% in 2026 and inflation would reach 5.4%, IMF said.

An even more severe scenario with further damage to energy infrastructure in conflict regions can mean global growth would be cut to a mere 2% in 2026, while inflation could jump to 6% by 2027.

Absent of the war, the IMF said global growth would have been revised upward.

"The downward revision for 2026 largely reflects the disruptions from the conflict in the Middle East, partly offset by carryover from recent strong data and reduced tariff rates," the IMF said.

While the toll growth and inflation revisions seem relatively modest at the global level, the IMF predicts a more pronounced impact on commodity-importing emerging market and developing economies with preexisting fragilities.

The IMF has revised growth for advanced economies to 1.8% in 2026 from 1.9% in 2025. The revision is more steep for emerging market and developing economies which are projected to grow at 3.9% in 2026, compared to 4.4% in 2025.

"The impact on emerging market and developing economies would be almost twice that on advanced economies," IMF said.

Gourinchas said with the right policies, including swift cessation of hostility and reopening of the Strait of Hormuz, the damage can remain limited.

Considering the fluid environment of the conflict, Gourinchas said the IMF felt the need to supplement its reference forecast with more extreme scenarios in energy markets.

"Very clearly with every day that passes where we don't have a resolution and where the flow of gas is more limited through the Strait of Hormuz, we are moving away from the (reference) scenario," he said.

Gourinchas added the reference scenario of oil prices remaining at an average of $80 a barrel is still relevant.

"We could still have a normalisation if a solution is found that will bring down energy prices towards that scenario assumption. I would say we are somewhere "in between" the reference and the adverse scenario," he said.

Speaking at an event in New York, Hauser said there isn't much the RBA can do about current conditions and the focus must be on the future.

"It's obvious that inflation is going up in the short term, and people are very conscious of that. We can see that in consumer surveys. There's not much monetary policy can do about that, other than prevent it from getting into long-term inflation expectations," Hauser said.

"The big question for us is what it's going to do to activity, and therefore what that's going to do to inflation over the medium term. Those are the numbers we're crunching through at the moment."

Hauser said the ongoing conflict in the Middle East has put Australia's economy in a unique position.

"The energy intensity has some good news and bad news. We are a net energy exporter: that coal, liquid natural gas, is quite a good earner at the moment, but we are almost wholly reliant on imports for oil, and we are the highest user of diesel per capita in the world," he said.

"So, this is a big real income shock for Australia, even if national income and the fiscal coffers may benefit from that net export position."

Hauser added that while the short-term economic effects of the Middle East conflict are doing damage, there is reason to believe things may calm down.

"You don't want inflation expectations in the medium to long term picking up. That, of course, is a central banker's nightmare and we're very alert to that. Long-term inflation expectations have not picked up, if you look at markets. But of course, that's partly endogenous of expectations about policy," Hauser said.

"But we do need to take account of activity. We do need to take account of the possibility that that will close the output gap for ourselves. Of course, the trickiness there is we know it affects demand, but we probably think it affects supply as well. So, our economists are being kept very, very busy trying to work out that trade off."

Meanwhile, HSBC chief economist Paul Bloxham said the Australian economy has suffered two significant negative shocks over a six-week period, the RBA's back-to-back rate hikes and the sharp rise in fuel prices.

"Our expectation has been that these shocks will weaken household disposable incomes enough, that it would push the economy into a contraction," Bloxham said.

Monthly consumer sentiment for April showed a sharp drop to 80.1 - its lowest level since 2023, consistent with COVID-19 era lows.

"Although it is difficult to fully reconcile the very low level of consumer sentiment with other measures of the economy, we see the sharp change lower - down by 12.5% month on month, which is its largest monthly drop since the pandemic - as a clear signal of a sharp weakening in the economy as already arriving," Bloxham said.

Similarly, NAB's business confidence survey also showed a sharp drop (down 29 points), also falling to its lowest level since the pandemic.

"Our reading is that the dual shocks will primarily and initially feed through the economy as a sharp reduction in household disposable incomes - by our estimate a decline of around 1.8% in disposable income - that will weaken consumer spending," Bloxham said.

"We then expect this to feed through to weaker business activity, eventually weakening hiring. We expect that household consumption will fall in Q2 and that this will see GDP fall in that quarter too."

Bloxham said these developments will put the RBA in a tricky spot moving forward.

"We expect the RBA to remain focused on concerns about excessive inflation in the short run. However, once the activity indicators weaken in a substantial enough way that the RBA is convinced that the jobs market will also loosen more quickly, we expect that the RBA will then determine that it can credibly forecast that core inflation will return to its 2.5% target and will not feel the need to tighten further," he said.

"As we have shown recently, a close look at the RBA's reaction function over recent years shows that the central bank has tended to prioritise its 'full employment' mandate over achieving on-target inflation."

The agreement arrived a day after an ultimatum, issued by US President Donald Trump, threatening to wipe out Iran's critical infrastructure should it fail to reopen the Strait of Hormuz by the deadline.

Commenting, Ten Cap chief investment officer Jason Todd said the ceasefire builds on the "significant positive developments" in other aspects of the conflict such as back-channel diplomacy, elective and regional powers intervening in a positive way.

"Today's extension of the prior ceasefire which now involves further conditionality around opening the Strait is just another continuation of these developments and the gradual creep higher in the equity market (outside of today's rally) is indicative of this," Todd said.

"We think incremental developments around the Iran conflict will continue to be treated as positive for the market but the ASX200 which fell 9% peak to trough has already recovered 7% of this decline and given there are still risks associated with the flow of oil, we have probably seen a lot of the rebound simply as a result of a decline in the risk premium and uncertainty."

He believes there will be a wave of earnings downgrades in the coming weeks but shouldn't vary too much away from the average stock that is down about 15%.

However, Betashares chief economist David Bassanese said, despite Trump's ultimatum on Iran, the market reaction was more "muted" than previously seen, adding the pattern is becoming familiar with the "boy who cried wolf", exacerbated by the TACO principle - the concept that "Trump Always Chickens Out".

"Yet while it may be tempting for investors to look through Trump's threats - the ultimate endgame remains very uncertain," Bassanese said.

"Trump is likely still looking for a face-saving exit, but Iran does not want to oblige so easily. One thing is certain: events in Iran will remain centre-stage for investors for at least the next two weeks and uncertainty will continue to buffet markets.

"At this stage, moreover, Iran appears to remain intransient to threats. And given Trump's repeated backdowns, these threats are starting to ring hollow. Indeed, it's notable that market reaction to Trump's latest ultimatum was more muted than seen previously."

Meanwhile, deVere Group chief executive Nigel Green said a relief rally of this magnitude reflects how stretched sentiment had become.

"Investors were bracing for escalation that could have choked off a fifth of global oil supply. Remove even part of that threat and capital flows back into equities at speed," he said.

"Consumer discretionary will also benefit. Lower oil feeds through to gasoline prices, which supports spending.

"Airlines, travel, and retail are also going to be immediate winners from cheaper fuel and improved sentiment."

Albanese said the government is focused on creating stability and security for the nation but said this will not happen "standing still while the world changes around us".

"It means anticipating and creating change, true to Australian values and in Australia's interests. Because if people feel like the economy is not working for them, if they're putting in the effort but not seeing the reward, if planning for the future feels like a luxury, then government cannot provide stability, just by keeping things as they are," he said.

"There is no security in maintaining a status quo that doesn't work for people. Economic reform that drives growth, boosts productivity, tackles inflation and lifts living standards is always necessary.

"And in times of uncertainty such as this, it is urgent. We all know the mindset that left Australia exposed to this global shock."

Albanese laid blame on pervious governments for cutting TAFE training, pressuring manufacturing and industry to go offshore, and putting multinational firms ahead of Australian gas users.

Albanese accused former governments of thinking "Australia could get away with this, because there would always be someone else, somewhere else, who would sell us what we needed cheaper than we could make it ourselves."

He said this put Australia in a position of vulnerability and "will not take us out of it."

"We were investing in Australia's economic resilience well before this crisis began. And for our government, international uncertainty is not an excuse to delay or hold back reform - it is the reason we must press ahead," Albanese said.

"Because we will not generate the same prosperity or create the same opportunities, if we continue to rely on an economic model designed in a different time and built for a more predictable world. Nor can we go back to those days.

"And any party or leader who promises otherwise, anyone who pretends that the solution to housing or jobs or wages or health is to somehow to recreate the 1950s or 60s, or whatever time they imagine everything was hunky dory, is simply not being fair dinkum."

Albanese said Australia will not be able to "find our future security in the past", or by copying the approaches other nations.

"We have to invest in it, build it and create it for ourselves. We can, we must - and we will," he said.

"And even as we plan and build for this stronger, more resilient future, our number one priority remains helping people with the cost of living. That is the balance we will strike in next month's Budget. It is our government's most important Budget to date - and it will be our most ambitious. It has to be."

Albanese stressed that the scale of the challenge facing the nation is not lost on the government, but that the breadth of opportunities ahead "demands ambition and urgency".

"And our Australian character demands that ambition too. That's what I mean when I talk about progressive patriotism. Uniting to celebrate what we have - and working together to make it better," he said.

"Recognising that because we live in the best country in the world, we have a responsibility to build for the best. And to empower every Australian with the opportunity to be their best. As a matter of national pride - and in order to realise our national potential.

"These Australian values are the right ones to guide us through this crisis - and to shape what comes next."

Albanese said the government will assist businesses being squeezed by the conflict with interest-free loans, through the $1 billion Economic Resilience Program. He said this should help truck drivers, freight companies and fuel and fertiliser producers continue their critical work.

This program will be a sub-fund under the government's $15 billion National Reconstruction Fund (NRFC). The NRFC will partner with banks to begin rolling out the loans in the next fortnight.

"These firms are not just being affected by this crisis, they are essential to Australia getting through this crisis," Albanese said.

"So, our government will extend their credit to help them, and the farmers and producers who rely on these supply chains, to weather the storm. This is just another way we are acting to get ahead of issues.

"No government can promise to eliminate the pressures this crisis will impose. But we can be a buffer against the worst of it. A shock absorber, in a time of global shocks. We will do everything we can to protect the Australian people from what the world throws at us."

The main reason for the rise was driven by increased property values the value of residential land and dwellings rising 3.2%, equivalent to $368.6 billion.

This contributed two percentage points to the growth in household wealth, while superannuation assets contributed 0.3 percentage points.

"Rising house prices continue to be the main driver of growth in household wealth in the December quarter," ABS head of finance statistics Mish Tan said.

"The mean price of residential dwellings was up 2.7% in the December quarter 2025, with strong growth seen in Western Australia, Queensland and South Australia."

Household borrowing grew 2%, or $64.2 billion, reducing the overall growth in household wealth by 0.3 percentage points.

Total demand for credit was $142.4 billion in the December quarter.

This was driven by households ($63.3bn), private non-financial businesses ($48.3bn) and general government ($24.3bn).

Household demand for credit was higher than September 2025, which came in at $31.4 billion, driven by growth in housing loan balances.

"The December quarter had the strongest growth in housing loan balances since December 2021, with strength across all borrower types," Tan said.

"Recent policy changes for first home buyers were reflected in the strength of new loan commitments which are flowing through to the increase in housing loan balances."

In the December quarter, an expansion of the Australian government's 5% Deposit Scheme was introduced as well as the  Help to Buy Scheme.

Despite the rise in household wealth, Commonwealth Bank head of Australian economics Belinda Allen said the bank's outlook for the economy is still being downgraded.

"In response to the conflict in the Middle East, we have revised our outlook for inflation higher, downgraded our outlook for economic growth and increased our forecast for unemployment," Allen said.

"Prior to the war, the economy was clearly operating above its supply capacity, and the RBA had signalled it wanted to see demand slow, to bring above-target inflation down.

"With interest rates rising, we were already expecting growth to ease modestly in 2026. The current energy and supply shock further complicates the picture - it will drive up inflation further and hurt growth, particularly consumer demand. The combination of these forces makes the outlook for both monetary and fiscal policy more nuanced."

"The 3.7% annual CPI inflation to February eased slightly from the 3.8% annual CPI inflation to January," ABS head of prices statistics Sue-Ellen Luke said.

Annual trimmed mean inflation was 3.3% in February, just below the market expectation of 3.4%.

Additionally, annual trimmed mean inflation in January was revised down from 3.4% to 3.3%, meaning inflation has now held at 3.3% for the past three months.

While that may seem like positive news, Betashares chief economist David Bassanese said the data does not necessarily mean inflation is easing.

"As the RBA has long argued, the monthly CPI reports can be volatile, with still not well-known seasonal variability," Bassanese said.

"[The] 'soft' February report follows on from a seemingly 'hot' January report. [The] report also pre-dates the recent surge in petrol prices owing to the war in Iran."

Bassanese said this is why the Reserve Bank of Australia (RBA) will not be waiting on the all important quarterly CPI data, due to be released in April.

"All up, we'll get a better picture of recent inflation trends when the all-important March quarter CPI report is released in late April. That report will also include the recent surge in petrol prices," he said.

"Of course, depending on how US-Iran 'peace talks' progress in the coming days, petrol prices could soon ease once again, though this won't be early enough to be reflected in the March quarter inflation results.

"As it stands, therefore, it's still likely that the March quarter inflation report will be uncomfortably high, leaving the Reserve Bank under pressure to raise rates again in May. News of a possible peace deal in Iran can't come quickly enough."

Likewise, Bendigo Bank chief economist David Robertson said the data proves inflation is still uncomfortably high, but a May interest rate hike may not yet be a given.

"This marginal easing sets a slightly lower baseline ahead of the impending impact of the oil shock driven by the Middle East conflict, suggesting the next RBA hike may not be until August," Robertson said.

"The front loading of the two hikes this year, after the 5-4 vote for the March hike, has prioritised inflation ahead of jobs in the RBA dual-mandate, so leaves the next decision at the mercy of more information on labour markets, as well as any signs of de-escalation in the Middle East.

"The bulk of the price pressures leading into the oil crisis continue to come from housing inflation (now up 7.2% y/y), but the focus in the next CPI reports will no doubt be on fuel prices."

Treasurer Jim Chalmers - who is preparing to hand down the Federal Budget in May - said he is focused on keeping petrol prices as the conflict in the Middle East continues.

"While we've seen inflation tick down today, it was too high before the war and the conflict in the Middle East will make it worse," he said.

"We recognise people are still under pressure, which is why we're rolling out responsible cost of living relief and taking action to shore up fuel supply and ensure Australians are getting a fair go at the bowser."

Chalmers said Australia is not immune from global uncertainty or volatility, but the economy is well placed to deal with global shocks.

"We're well placed and well prepared with faster growth than any major advanced economy, low unemployment and solid wages growth," Chalmers said.

"The Albanese government's three main economic priorities are addressing inflation, productivity and resilience, and global uncertainty and [the inflation] figures show why that's the right approach."

The agreement will see the EU to eliminate duties on approximately 98% of Australia's exports entering the EU, while emphasising support on investments in both directions, and allow small and medium-sized enterprises (SMEs) in Australia to have better access to European government contracts, worth around $845 billion annually.

"Australian service providers will have greater market access to the European Union, including in financial services, education, tourism and communications. Australian professionals will be able to travel to the European Union more easily and will benefit from streamlined recognition of their Australian qualifications," Prime Minister Anothony Albanese explained.

"I am proud that we have been able to secure this deal, which will deliver benefits for both Australia and the European Union for generations to come.

"This deal creates major new opportunities for Australian exporters in the European Union's massive $30 trillion economy, and will reduce costs for Australian consumers."

Although the negotiations have concluded, the free trade agreement has not yet come into force.

The Super Members Council (SMC) is urging the government to swiftly ratify the agreement to expedite implementations.

The SMC said peak bodies will work with governments and partners on both sides to ensure the agreements translate into practical outcomes for businesses, workers and communities.

The SMC believes the agreement will remove barriers to support investment, innovation and job creation across Australia, including regional communities where many resources, critical minerals and clean energy sectors are based.

However, the agreement will also fast-track Australia's participation in Horizon Europe - a seven-year initiative for sustainable development - and enhance our defence industry capabilities.

Commenting, SMC chief executive Misha Schubert explained how super funds can tap into these investment opportunities.

"For millions of everyday Australians with super, a comprehensive free trade agreement with the EU can help open the door to further investment opportunities that will be hugely important to their retirement incomes," Schubert said.

"The EU already attracts billions of dollars of super investment, and that's set to continue as Australians' super funds continue to scour to the globe for the best places to deploy hundreds of billions of dollars more in coming years, offering further opportunities to deliver good long-term, risk adjusted returns for their members."

Meanwhile, BMI, part of Fitch Solutions, released an outlook for the Australia-EU free trade agreement, stating both economies will observe complementary benefits over time despite an earlier positive capture by the EU.

"Over time, clearer labelling rules and phase-outs/grandfathering arrangements will reduce consumer confusion and help EU producers better differentiate authentic products on Australian shelves," the report said.

"In parallel, EU manufacturers and service providers, ranging from industrial and engineering names, like Siemens and ABB, to automotive groups, such as Volkswagen Group and Mercedes-Benz, stand to benefit from improved procurement access and services/investment disciplines that can translate into incremental but durable market share gains in a high-income, standards-driven import market."

For Australia, the agreement's core value is more concentrated towards improved entry conditions into Europe, but benefits will likely accrue gradually, the report said. This is due to the EU's most commercially openings for Australia are typically in regulated and politically sensitive areas, especially agri-food.

In response, Iranian President Masoud Pezeshkian said the US threats were "delirious".

"The illusion of erasing Iran from the map shows desperation against the will of a history-making nation," he said in a post on X.

"Threats and terror only strengthen our unity. The Strait of Hormuz is open to all except those who violate our soil. We firmly confront delirious threats on the battlefield."

Betashares chief economist David Bassanese said there is now a very real risk of a major surge in risk-off sentiment, adding that hopes for a Trump TACO moment - meaning 'Trump always chickens out' - seemingly fade.

"It's a Middle East form of MAD - mutually assured destruction. Attacks on energy infrastructure and/or further signs the US is considering 'boots on the ground' could see oil prices soar, which would hurt both equity and bond markets," Bassanese said.

"As we saw in 2022, if a global energy shock plays out, there may be a further rotation from interest rate-sensitive cyclical and technology sectors into more value-orientated defensives and resources."

Bassanese said Australian markets are suffering, with the ASX 200 falling another 1.5% this morning, closing in on a 10% correction.

"Given the seriousness of the events in the Middle East, it's perhaps surprising equity markets have not fallen harder in recent weeks - likely because investors have been hoping Trump would end hostilities at any given moment. So far that's not been the case, and sadly we may need to see more market pain before a Trump TACO moment might arrive," he said.

As the back and forth continues, global oil prices continue to take centre stage with Treasurer Jim Chalmers convening a special meeting of the Council of Financial Regulators to discuss the conflict in the Middle East, its potential implications for the Australians economy and financial markets, and actions being taken to shore up resilience.

"Australia has a strong and resilient financial system that is well placed to confront global instability, and that was the clear message from regulators [on Friday]," Chalmers said.

"While Australia is not immune to global challenges, we have strong economic fundamentals and our banking system is well-capitalised."

Chalmers added that the government and financial regulators "remain vigilant" to emerging risks and are working together to prepare for all scenarios.

"The recent conflict in the Middle East has compounded uncertainty in the global economy and is having an impact at home, including on fuel prices," he said.

"We've appointed a Fuel Supply Taskforce Coordinator to work with the states and territories to get fuel to where it's needed, released up to 762 million litres of petrol and diesel from domestic reserves and temporarily relaxed fuel standards to get more petrol to service stations.

"We're increasing surveillance, doubling penalties for misconduct and empowering the consumer watchdog to get to the bottom of what's going in the fuel sector."

Chalmers said there is more the government is working on and he has also engaged with New Zealand's financial minister Nicola Willis on responses to the conflict.

"We'll continue to work closely with regulators to ensure we're doing everything we can to maintain fuel security, economic stability, address price pressures and make our supply chains more resilient," he said.

In its latest Financial Stability Review report, the RBA highlighted high-profile defaults of automotive parts supplier First Brands Group and subprime auto lender and dealer Tricolor last year underscored "opaque linkages and common exposures between non-bank credit providers and the broader financial system."

Banks reported more than US$1 billion writedowns from their direct lending to these firms, as well as their exposures through credit funds and warehouse lending facilities.

Another example is UK-based mortgage lender Market Financial Solutions, which some global banks and private credit providers reported material exposures to.

In the US, the RBA pointed to some private credit funds experiencing an increase in redemption requests.

BlackRock's private credit fund HPS Corporate Lending Fund (HLEND) is one example, activating its 5% limit after investors sought to take out US$1.2 billion.

Blackstone, Morgan Stanley and Cliffwater have also experienced a surge in redemption requests and capped withdrawals.

"Concerns have also grown among investors around private credit and private equity exposures to the software industry, where valuations have come under pressure in the face of potential disruption from AI-based competition," the RBA said.

In Australia, since the escalation of the Middle East conflict, the RBA observed funding conditions tighten and financial market volatility pick up.

"Despite the strong growth in their lending, non-bank lenders still only account for 6% of financial system assets, limiting their systemic importance. Private credit has continued to grow strongly. Nevertheless, available estimates suggest private credit remains a small part of the overall financial system, accounting for less than 2% of assets in the financial system," the RBA said.

Furthermore, the conflict has impacted the energy and other commodity markets, resulting in spill over to other asset classes.

"The geopolitical environment remains highly fluid. The conflict in the Middle East could trigger a larger shock that destabilises the global economy, particularly if supply disruptions to oil and other commodity markets are prolonged," the RBA warned, foreseeing the potential for a "severe international shock."

Despite this, Australia's financial appears to have "a good degree of resilience, though the risk of a more material adverse shock has increased over recent weeks."

However, he said the government will work to mitigate the risks facing Australia in the May Federal Budget.

"While Treasury will retain its long-term productivity assumption in this Budget, it will make some near-term adjustments. Previously, it expected productivity to return to trend within two years," Chalmers said.

"Now it expects that convergence to take closer to five, in line with other key long-run assumptions."

Another issue Chalmers is hoping to address is evolving population dynamics, with Treasury anticipating higher-than-expected net overseas migration of around 300,000 people a year. Treasury said this should help boost the economy.

"Net overseas migration is 45% below its peak, but Treasury expects the fall to be more modest over the forecast period, mainly due to lower than expected departures," Chalmers said.

"Treasury's fertility assumption will also be revised down to reflect lower expected births, in line with international trends."

Chalmers said work trends are also evolving, with Treasury expecting participation to edge higher over the next couple of years, primarily led by women and older workers.

"Altogether, it means Treasury has changed its view of potential growth in the near term," he said.

"This change alone means GDP is now likely to be a quarter to half a percentage point weaker in the middle years of the forward estimates. A small change in a forecast, but it tells a bigger story. Not primarily a demand story, but a supply one."

Chalmers said Australia is facing inflation challenges in the near term, productivity in the medium term and ongoing global uncertainty.

"Treasury estimates that GDP would be 0.6% lower in 2027 and even by 2029 would still be below where it would have been without the conflict [in the Middle East]," Chalmers said.

"Around half of the impact to GDP is due to the impact of higher oil. The other half is due to broader consequences.

"Treasury, with other agencies, is continuing to undertake detailed modelling and scenario planning on industry and supply chain impacts."

Chalmers said as the conflict in the Middle East continues, Treasury estimates inflation could peak in the "high fours or even higher" this year.

"These effects add a further quarter of a percentage point to headline inflation and double the negative impact on GDP," Chalmers said.

"In the short-term case, output would be 0.2% lower around the middle of this year but this gap would quickly close because the shock is short lived.  But the more prolonged scenario would leave a bigger scar."

Chalmers said capacity constraints on the supply side are expected to weigh on the economy.

"It's why our Budget preparations are focused on three ambitious reform packages. A savings package. A productivity and investment package. And a tax package as well," Chalmers said.

"These packages are being designed to work together. If the main constraint we are collectively facing is capacity, these packages will help expand it."

Chalmers said more savings will make room for private sector growth while building fiscal buffers, and productivity enhancing reforms should help boost supply, generate higher living standards and unlock more investment.

Chalmers said the government's aim is to help the economy grow without adding to price pressures.

Chalmers added tax reforms will focus on driving more productive investment while supporting budget sustainability and equity.

"Together, they will form a comprehensive supply side strategy. To expand capacity and boost resilience, lift potential growth and deliver higher wages, without more pressure on prices," he said.

Chalmers said he is committed to budget repair having already found $114 billion of savings and reprioritisations across seven budgets and mid-year updates.

"The budget is now more than $233 billion better than when we came to office and debt is $176 billion lower this year compared to the 2022 PEFO," Chalmers said.

"This means that debt is forecast to peak much lower - around 37% of GDP compared to the almost 45% we inherited."

However, Chalmers said that while good progress has been made, more needs to be done over the medium-term horizon.

"We're overhauling our approvals regimes, strengthening and streamlining our foreign investment regime and opened our Investor Front Door," Chalmers said.

"We're reforming the payments system, abolishing tariffs, cutting red tape and streamlining the National Construction Code.

"We're seizing the opportunities from net zero and the digital economy and investing in our human capital - with Free TAFE, the universities accord and fairer schools funding."

The Treasurer said the government will have a sharper focus on unlocking "productive investment", better regulation, faster approvals and more open trade.

"It will be all about three things, attracting and absorbing investment; making it easier to build and build faster; and cutting compliance costs where we can."

On tax reform, the Treasurer said it is an important part of the government's productivity agenda with a focus on cutting income tax rates, lifting thresholds, returning bracket creep and incentivising participation.

"We are working on more tax reform in the Budget - how much we can do in May depends on fiscal considerations, international developments and Cabinet deliberations," he said.

Chalmers added that the current tax system is "outdated" and weighs on younger Australians. He said reform would have a substantial focus "on our intergenerational responsibilities".

Chalmers said if the government "can afford to", it will look at tax reforms that could incentivise productive business investment.

Lastly, addressing the ongoing conflict in the Middle East, Chalmers said it was a stark reminder of how quickly the global economic outlook can change.

"It is adding to inflation risks, weighing on growth, and increasing already elevated uncertainty," he said.

"But it is also a stark reminder of why addressing our three key economic challenges is so urgent.  All this economic uncertainty and volatility is a reason for more reform, not less. It's a reason to go further, not slower.

"We have deep capital markets, a world-leading super system, abundant natural advantages in energy and resources, and a public balance sheet in far better shape than most of our peers. But we are not complacent about the risks in a global economy that is perilous and unpredictable. We will make hard decisions in May.  Our task is not just to respond to shocks, but to position Australia to succeed through them."

The Select Committee on the Operation of the Capital Gains Tax Discount, established in November 2025, tabled its final report this week, publishing four key findings.

The committee said it received consistent feedback that the current design of the discount rules results in "a degree of concessional treatment relative to labour income which can distort decision making and incentivise tax planning."

The current discount provides for a 50% reduction to the tax payable on an asset held for 12 months or more. The government has been toying with the idea of reducing the discount for some time; it, along with removing negative gearing, was a commitment the Labor party took to the 2019 election.

Independent MP Allegra Spender released a whitepaper this month which called for the CGT discount to be reduced to 30%, estimating that it - coupled with other tax reforms - could generate $29 billion in income tax cuts for workers.

Meantime, the committee's final report also said the design of the discount has the potential to distort the allocation of investment across the economy, with existing homes making up a significant amount of capital gains that benefit from the discount.

Perhaps most damning, though not surprising, was the committee's statement that although there are several factors that influence the housing market, "there is evidence the concessions provided by the capital gains tax discount, in combination with negative gearing, have skewed the ownership of housing away from owner-occupiers and towards investors."

Its final finding was that the benefits of the discount are unequally distributed, which subsequently impacts wealth and intergenerational inequality.

Research by the Australian Council of Social Services found the five highest earning electorates in Australia capture more than 20% of total CGT discount expenditure. The bottom 10 electorates only capture 1.6%.

In a dissenting report, the Opposition described the findings as simplistic and one dimensional, saying it is actually a lack of supply that is driving the housing crisis, and a simple tweak to tax is not a solution.

This view is supported by advice from the Reserve Bank of Australia, citing Treasury and Grattan Institute analysis, which found reducing the discount would have a 'relatively modest' impact on housing prices, with little change to supply.

It was also supported by the Housing Industry Association, which said taxing investors funding the development of more rental properties only worsens housing affordability and would lead to fewer houses, not more.

The Coalition said the current CGT discount is working as intended and should not change.

"It supports more investment, provides an incentive for new construction, and helps boost housing supply. Proposals to weaken or abolish it would not materially improve housing affordability, would reduce the rental stock supply and raise rents, and discourage investment and new construction," its response read.

"Abolition of the CGT discount would discourage new construction, undermine supply, and so push housing prices up. It is simple economics."

The decision to hike was all but split, with five voting members agreeing to hike rates and four voting to leave them on hold.

Interestingly, the board indicated ongoing conflict in the Middle East was not the main factor in its decision, but said it was cautious of the inflationary impact it could cause going forward.

"A wide range of data over recent months have confirmed that inflationary pressures picked up materially in the second half of 2025. While part of the pick-up in inflation is assessed to reflect temporary factors, the board judged that the labour market has tightened a little recently and capacity pressures are slightly greater than previously assessed," the RBA said.

"Developments in the Middle East remain highly uncertain, but under a wide range of possible scenarios could add to global and domestic inflation."

Betashares chief economist David Bassanese said the board's differing views "suggests a rate hike at the next policy meeting in May is not a done deal."

Bassanese added that it reflects the tensions associated with raising rates in the face of a global energy price shock.

"This shock both puts upward pressure on inflation and poses downside risks to economic growth," Bassanese said.

"Some board members clearly felt the mixed economic effects of the energy shock warranted keeping rates on hold, while others, likely including the RBA governor and deputy governor, were more concerned about the upside inflation risks, especially given recent solid GDP and employment reports along with the lift in consumer inflation expectations."

Bassanese said he believes the conflict in the Middle East will have ended by May, meaning oil prices will be materially lower.

"That said, my view is that this would still not be enough to stop the RBA hiking again in May, given the prospect of a further uncomfortably high inflation result for the March quarter, not helped by the elevation in energy costs over recent weeks," he said.

Similarly, Convera lead FX and macro strategist - APAC Shier Lee Lim said the May meeting is now "squarely in play".

"What [the] decision tells us is that the RBA is no longer willing to treat above-target inflation as a problem that time and patience will resolve," he said.

"With the energy shock from the Strait of Hormuz crisis now compounding already-sticky domestic price pressures, the board has effectively concluded that waiting for more data carries more risk than acting on the balance of evidence available."

Lim said that while many in the market - including all four big banks - are anticipating a May hike, he said it is not set in stone.

"I would caution against treating this as a done deal. For May to deliver another hike, we would need to see the Q1 CPI print confirm that inflation remains entrenched in services and housing - and that the energy shock has not materially dented household spending or business confidence," Lim said.

"A faster-than-expected resolution of the Middle East conflict, or a sharp fall in oil prices, could shift the calculus quickly. The RBA has been explicit that this is a data-dependent path, not a predetermined cycle."

Meanwhile, First Sentier Investors senior portfolio manager Ben Samuel believes a May hike is still on the cards.

"Ordinarily, a central bank faced with a fresh conflict in the Middle East might have the luxury of time, weighing the risks to both inflation and activity. The RBA is unfortunately in no such position, having struggled to control stubbornly high inflation in the post-COVID era," Samuel said.

"Much can change between now and the next meeting in May, however the RBA is clearly concerned about inflation expectations, and is for now focussed on addressing this risk.

"The case for further rate hikes remains strong, given sticky inflation and a still-resilient labour market."

National Australia Bank has predicted that inflation could reach 5% by June. Commenting on this possibility, Chalmers told Sky News over the weekend that it depends not just on the severity of this price shock coming out of the Middle East, but also its duration.

"We run a number of scenarios as well, just like the private banks do, we've got a couple of months to finalise the Treasury forecast for the Budget in May, and so obviously we are working through scenarios and contingencies like this pretty much every day as we try and land these forecasts for the Budget," he said.

"We've run a couple of scenarios which make it clear on some realistic assumptions about global oil prices and how that would potentially flow through to inflation and for how long. If we were putting pencils down on those forecasts today, we'd have inflation peaking somewhere between the mid to high fours, which isn't far off some of those private forecasts that you're referencing in your question."

Last week, Chalmers warned of the inflation challenge facing Australia, which has been exacerbated by the US-Israel war on Iran.

As for Australia potentially running out of petrol, Chalmers is confident this will not eventuate.

"That's not something we're expecting, in fact we have really more than enough fuel as it stands right now. We've got big stockpiles of fuel, whether it's petrol or diesel or jet fuel, and we work around the clock to make sure that Australia doesn't run out, we're certainly not expecting that we will," he told the interview.

However, a new Macquarie University study shows that petrol prices have jumped 50 cents a litre on average across Australia since the start of the Iran war.

The country currently has 36 days of petrol supply, 29 days of jet fuel, and 32 days of diesel left in the tank, according to Macquarie Business School senior lecturer Lurion De Mello.

De Mello explained that Iran has effectively closed the Strait of Hormuz, a critical passageway that carries 20% of the world's oil supply, and plunged oil markets into chaos as fears grow about global fuel supplies.

Prices have fluctuated sharply, reaching almost US$120 per barrel in recent days before easing to about US$100 last Friday.

"Hormuz is not just any flashpoint. It handles roughly one fifth of global seaborne oil and LNG supply, meaning even short interruptions can send shockwaves through markets. When the United States and Israel struck Iranian targets, insurers withdrew war-risk cover and freight rates surged to historic highs," De Mello said.

"This combination has turned a long-imagined scenario into a real-time test of global energy security. For Australia, the consequences are particularly acute."

"I've made it really clear that we had an inflation challenge in our economy and developments in the Middle East over the last couple of weeks will make that more challenging rather than less challenging," Chalmers said.

"We've seen already the way that the global oil price has spiked. We've been speaking about what that has meant for petrol prices here in Australia, and there will be flow-on consequences as well."

Chalmers said Treasury is in the process of updating its inflation forecasts which will be released when the government releases the Federal Budget in May.

"Some of the private economists have made their views clear already that they expect there to be additional upward pressure on inflation, and of course, that's something that the government's very focused on as we put this fifth Budget together in two months' time," he said.

Reserve Bank of Australia (RBA) deputy governor Andrew Hauser said right now, the immediate effect on inflation is the cost of petrol.

"Everyone's seeing that in real time today. Of course, over time that pick up in the cost of fuel will push up on prices and costs for firms, and it has implications over the longer term for people's expectations about wages and prices," he said.

"This is a classic adverse supply shock, to use the jargon, which means that higher cost for firms is likely to reduce their output, but it also weakens demand, lower consumption spending, the impact of uncertainty on households and companies type of financial conditions, and that's not just in Australia, but overseas as well."

Hauser added that despite concerns, the economic backdrop in Australia is in "good shape".

"Growth has recovered quite maturely over the past year. Unemployment is close to historic lows and compares very favourably internationally, and average levels of wealth and income in the economy are pretty good by international comparisons. But we have a problem with inflation. It's too high," he said.

"Our projection is that inflation will only return to the target range by the end of this year or into next year, and only back to the midpoint of that target range in 2028 and that's before this oil shock and other events."

HSBC chief economist Paul Bloxham said the ongoing conflict in the Middle East makes things tricky for the RBA.

"The domestic economy is operating beyond its capacity, and inflation is still too high, but the RBA does not know how much effect the hike in February has already had and the Middle East developments create significant uncertainty. There is little domestic economic data that post-dates either of these events," Bloxham said.

"The rise in oil prices related to the Middle East conflict will increase headline inflation but will also weaken growth - as it is a negative supply shock. Core inflation should not rise much, and the central bank could look through it."

However, Bloxham said with the events in the Middle East still being "highly uncertain", forecasting will be more difficult.

"The longer the conflict continues and oil and gas supply are blocked, the more likely it delivers higher energy costs and the more sharply it could weaken global and local growth," he said.

"However, another uncertainty for RBA observers concerns the RBA's reaction function."

Bloxham described Hauser's comments as "fairly hawkish", saying they imply "the RBA is more worried about high inflation than growth concerns - which are now added to by the Middle East events."

All four of Australia's big banks - CBA, ANZ, NAB and Westpac - expect back-to-back 0.25% interest rate rises in both March and May.

Commonwealth Bank head of Australian economics Belinda Allen said the situation has changed quickly.

"After hiking the cash rate in February driven by a fundamental reassessment of the economy, conflict in the Middle East has further threatened the inflation outlook. And at the same time also proposing downside risks to global and Australian growth," Allen said.

"What does a central bank do in this environment? There are arguments that can be made in being cautious and waiting to see how the situation evolves in the Middle East. Certainly, we took this view early last week. But the near-term inflation outlook, we expect, will carry weight given the current state of capacity pressures in Australia and recent commentary from the RBA has focused on inflation."

Allen said because of the concerning economic environment it is likely, at this stage, to expect an interest rate hike in both March and May.

"The debate will be lively, as it should be, ultimately we expect the RBA to focus on inflation and lift the cash rate in both March and May to take the cash rate to 4.35%," she said.

But not all agree, MFS Investment Management fixed income research analyst Carl Ang said while the market is pricing in around a 40% chance of a hike in March, a hold is still expected.

"A March hold by the RBA remains the base but one variable the market doesn't have visibility on is the RBA's business liaison feedback which typically emerges in official communications," Ang said.

"While recent official commentary has been largely balanced on risks stemming from the Iran conflict, there is the possibility of liaison feedback intensifying RBA concerns of cost pressures and price markups that entrenches underlying inflation well above target. This could be one factor that prompts an earlier-than-expected hike. Note our base case remains for a 25bps hike to 4.1% in May."

The conflict in Iran has continued to escalate and concerns are growing around the inflationary effects.

Ten Cap chief investment officer Jason Todd said few could have predicted the timing for the conflict.

"With little warning, the world has been plunged into a war between the US/Israel and Iran. As oil prices have spiked - modestly at first - but more aggressively as supply disruption fears have increased, equity markets have followed a similar path, but on the downside," Todd said.

"To suggest the conflict has escalated uncertainty at a time when markets were already navigating a long list of challenges is an understatement.

"The critical issue for investors is not the headlines themselves, but whether this conflict becomes long-lived enough to impair economic growth or meaningfully alter the inflation and policy outlook. Markets can absorb shocks, but what they struggle with is duration meaning that 'time' is the tipping point for the crisis to manifest itself into an economic shock that matters for markets."

"There was broad based economic growth in the quarter, with rises observed in a large majority of industries. Public and private demand each contributed 0.3 percentage points to GDP growth," ABS head of national account Grace Kim said.

"GDP per capita increased for the fourth consecutive quarter and is now 0.9% higher than a year ago, the highest through the year growth since December quarter 2022."

Deloitte Access Economics partner Stephen Smith said the data is a "case of when good news is actually bad news."

"In the 2025 calendar year, the Australian economy grew by 2%, doubling its 2024 growth rate," Smith said.

"While stronger growth may seem like positive news, it will be a concern for the Reserve Bank (RBA). The RBA is already of the view that the economy is operating above its potential."

Smith added that the central bank may be alarmed that there was no labour productivity growth recorded in the quarter.

"Unless this changes, low growth and high inflation could become entrenched as long-term features of the Australian economy," he said.

"Combined with elevated inflation, today's data will keep the RBA on high alert and increase the likelihood of a rate hike in May."

Smith said the key question to come will be how quickly growth is likely to slow and how policymakers will respond.

"As February's rate hike takes hold, consumers and businesses will rein in spending plans, dampening the outlook," he said.

"Adding to the uncertainty are the events in the Middle East. While it is too early to draw out any economic implications for Australia, if oil prices were to rise substantially over coming months, the resulting inflationary pulse would add a further degree of difficulty to the RBA's task of balancing growth and inflation."

On the more positive side of things, Smith pointed to wage growth, which is growing but slowly.

"One small mercy for Australians worried about another rate hike: the national accounts measure of wage growth recorded its slowest quarterly growth since September 2024," he said.

"This should calm the RBA's fear of an inflationary wage-price spiral."

Meanwhile, Betashares chief economist David Bassanese said the GDP data would not be enough to justify an immediate rate hike.

"Overall, despite the stronger than expected 0.8% gain in headline GDP, the report does not appear to provide the smoking gun the RBA would need to justify a rate hike as early as this month's meeting," he said.

"Adding to the case for caution, at least in the near term, is the surge in geopolitical risks associated with the conflict in the Middle East. While the conflict poses an upside risk to inflation through higher oil prices, it also creates an offsetting downside risk to non-energy inflation if extended hostilities undermine business and consumer confidence both at home and abroad."

Bassanese said at this stage, he believes an RBA hike will rest critically on Q1 CPI which will be released in late April.

"A strong result, with quarterly trimmed mean inflation of 0.8% or more, would likely result in a May rate hike," Bassanese said.

"Evidence of further strong domestic demand in today's Q4 data could have provided grounds for a rate hike this month, though as noted above, that evidence appears lacking."

Speaking at the event - which was held on February 26, prior to US strikes on Iran - Parker said we are moving into a more volatile global environment.

"We are in a less globalised, more volatile, more disrupted, multi polar world, where the geopolitical angle is very much front and centre. We are in a multi polar world where great power competition, in an economic sense, in a defence sense, is going to be a regular and ongoing feature," Parker said.

"The other thing that's worth acknowledging - and we've certainly done a lot of work on this in the last year or two, and speaking to pension funds overseas, they've also done a lot of work on this - is basically looking at the status of the United States in the New World Order. US exceptionalism in an economic and investment sense, we would argue, has peaked."

Parker said that is not to say the US is in decline, but rather the nation is entering an era where it being the "be all and end all, main game" has peaked.

"We're also meant for a more volatile world economy. Our world is more ripe for disruption, whether those disruptions are caused by technology or by climate change or by geopolitics. This is a world where we're going to see more frequent and more severe disruptions," Parker said.

"We also think this is a world where the demands on government to step up and do stuff is not going to go backwards. It's only going to go higher, whether it's to mitigate or to deal with the consequences of climate change, whether it's spending more money on defence, or, frankly, whether it's spending more money in education and training and welfare to help large numbers of people adapt to very, very rapid technological change, the rise and rise of artificial intelligence."

Parker said these increased demands on governments will lead to larger budget deficits, which will be more problematic for some countries over others.

"We frankly, don't see any appetite really anywhere to do anything really meaningful to rein in government budget deficits, certainly not on the United States or indeed, frankly, anywhere else," he said.

Parker added that some of the forces at play that will likely lead to higher government spending are also inflationary and could pose a threat to already sticky inflation in Australia, but also around the world.

"We have inflation that is uncomfortably above target, both here in Australia and a range of other economies. We do think that some of these disruptions that we're seeing, or we think we'll continue to see, are going to be inflationary," Parker said.

"Climate change, greater defence spending, these are fundamentally inflationary forces."

Speaking on the 2026 Financial Standard Economic Outlook webinar, Redican explained what we're experiencing is "burnout economics" - where one presses the car accelerator while having one hand on the handbrake simultaneously, causing the wheels to spin while not going anywhere.

"That is a good example of what is happening in the Australian economy at the moment," he said.

"The federal government has got the foot to the floor on trying to get growth going, whereas the Reserve Bank has the handbrake on, preventing the economy from growing any further."

Redican attributed majority of this structural concern to the Australian housing market.

To continue growth and meet housing demand for the growing population, the federal government has a target to build 1.2 million homes over the next five years, an estimated 25% growth in the supply year-on-year.

"How would the Reserve Bank react to that if housing investment was about to rise by 25%? Already it is saying the economy is at full capacity... They would raise interest rates, I am sure not just once or twice, but probably five or six times," Redican said.

This rise in rates, Redican noted, will have the sharpest impact on the housing market.

"By hook or by crook we are not going to get those homes in place over the next five years, and that's leading to structural impediments to Australian households," he said.

He also noted the rising gap between house prices and the average capacity for households to pay their mortgage rates. House prices have risen from three times household incomes to around seven times in 2026.

"Even though the population is growing rapidly, the amount of housing available to buy is shrinking and it is increasingly the top half of households who have a greater capacity to pay," Redican said.

This, he said, is pushing people to keep renting which is further pushing up rents across the country.

"Rents are the single largest part of the consumer price index basket. This is why inflation remains sticky," he said.

"But of course higher interest rates, which limits the supply of new housing, is probably not the best way to tackle this problem. We need to think differently from the simple kneejerk reaction."

These structural impediments have narrowed Australia's growth trajectory pushing Australian investors to look for opportunities offshore with better returns.

Redican sees Japan, Europe and the US as better prospects for investors as stimulatory fiscal and monetary policies push growth further.

Speaking on the 2026 Financial Standard Economic Outlook webinar yesterday, McMenamin attributed sticky housing inflation and expansionary financial conditions as the main drivers in the headline inflation figures.

Inflation had eased gradually from its pandemic peak in late 2022, falling to 2.7% in the June quarter of 2025. However, it unexpectedly picked up pace in the middle of last year, prompting the RBA to raise interest rates in February to 3.85% in a bid to reign it in.

"A 1% quarter-on-quarter increase in the trim mean measure of inflation that happened two quarters ago is historically rare, outside of the pandemic it's only happened three times before," McMenamin said.

"That isn't something that we think our policymakers should really be willing to ignore quickly."

McMenamin said the housing and market services segment represent a third of the trim mean inflation basket in weight but can explain 80% of the moves in the figures.

"These are the parts of the basket that give underlying inflation a lot of persistence," he added.

The two factors causing the sticky housing inflation include very high housing rents relative to reported numbers along with a rise in wages and material costs in the sector, McMenamin said.

Expansionary financial conditions, including rising housing prices, have also added to the persistent inflation.

"This is just a sign to us that conditions are not tight enough at a time when inflation is clearly well above target," he said.

The key difference, McMenamin noted, between the domestic and other economies around the world is that Australia has a much lower unemployment rate prior to the pandemic. He highlighted that Australia's labour market has proven to be extremely resilient.

"There's almost an excess of demand for labour," McMenamin said.

"The trouble for the RBA is actually reducing demand for labour across the economy and unfortunately causing a slight increase in the unemployment rate. That truly will be what gets inflation back to target."

Barrenjoey expects two rate hikes from the RBA in the months of May and August.

"We're probably a little bit above consensus. The average economist probably thinks they hike only one more time," McMenamin said.

He added that he sees household incomes remaining resilient to the rate hikes. He also remains positive on the housing market.

"We don't think that a couple of rate hikes will do much to slow growth in these capital cities or at least turn it negative. We think growth will slow a bit," he said.

The RBA expects inflation to peak in mid-2026 and moderate to a little above the midpoint of the 2-3% range by mid-2028 as the economy returns to balance.

You can now watch the Financial Standard 2026 Economic Outlook on demand, including presentations from Australian Retirement Trust, Barrenjoey, and TCorp.

Speaking at an event in Melbourne last night, Bullock said there is a fine line in economics between science and art.

"It is an art, but we try to bring a bit of science to it as well... forecasting itself is not easy, it is not a science," Bullock said.

"What you're doing when you're forecasting and modelling is you're summarising the individual decisions of millions of Australians and millions of people around the world and you're trying to put them into single equations and it doesn't work quite like that, it's not a science like that. So, there is a bit of an art to it."

Bullock acknowledged while the data the bank relies on is backwards looking, the RBA board does what it can to use that data as a starting point to determine where the Australian economy is heading.

"We know the data that we are getting is from the past... but that is our starting point and then we have to use what we know about historic relationships, models and those sorts of things to think 'what does this imply going forward?' We're not backwards looking, we are trying to be forward looking. But forecasting is inherently difficult. We have to do it and we do our best," she said.

In terms of where things are heading next, Bullock said there are more risks to the upside currently, but a patient approach is needed.

"I think there was a recognition in February that inflation was now too high, and forecasts were that it wasn't going to come back into target very soon, without some action on financial conditions. So, that is where we found ourselves, with risks more on the upside," Bullock said.

Bullock said currently economic conditions are making forecasting slightly more difficult for the board.

"When we were coming out of COVID and inflation was heading up to 8% and interest rates were zero, there was no doubt what we had to do," Bullock said.

"Now we're in a situation where the labour market, we think it's a little bit tight and inflation is a bit elevated - we don't think it's taking off again, but it's a little bit elevated.

"We're in this position, which is actually quite a good position, where the economy is sort of recovering. And this is where it's difficult.

"The judgments are a little bit more difficult. It's not like we've got a situation where it's very clear what we have to do. We've got ourselves in a position now where it's close to balance, a little bit tight, and that's why people have to be patient."

GSFM market analyst Stephen Miller said Bullock's comments suggest the central bank will leave interest rates unchanged at the March meeting.

"Those comments suggest to me that the current thinking of the RBA Monetary Policy Board is to leave the policy rate unchanged when it meets in March, but that May is a 'live' meeting," he said.

"A 'patient' approach would give the RBA time to assess not only the implications of more inflation data but gain some insight as to how other potential drivers of inflation are unfolding."

"The 3.8% annual CPI inflation to January was unchanged from December," ABS head of prices statistics Michelle Marquardt said.

"Trimmed mean inflation was 3.4% in the 12 months to January 2026, up from 3.3% in the 12 months to December 2025."

The largest contributor to annual inflation in January was housing, up 6.8%, followed by food and non-alcoholic beverages, up 3.1%, and recreation and culture, which rose 3.7%.

VanEck senior portfolio manager Cameron McCormack said following the data, the Reserve Bank of Australia (RBA) is more likely to pause and assess how economic conditions evolve over coming months.

"With inflation remaining outside the target band, and elevated across many components, a May rise is firmly in play," McCormack said.

"However, given the RBA's emphasis on taking a measured approach and preference to move rates on a quarterly basis, we expect policy settings to remain on hold for now, with the board taking additional time to assess incoming data."

McCormack said even though higher interest rates may be on the horizon, markets have already priced them in for the most part, so there are less concerns around rate sensitivity.

"A more cautious stance from the RBA should underpin market confidence. In equities, we see mid-caps as well positioned for potential outperformance this year," he said.

"For investors seeking longer duration defensive exposure, fixed rate subordinated bonds are currently yielding close to 6%. In an environment where policy uncertainty remains and growth is moderating, that yield for defensive exposure is compelling."

BNY APAC macro specialist Wee Khoon Chong agreed today's data suggests another rate rise is likely at the RBA's May meeting.

"Tight labour market conditions and elevated wage growth, alongside ongoing inflationary pressures, are likely to keep the RBA on a tightening path," Chong said.

"The market is currently pricing fewer than two hikes by end-2026, with the next as early as the May policy meeting.

"We see a risk that the RBA turns more hawkish and exceeds market rate expectations. A more hawkish RBA is positive for the Australian dollar; we expect further AUD outperformance versus peers."

Deloitte Access Economics partner Stephen Smith said today's read will make May a "pivotal" month for the economy as the government is also due to hand down the Federal Budget.

"Unless the Federal Budget meets the moment and outlines significant economic and tax reform, growth will stagnate and inflation will persist for longer than necessary," Smith said.

"While the government deserves credit for not continuing the electricity subsidies beyond December, today's spike in headline CPI was always going to be the political payback of a populist policy.

"The RBA is likely to remain cautious and continue its 'wait and see' approach over the next few months as labour market, national accounts and inflation data evolve."

Smith added the May Budget needs to "meet the moment" and outline significant economic and tax reform.

"As living standards atrophy and as the Reserve Bank wrestles with limp supply growth, it is fiscal policy that holds the key to lifting the pace of growth and bringing inflation back to target," he said.

For more economic insights, including from Australian Retirement Trust's Brian Parker, the 2026 Financial Standard Economic Outlook webinar takes place tomorrow at 11:00am AEDT. Register here.

RBA head of economic analysis department Michael Plumb struck a slightly more positive tone than the RBA board gave off in the Statement on Monetary Policy.

Plumb said the central bank believes inflation has been driven higher by sector-specific pressures, which it expects will ease in the coming quarters.

Inflation had eased gradually from its peak in late 2022, falling to 2.7% in the June quarter of 2025. However, it unexpectedly picked up pace mid last year, prompting the RBA to raise interest rates in February to 3.85% in a bid to reign it in.

The RBA had either cut or kept the cash rate on hold in the prior 17 consecutive meetings.

"Some of the pick-up in inflation in the second half of 2025 was driven by increases in the prices of travel and fuel, which tend to be volatile; we expect the prices of these items to ease in early 2026," Plumb said.

Additionally, some of the unanticipated rise in inflation was driven by price dynamics in the housing and retail sectors. In late 2024 and early 2025, homebuilders and retailers resorted to discounting and promotions to tackle soft demand, Plumb said. As demand conditions improved, it also saw a dial back in heavy discounts.

"It is possible that these dynamics were pushing down on aggregate inflation in late 2024 and early 2025, but then subsequently accentuated the pick-up in aggregate inflation in the second half of 2025 as they unwound," he said.

Plumb also highlighted greater capacity pressures in the labour market - and the economy more broadly - contributed to the unexpected pick-up in inflation. This, he said, was due to higher aggregate private demand in the economy.

Some of the reasons for strong private demand included a resilient global economy, strong domestic financial conditions, stronger-than-expected real household incomes and a jump in data centre investments.

Australia has recently seen a rise in data centres as global companies expand infrastructure to meet the compute demand for AI expansion.

"According to the latest capital expenditure survey and our liaison contacts, firms have recently upgraded their investment plans, especially in areas like utilities, energy, data centres and related technology, and non-residential construction more broadly," he said.

While Plumb noted the RBA does not expect the increase to continue in coming quarters at the same rate, strength in business investment in the sector is expected to be maintained in the near term.

RBA forecasts a slowing in GDP growth from late 2026 which would help ease capacity pressures and further ease inflation from mid-year.

The response by the President came within a day of him announcing a 10% global tariff on Friday after the court's decision. The tariff will be an increase for Australia, which currently has a levy of 10% on its exports to the US.

Trump, on his Truth Social account, said: "I, as President of the United States of America, will be, effective immediately, raising the 10% Worldwide Tariff on Countries, many of which have been 'ripping' the U.S. off for decades, without retribution (until I came along!), to the fully allowed, and legally tested, 15% level."

"During the next short number of months, the Trump Administration will determine and issue the new and legally permissible Tariffs, which will continue our extraordinary successful progress of Making America Great Again - GREATER THAN EVER BEFORE!!!"

This is, however, an interim tariff and will require Congressional approval within five months, Betashares said.

"With Republicans having only slim majority, the omens are not good.  It will only require a few Congressional members to find their backbone in the same way that a majority of Supreme Court judges have done," Betashares chief economist David Bassanese said.

Under the Supreme Court ruling, tariffs imposed for fentanyl trafficking and reciprocal tariffs imposed on most trade partners are now considered unlawful.

Barclays said the decision excludes the Section 232 sectoral tariffs on commodities like steel, aluminum, autos, copper, trucks, lumber and the Section 301 tariffs on China.

The decision to strike down the tariffs by the court was not unexpected with markets pricing the outcome with a 75% probability, Barclays said.

The Supreme Court stayed silent on the matter of providing a refund on the tariffs to trading partners. Barclays estimated about US$175 billion of tariffs has been collected since April and is, thus, subject to refunds.

"While we think refunds will materialise, the process could be dragged out and messy, i.e., we would not expect a single large transaction to all importers at one time," Barclays said.

Bassanese said the reality of Trump's long held desire to assault the global trading system through tariffs was always legally dubious.

"US Presidents simply don't have the legal power to wield tariffs as a weapon of global coercion in the way Trump desires - the only question is whether the Supreme Court would be cowered into letting Trump get his way. It was not," he said.

He added that trading partners may now feel more emboldened to threaten retaliation and the ruling has effectively dealt a 'body blow' to Trump's tariff strategy.

Trump in his social media post said the decision by the highest court was "ridiculous, poorly written, and extraordinarily anti-American".

The Australian share market dropped by as much as 0.5% by midday today while the Aussie dollar extended its gains for the week.

MFP decreased by 0.5% over 2024-25, below the 20-year average of 0.4% growth per year and well below the 1.6% annual average increases between 1994-95 to 2003-04.

At an industry level, agriculture, forestry and fishing led MFP growth at 10.4% over the last year. Mining saw its fifth consecutive year of declining MFP and had the largest fall of any industry in 2024-25 at 3.2%.

Productivity Commission (PC) research economist Joseph Christensen said increasing capital investment is key to addressing our labour productivity problem.

"With greater access to capital, such as equipment or software, workers can produce more of the goods and services we consume. However, we also need to ensure that we are investing in the right capital and using it effectively," Christensen said.

Christensen said more investment is important, but what Australia invest in and how the country use it also matters.

"Australia is performing better than average in this area, but there is always room for improvement," he said.

"Recent research on innovation shows that very few Australian firms create new-to-world technologies, and the rate at which Australian firms are adopting cutting-edge technologies at the productivity frontier has slowed."

Christensen added that Australian market sector research and development investment as a proportion declined by more than 40% between 1995 and 2025.

"New types of capital are less likely to exhibit diminishing returns, so improving technological innovation can offset the decrease in capital productivity coming from accumulation and improve labour productivity at a given level of capital intensity," he said.

"The PC has previously recommended that governments improve Australia's tax and regulatory systems to support innovation and provide free or low-cost access to research to increase the diffusion of ideas across all firms."

Christensen said it is "vital" Australia use existing capital as effectively as possible, saying evidence suggests capital reallocation from less to more productive firms in Australia has become slower and less efficient over time.

"Although most of the capital stock in Australia is privately owned, governments can improve the ways that firms allocate and manage capital resources, including by strengthening competition and increasing access to finance," he said.

"Further research into firm practices and economic conditions in countries like the Netherlands and the United States could show how Australia can better use its capital to increase productivity and improve living standards."

"The unemployment rate remained steady at 4.1% in January. Employed people grew by 18,000. Full-time employment rose by 50,000 people, partly offset by a fall of 33,000 people in part-time employment," ABS head of labour statistics Sean Crick said.

"The participation rate of 66.7% was 0.6 percentage points lower than the record high measured in January 2025."

Couple today's data with yesterday's wage rise of 0.8% for the quarter and 3.4% annually and economists say the data was in line with expectations.

"Today's labour market data broadly supports the view that conditions remain close to balance, although some residual tightness persists. That said, turn-of-year labour market prints tend to be volatile, and further data over the coming months should offer a clearer read on underlying trends," State Street Investment Management APAC economist Krishna Bhimavarapu said.

"Focus now shifts to the January CPI release next week, with markets watching whether the firmer-than-expected labour backdrop is feeding into inflation via capacity constraints.

"So, any upside surprise could trigger a material front-loading of expectations for the Reserve Bank's next rate hike, while a downside surprise is unlikely to meaningfully alter current pricing."

Betashares chief economist David Bassanese said the "solid gain" in employment following the strong rise in December confirms the labour market is positive news.

"The ongoing strength in the labour market data is consistent with a modest strengthening in a range of hiring indicators late last year," Bassanese said.

"From the RBA's perspective, the failure of the labour market to weaken means it will not be able to shift its gaze away from upcoming inflation data."

Bassanese said looking at the RBA's own forecasts, where it expects another relatively strong increase to trimmed mean inflation, another interest rate rise will be on the cards for May.

"The only reprieve for concerned mortgage holders would be a notable decline in inflation, which is possible if last year's price gains were driven more by one-off factors than by underlying demand pressures," he said.

The updated data revealed that the forecasted deficit for the current financial year edges slightly over $3 billion, with the deficit improving to just over $1 billion in FY27.

Along with a bigger surplus, the review projects a lower funding requirement compared to the June 2025 budget papers. The forecast borrowing requirement for 2025-26 is now $21.8 billion, down $2.4 billion, and $21.6 billion in 2026-27, down $4 billion.

The downward trajectory in issuance is helping the government achieve its objective of a sustainable gross debt position around 20% of gross state product, TCorp noted.

Meanwhile, projected revenue growth of 3.9% per annum over the forward estimates is driven by stronger stamp duty revenue and OneFund performance, which has a balance of $70.4 billion at the end of calendar year 2025.

OneFund combines several of the state's investment funds to strengthen its balance sheet, leading to improved investment returns and building long-term value for future generations, TCorp explained.

Together with projected revenue gains, it enables effective management of the state's interest expense and investment in key services such as housing, health and education. It also supports smaller, more manageable infrastructure spending - equivalent to about 2% of gross state product - on road and rail networks.

The state government also remains committed to its two key fiscal principles: returning to a sustainable operating position and stabilising to maintain a sustainable debt position.

Although there are continuing risks from the geopolitical environment, including increased expenditure, the government has been able to implement its agenda, managing expense growth and strengthening the state's revenue base, TCorp said.

There has been a net increase of $1.4 billion in expenditure - totalling $129.0 billion in FY26 - with employee expenses now accounting for $50.8 billion (or 39.4%), an increase of $1 billion since the June update.

"A fiscal strategy delivered over the long term, coupled with a strong credit rating profile, will continue to make NSW an attractive issuer for investors," TCorp said.

"In a world increasingly characterised by volatility and churn, consistency and predictability become prized and sought-after commodities."

In its Statement on Monetary Policy (SoMP), the central bank expects GDP growth to pick up slightly in the near-term before declining to just 1.6% through to June 2028.

"On the assumption that the cash rate follows the market path, Australian GDP growth is projected to pick up further in the near term, before declining to below estimates of potential growth," the SoMP said.

The RBA projects that from late 2026 onwards, GDP growth is expected to be lower than in the November SoMP and below its estimate of potential growth, with the higher assumed cash rate path beginning to weigh on private demand and GDP.

"The forecasts are conditioned on the market path for interest rates, with market participants expecting the cash rate to increase by around 60 basis points; by contrast, the November forecasts assumed the cash rate would decline by a further 30 basis points," the SoMP said.

"The outlook for dwelling investment growth has been revised lower in response, due to both the direct effects of higher interest rates and because of slower housing price growth over the forecast period.

"The outlook for household consumption growth and non-mining business investment in 2027 have also been revised down."

The RBA is also anticipating the unemployment rate will increase gradually to reach 4.6% by mid-2028.

"Leading indicators such as job ads, vacancies and employment intentions suggest labour market conditions could ease a little in the near term, although this is balanced by the stronger near-term outlook for activity," it said.

"Taking these points together, we expect labour market conditions to remain stable over the next few quarters. From late 2026, the unemployment rate is forecast to rise gradually, reflecting the slowing in GDP growth over 2026. The underemployment rate is also expected to edge a little higher."

This comes after Treasurer Jim Chalmers was forced to defend his government's spending after RBA governor Michele Bullock said increased government spending put pressure on inflation.

When questioned about government spending, Chalmers said "political opponents and their acolytes are deliberately and dishonestly trying to conflate two different things".

"The question isn't whether public demand can create inflationary pressures; the question is whether it did towards the end of last year, pushing up inflation higher than anyone would like and causing the independent Reserve Bank to hike interest rates during the course of last week," Chalmers said.

"Now, the point that the governor made... the point that I've made consistently throughout the week, is that the thing that surprised the Reserve Bank on the upside towards the end of the year was the recovery in private demand. The Reserve Bank governor actually pointed out that public demand retreated quicker than they were anticipating."

Despite his pushback, when further pressed on the issue of increased government spending Chalmers did concede it has grown.

According to the Mid-Year Economic and Fiscal Outlook documents, government expenditure will peak this year at 26.9% of the country's GDP.

Chalmers said addressing persistent inflation will be a primary influence on the Federal Budget that will be handed down in May.

"The Budget will be about productivity. We're working up a productivity package. There will be a savings package that we're working on. We'll consider whether more steps can be taken on tax reform," he said.

"But overall, it will all be about lifting the speed limit on the economy, making sure we can grow quicker with lower inflation, attracting investment, dealing with intergenerational issues, and also continuing to get the Budget in better shape."

The grilling came off the back of the Monetary Policy Board upping the cash rate target by 25 basis points to 3.85% on Tuesday.

At a hearing of the House of Representatives Standing Committee on Economics this morning, Liberal Minister for Cook Simon Kennedy sought to get to the bottom of what exactly is driving excess demand that has led to inflationary pressures.

Citing Mid-Year Economic and Fiscal Outlook (MYEFO) documents, government expenditure will peak this year at 26.9% of the country's GDP.

"According to Treasury's documents, government expenditure, excluding expenditure during Covid, will never be higher than this year as a percentage of the economy. It is the highest it will ever be excluding Covid in 30 years," he said.

Posing the question to RBA governor Michele Bullock, Kennedy asked: "Does government expenditure influence aggregate demand?"

"Yes," Bullock replied, explaining that aggregate demand in the economy is the combination of private sector demand, which is consumption, investment, and public demand across federal, state and local governments.

However, on Tuesday, Kennedy pointed to Treasurer Jim Chalmers referencing the RBA statement that makes no mention of government spending.

"But then he goes on to say it's not a factor in the decision they took [Tuesday]," Kennedy said.

In response, Bullock tried to direct the conversation back to public and private demand.

Cutting Bullock short, Kenney said: "I know you're going back to private public demand, but it's the truth that in private demand, there's government transfer - so government expenditure. What I'm focused on is government expenditure... Public demand has come off a little bit. But what that obscures is that in government expenditure, government expenditure actually shows up in private demand, does it not?"

Bullock replied: "Yes, it does. Because what it often does is it transfers money to people and gives them money to spend."

Kennedy further pointed out that Chalmers appears not wanting to admit that government expenditure is the highest it's ever been in 30 years.

He said: "I keep talking about private demand and public demand - that obscures the fact that government expenditure, which is in public demand and private demand, with electricity rebates, with all these other things that don't show up public demand..."

"And what [Chalmers] said here is, if you look at the Reserve Bank statement today, it does not mention government spending. He's not talking about public demand. He's talking about government spending. It is not a factor in the decision they have took today.

"I want to talk about the Treasurer's words, not your words."

Bullock fired back: "Well, I don't have a view on the Treasurer's words."