Speaking with the Institute of Public Affairs, Lowe said there was no reason for the government to run a large budget deficit.

"Now we find ourselves running sizable budget deficits at a time where we're at full employment and commodity prices are very high. We should be running sizable surpluses," Lowe said.

"Government spending has been adding to demand progressively over time, and that's putting upward pressure on inflation."

The comments come after the Final Budget Outcome was released by the government, showing the Budget deficit in 2025-26 was $22.3 billion. As a share of the economy, the deficit was 0.8% of GDP.

Lowe said public policy was no longer focused on "expanding the size of the pie", but rather about the distribution of income and wealth.

Lowe served at the RBA for 43 years, including the last seven as governor, before current RBA chair Michele Bullock took the reins.

Lowe suggested the government should introduce strong fiscal frameworks, for example through a budget balance over the cycle and strong cost-benefit analysis to guide public investment decisions.

Lowe also said there was "too much regulation" and said the government should focus on reducing the regulatory burden on the economy.

He added government economic policy should focus on growing the economy, rather than redistribution, and there needed to be a reduction in the reliance of the tax system on income taxes.

"[Australia taxes] income and wealth generation too highly and consumption too lightly," he said.

Lowe advocated for lower top marginal income tax rates and a higher GST to help lift investment and productivity.

On housing, Lowe said dwelling construction had failed to keep pace with population growth and the government has missed the mark on meeting its housing targets.

"They've fallen woefully short of those targets and no prospect in my view of meeting them, and that's the fundamental problem," he said.

The RBA said the hike was a result of inflation remaining "elevated" and risks flagged previously are now materialising, as well as further disruptions to global oil supply passing through to prices of other goods and services.

The RBA noted the effects of previous interest rate hikes have started to be seen in the economy.

"There are signs that growth in consumer spending is easing gradually as expected, although housing prices have fallen in most capital cities and new housing loans have declined noticeably," the RBA said.

"Labour market conditions have eased broadly as expected in recent months, and labour market leading indicators are broadly stable. Meanwhile, growth in business investment and debt is strong."

The recent interest rate hike from the Federal Reserve and unemployment data also contributed to the announcement. The central bank said it will continue to tame inflation "sustainably" but left the door open for more potential hikes.

"The board will continue to do what it considers necessary to bring inflation sustainably back to target, including increasing the cash rate target further if needed," the RBA said.

"Accordingly, the board will be attentive to the data and the evolving assessment of the outlook and risks to guide its decisions. Monetary policy is well placed to respond to developments, and the board is focused on its mandate to deliver price stability and full employment."

Additionally, the RBA also signified the heightened investment into artificial intelligence (AI) as a driver to "rapid growth" in global prices for technology-related goods, while pressure remains for domestic capacity with most businesses experiencing cost pressures "are either increasing the prices of their goods and services or looking to do so."

Commenting, J.P. Morgan Asset Management global market strategist Kerry Craig said the RBA has "struck a distinctly hawkish tone" with the move.

"Back in August, the RBA made clear that persistent inflation would be the trigger for higher rates, and July's CPI release crossed that line. Now, the RBA maintains a tightening bias, noting further hikes are possible 'if needed', but is less explicit about what would prompt another increase," Craig said.

"Notably, the September statement dropped the reference to policy being 'somewhat restrictive', signalling a willingness to let the economy endure a period of 'subdued' economic activity to ease capacity pressures and prevent inflation from becoming entrenched."

He noted despite the move, market reaction was relatively muted.

"For now, the burden of proof is on incoming data, especially near-term inflation expectations, to provide relief and show that the RBA's fear of embedded inflation expectations will materialise. Without softer numbers, another rate hike in November remains firmly on the table," he added.

Meanwhile, State Streets Markets head of Asia Pacific macro strategy Dwyfor Evans said the hike means consumers will continue to face cost-of-living pressures, negative real wage growth, and a softer labour market.

"RBA comments were largely centred on global energy prices, their rise compared to August assumptions and inflation pass-through. The unanimous decision to hike and comments around elevated inflation will further pressure rates to the upside ahead the early November meeting, particularly if energy prices remain high," Evans said.

PIMCO managing director and head of Australia portfolio management Adam Bowe added: "While the bank has kept the door open to further tightening, we expect that the trade off between growth and inflation will become more challenging from here. Slowing growth momentum, a rising unemployment rate, and a weakening housing market suggest a cautious approach to policy into year end."

"Market pricing continues to imply a higher terminal policy rate and a longer period of restrictiveness than our central scenario. With economic cracks emerging, a moderating fiscal impulse, and strong demand for Australian dollar denominated bonds, we view Australian duration as attractive at current levels."

As a share of the economy, the deficit was 0.8% of GDP.

"The Final Budget Outcome shows the 2025-26 deficit is billions of dollars better than forecast in the Budget," Chalmers said.

"We made a lot of progress in the Budget and we've continued to make even more progress since then. This multi-billion-dollar improvement has been delivered despite months of more severe global volatility."

Chalmers said the outcome has proven the government's responsible economic management, which was recently reaffirmed by Australia keeping it's AAA credit ratings, he said.

"We have one of the strongest budgets in the G20 and much lower gross debt than every major advanced economy," Chalmers said.

"The FBO result is better than expected at Budget because of lower-than-expected payments and an improved outcome for receipts."

Payments were $1.4 billion lower in 2025-26 than estimated at Budget. Tax receipts were $4.6 billion above the Budget forecast, driven by higher-than-expected collections from stronger super fund and investment income.

"We have limited real spending growth, delivered substantial savings and reprioritisations, and returned around 75% of all tax receipt upgrades to the bottom line, compared to our predecessors who only returned around 40%," Chalmers said.

"Our predecessors had bigger deficits and more debt. They would have kept deficits well above 1% of GDP well into the 2030s. All four of the Budget outcomes delivered under this government have been much stronger than that."

Chalmers said while the FBO delivered "substantial improvement" he acknowledged harsh economic conditions continue to weigh on Australian households.

"While we've delivered a substantial budget improvement, we recognise that structural pressures are intensifying rather than easing and we're taking decisive action to address some of the biggest spending pressures on the Budget," he said.

"The government is focused on building a more productive and resilient economy and managing global uncertainty, and a big part of that is our responsible management of the Budget."

Latest figures by the Australian Bureau of Statistics (ABS) showed household wealth increased by 1% to a record $19.39 trillion in the June quarter. Superannuation reserves rose by $231 billion, and shares and other equity increased by $36 billion, while the value of land and dwellings fell by $28.7 billion.

ABS said the fall in residential land and dwellings was driven by lower property prices. Household borrowing grew 2.2%, or $73.4 billion, reducing the overall growth in household wealth by 0.4 percentage points.

Global X senior ETF strategist Marc Jocum said the ABS data should not be interpreted as evidence that property was a poor investment or that one quarter represented a permanent change in the way Australians create wealth.

"The latest figures are a powerful reminder that wealth creation is a multi-asset game. Property, shares and superannuation all play different roles, and understanding how they work together is becoming increasingly important for Australian investors," he said.

"That's why investment knowledge matters. Australians need to understand the role different assets play, how concentration can increase risk and why diversification is essential to a long-term strategy."

Jocum added Australians can no longer afford to remain disengaged from the markets shaping their wealth, as the composition of household wealth may be changing.

"For decades, Australia's default wealth strategy has been relatively simple: buy the right property in the right suburb and hold it for the long term," Jocum said.

"Property will remain an important part of wealth creation, but it cannot be our entire strategy. The latest ABS figures show household wealth increased by more than $200 billion even as land and dwelling values declined, with superannuation and equity markets doing the heavy lifting."

With borrowing costs elevated, and an interest rate hike from the RBA expected this week, Aussie households will be feeling the pressure, he added.

"As a nation we really need to raise our understanding of diversification, risk and investment options, because whether we like it or not, our financial futures will be shaped by assets well beyond the monopoly board," Jocum said.

"This month there was 39,000 more people in employment, and 28,000 more people in unemployment," ABS head of labour statistics Sean Crick said.

Part-time employment rose by 46,000 people in August, while full-time employment fell by 6000 people.

"This August we recorded a higher proportion of people who were previously not in the labour force moving to being unemployed, compared to recent years," Crick said.

"The growth in the size of the labour force resulted in the participation rate increasing by 0.2 percentage points to 67.1%."

The underemployment rate fell by 0.1 percentage points to 6.2%.

Despite the rise in the unemployment number, Betashares chief economist David Bassanese said the overall strength in employment will likely be the final nail in the coffin for a Reserve Bank of Australia (RBA) interest rate increase next week.

"All up... the strength in employment during August needs to be taken with a grain of salt. That said, the RBA will likely be guided by the still reasonably firm range of other labour market indicators, such as job advertisements and corporate hiring intentions," Bassanese said.

"For the RBA, the lift in unemployment will likely be regarded as unfortunate, but the price that needs to be paid to create more slack in the economy and lower domestic-demand-driven inflation pressure.

"My base case remains that the RBA will raise interest rates 0.25% next week to 4.6%, with an even-odds chance of a follow-up hike on Melbourne Cup Day in early November."

VanEck head of investments and capital markets Russel Chesler agrees there is little else for the RBA to do except lift interest rates.

"The slight softening in the labour market isn't enough to stop the RBA raising rates next week and may well need to increase rates again this year, most probably at the December meeting," he said.

"We could even see a third increase next year bringing the terminal rate for this cycle to 5.4%, the highest the RBA cash rate has been since 2008."

Treasury estimates the economy will more than double its current size and income per capita is tipped to hit 55% by 2065-66 but acknowledges that Australia's productivity performance will depend on adopting innovation, supporting investment, developing skills and delivering regulatory reforms that improve the efficient operation of the economy.

The nation's real gross domestic product (GDP) is projected to slump to 2% on an average annual basis, which is below the 3% experienced over the past 40 years.

However, based on a long-term productivity growth assumptions, Treasury maintains a rate of just 1.2% p.a.

Slowing population growth and ageing will continue to drag on economic performance.

Australians will continue to have among the longest life expectancies in the world, projected to be 89.5 years for women and 86.1 years for men by 2065-66. Those aged 65 and over is projected to continue growing, while the 85-plus cohort is expected to be the fastest growing.

The ageing population primarily stems from falling fertility rates, while the country's older population profile will negatively impact labour force participation.

"As the population ages, increased demand for care and support services will reinforce shifts in the economy towards services. This long-run trend towards services and the care economy will coincide with the adoption and diffusion of AI and broader changes in the industrial base," the IGR reads.

The intergenerational equity problem will also compound thanks to the long-term decline in home ownership and the pressures that an ageing population and structural trends in the tax base are placing on working-age Australians.

Treasury is therefore pinning its hopes on the AI boom to boost productivity, pointing to initiatives such as making Australia a leading destination for data centre investment, which has nearly doubled in capital expenditure the 2023 IGR. Currently, only 10% of local businesses have adopted AI in ways they would describe as "significant".

While the economic and social impacts of AI will be "profound," AI advancements, adoption and investment are accelerating, with the potential to boost productivity.

"While there is not yet evidence of significant labour market impacts, it is expected that productivity gains will arise from some tasks being automated using AI, and that demand for labour will increase and change in other areas," the report said.

Treasurer Jim Chlamer said advances in AI represent "the most dramatic change" since the last IGR in 2023 and the government is acting now to maximise the opportunities and minimise the serious risks it presents.

"AI is developing rapidly and will be a defining influence on the economy over the next 40 years," he said.

Stephen Smith, a partner at Deloitte Access Economics, said since 2008 Australia has relied too much on increasing the population and too little on improving productivity to drive economic growth.

"This is not a sustainable model for the future. The report shows that over the next 40 years, Australian prosperity - measured in terms of real economic activity per person - will depend entirely on labour productivity," he said.

"Declining fertility rates have seen population projections downgraded, while the economic dividends of rising labour force participation and falling unemployment have now run their course.

The report's most consequential number is therefore its assumption of 1.2% annual labour productivity growth."

Business Council of Australia chief executive Bran Black also contests this figure, noting that the council's own modelling found labour productivity went backwards by an average of 0.1 % p.a. over the past six years.

"Simply matching the 2010s - previously the worst decade for productivity growth in the modern data - would require productivity to grow by 3% a year for the next four years, a rate Australia has not sustained since around the turn of the century," Black said.

Super delivers

In response to intergenerational equity challenges, Treasury highlighted the maturing superannuation system as a means to continue helping younger Australians build wealth.

It calculates the median superannuation balance for individuals aged 65-69 will rise from $204,000 in 2024 to approach $450,000 in nominal terms by the end of the medium term.

"Superannuation will support a higher standard of living for older Australians in retirement, with superannuation drawdowns projected to rise to almost 6% of GDP by 2065-66, as well as reducing reliance on the Age Pension," the report said.

Treasury projects the number of Australians above Age Pension age will almost double to around nine million by 2066, while the proportion of older Australians receiving a pension or income support payment is projected to fall from 66% to 52%.

Age and service pension expenditure is projected to decline from 2.3% of GDP to 1.8% over the same period, compared to the OECD average of 10.3%.

"Governments will need to tackle the housing and economic challenges through reforms that support investment, productivity, and economic growth. This is key to maintaining public confidence, including preventing superannuation being identified as the solution to Australia's economic challenges," Financial Services Council chief executive Blake Briggs said.

CPA Australia chief executive Chris Freeland commented Australians are retiring in record numbers and living longer than ever, while the ratio of working people to support those in retirement continues to decline.

"Australia's superannuation system is helping people fund their own retirements and reducing pressure on the Age Pension. But as our population ages, government spending on health, aged care and other essential services will continue to rise," Freeland said, adding the tax system remains overly reliant on personal income tax, with bracket creep continuing to drive revenue growth.

"Bracket creep is not tax reform. It is tax increases by stealth. Australians deserve greater transparency about how much future government revenue relies on workers being pushed into higher tax brackets over time," he said.

The Fed has called a rate hike overnight, increasing the interest rate by 25 basis points from 3.75% to 4%.

Commenting, VanEck head of investments and capital markets Russel Chesler said the move was "widely anticipated", as the renewed surge in oil prices continue to intensify inflation across the global economy.

It comes as inflation in the US remains well above the central bank's target rate of 2%, Chesler said, noting oil price surges is also threatening the global economy.

"The US economy also remains resilient. August employment increased by 162,000, unemployment is around 4.1%, and consumer and business spending remains reasonably strong," he said.

"This data gives the Fed scope to tighten without immediately threatening the labour market. However the more pressing question is whether one rate hike is enough to bring inflation down and if the Fed will need to enter a tightening cycle."

Principal Asset Management market strategist Christian Floro agreed, stating the rate increase stemmed from Federal Reserve chair Kevin Warsh's growing concerns on taming inflation.

He is now projecting another hike to come in December.

"Underpinned by a strengthening economy, a stable labour market, and an upward reassessment of inflationary risks in their updated projections, the unanimous decision this month suggests additional tightening may follow before year-end," Floro said.

"Our base case calls for one more 25-basis-point rate hike in December."

He said the Fed has begun its hiking cycle, and the debate now shifts to how many are coming as a one-and-done move remains "highly unlikely".

"With markets already pricing multiple increases, policymakers will probably need to deliver at least one more hike to safeguard credibility," Floro said.

"Absent any significant data surprises, an October hike remains unlikely given the upcoming US midterm elections.

"That said, with inflation not projected to return to target until 2029 under the Fed's current path, the case for even more tightening remains compelling. If signs of second-round inflationary effects begin to materialise, or there is a renewed and significant escalation in the Iran war that further pushes up energy prices, then additional rate hikes are possible in 2027."

Exacerbating outlook in Australia

Domestically, the trimmed mean inflation (3.6%), a measure utilised by the Reserve Bank of Australia (RBA), remains outside of the RBA's targeted range (2-3%), with most of the Australian market (77%) sharing the consensus of a rate increase at the September meeting, Chesler added.

Also siding with the market, he said the RBA will have "no other option" but to increase the cash rate by 25 basis points, bringing it to 4.7%.

"The knock-on effects of higher oil prices flowing through to logistics, manufacturing and even food prices pose a significant risk of pushing the trimmed mean number higher, and a second rate increase may also be on the cards for the RBA still this year," Chesler said.

"Australia is still battling with services inflation which remains sticky. The minimum wage increase of 6% and the award wage increase of 4.75% may well filter into increases received by higher income earners during the year.

"Public sector wage growth for the year to 30 June 2026 was also relatively high at 3.4% ahead of the private sector at 3.1%. The GDP print of 0.4% for the second quarter and 2.1% annually suggests the economy is slowing but is still stronger than expected.

"These higher unit labour costs will be of concern to the RBA."

This is the second rate hike from the ECB since the start of the Iran war.

"The unanimous decision came on the back of the ECB raising its inflation forecasts, with inflation now expected to remain above target through 2027," Principal Asset Management market strategist Christian Floro said.

"While ECB President Christine Lagarde did not provide any forward guidance, instead emphasising the need to keep all policy options open given the fluid nature of the conflict and its potential spillovers, the forecast revisions alongside the continued rise in energy prices imply that further tightening is likely."

Inflation continues to remain elevated in Australia as well.

"The economy in Australia in many ways is doing quite well. We've got growth roughly at trend. We have unemployment near historic lows, employment growth driven by the market sector, and real household incomes are growing pretty strongly. There's a lot to like about the Australian economy, but we have one big problem and that's inflation," Reserve Bank of Australia (RBA) deputy governor Andrew Hauser told the ABC this week.

"Inflation is too high, and that's why we raise interest rates three times at the beginning of this year. And the question now, frankly, for us is have we done enough or is more needed?"

On September 8, the market expected a 66% chance of a rate hike at the next meeting. The expectation has now risen, with 72% of the market now expecting a rate hike by 25 basis points to 4.6%.

Hauser said the RBA is concerned about three risks that might push inflation further up: the Middle East and the ongoing crisis, unexpected global boom driven by artificial intelligence (AI) and the weakness of the supply potential of the Australian economy.

Commenting on Hauser's rhetoric, CreditorWatch consulting chief economist Ivan Colhoun said the bottom line is the RBA will recommend a tightening to the board at the next meeting and that expects that recommendation to be accepted.

"Like assistant governor Hunter's fireside chat earlier in the day, the message was extremely hawkish and almost exclusively focused on inflation," Colhoun said.

"The question is whether even more near-term tightening might be on the cards. I have been discounting this as I don't think the economy is quite that strong, but there is the possibility that the Board has got to the end of its tether on above-target inflation. That said, I always caution myself that the RBA always sounds most hawkish when it's just tightened and most dovish when it has just eased."

Prior to Hauser's comments, Westpac revised its RBA call, reinstating a 25 basis points November rate hike.

"Domestic demand is proving more resilient than we had anticipated, buoyed by stronger household incomes and a large pipeline of data centre and renewable energy investment, limiting the pace of disinflation," Westpac said.

"Markets are pricing in a circa 80% chance of a September rate hike, but we believe the board will prefer to wait for confirmation from the full quarterly inflation data and its revised forecasts."

The bill also bans the use of co-worker non-solicitation clauses for all employees, irrespective of income.

The current law exists to protect 'legitimate business interest' of employers, resulting in the need to restrain a worker from moving to, or starting, a competing business to protect confidential information or client relationships of the former employer.

Treasury highlighted, however, the enforceability of the non-compete clauses often remains untested due to disproportionate costs of litigation, in turn creating a 'chilling effect', dampening an employee's ability to move jobs.

"The lack of clarity about the enforceability of these terms means many employees stay in unfavourable jobs because leaving may result in court action or unemployment if they breach their restraint of trade term," Treasury said.

"This affects the ability of Australian employees to move to better-paying and more productive jobs, or to negotiate better wages and conditions in their current role. Limiting job mobility in this way negatively affects the growth of wages, productivity and competition in the broader economy."

Treasury noted the new amendments will support the use of more proportionate and targeted options to protect legitimate business interests.

"By prohibiting non-compete terms for low-and middle-income employees, the reforms will provide greater certainty for employees whose wages and mobility are disproportionately impacted by these restraints and help address the adverse effects that these terms can have on wages, competition and innovation," Treasury said.

Under the new laws, a civil penalty will apply on employers who enter in a contract that prohibit post-employment restraint of trade.

The government is also amending its Competition and Consumer Act to prohibit businesses from making and giving effect to no-poach agreements and wage-fixing agreements. This forms part of its broader competition policy reforms aimed at boosting wages, job mobility and productivity, and aligns with the commitment to promoting labour mobility.

Treasury is taking submissions until October 2.

HSBC chief economist Paul Bloxham said the stronger growth performance was "particularly surprising" given a sharp fall in consumer and business sentiment.

Bloxham said this was "in part due to the Middle East conflict, but also due to the RBA's three back-to-back rate hikes and the big tax shifts that were delivered in the May Federal budget".

Despite the stronger than expected read, Bloxham said the potential growth rate for the economy going forward may be slow.

"Our own estimate puts Australia's trend potential growth rate at 1.8% y-o-y, which assumes a trend productivity growth rate of 0.3%. [The] figures suggest some downside risk in the near-term to that estimate of the economy's speed limit," Bloxham said.

"These figures increase the risk that the RBA will need to hike further yet to get inflation back to target."

Domestic prices continued to grow with rising input costs weighing on most areas of the economy as oil prices rose stemming from the conflict in the Middle East.

Household consumption grew by 0.4% in the quarter, and 1.8% annually.

The Australian Bureau of Statistics (ABS) said discretionary spending led to the rise in consumption, with nearly half of the increase coming from higher growth in the purchase of vehicles.

"There were record sales of electric and hybrid vehicles as more households looked to lower ongoing operating vehicle costs," ABS said.

Purchase of vehicles was up 10.3% in the quarter and accounted for almost two thirds of the quarterly increase in consumption. Fuel spending saw a 0.6% fall in operation of vehicles and reduced travel seeing a 4.9% fall in services imports in the quarter.

"Essential spending fell 0.3% due to a reduction in electricity, gas and other fuels with lower demand due to milder winter conditions. Operation of vehicles fell as household consumed less fuel in response to elevated fuel prices and various state governments' free public transport initiatives," ABS said.

The remaining discretionary categories remained subdued, where rising cost of living pressures aligned with restrained spending.

Dwelling investment grew 1.6% in the quarter to be 5.8% higher annually.

"There are a lot of factors at play in the housing market including higher interest rates and global uncertainty, but it is encouraging to see both dwelling investment and building approvals holding up," Treasurer Jim Chalmers said.

Productivity remained flat in the quarter across the economy and up 0.2% in the market sector.

"We know that we have a long-standing productivity challenge in our economy, which is why it was such a big focus of the Budget and continues to be a substantial focus of our economic agenda," Chalmers said.

He added the results are robust in challenging international circumstances.

"It shows the resilience of Australia's economy in the face of global uncertainty and conflict. While global circumstances are challenging and people are under pressure, we've got a lot going for us and we can see some of this reflected in today's figures," Chalmers said.

"Annual growth in Australia was as strong or stronger than every major advanced economy - equal to the United States and much stronger than the rest."

The government's immigration policy recently came under the spotlight regarding whether refugee intake will be reduced. This comes on the backdrop of One Nation's immigration policies gaining traction, which aims to cap visas at 130,000 per year to ease pressure on housing, wages and infrastructure.

Latest Australian Bureau of Statistics data highlighted that in the 2022-23 financial year 6.9 million jobs were held by migrants.

CEDA highlighted around one in five construction workers are migrants; over one in three workers in healthcare and social assistance come from abroad. In the transport and logistics sector nearly 40% of workers are migrants.

"Sweeping changes to our migration intake therefore involve real economic trade-offs, with impacts likely to be acute in certain industries," CEDA chief executive Melinda Cilento said.

"Promised benefits from reduced immigration may come with a sting in the tail for the cost of living if poorly designed policy means businesses are unable to access much-needed workers and increase prices accordingly."

Cilento noted the balance between the costs and benefits that come from any level of immigration is a challenging task.

"As the debate on immigration policy continues, transparency around what these trade-offs look like and how they will be managed needs to be the starting point for policymakers," Cilento said.

Oxford Economics has hypothesised an extreme scenario of "zero migration" globally and found while destination economies, mostly advanced, would see significant declines in output per capita, origin economies would have modest gains as retained labour is diluted across larger domestic populations.

Albanese spoke with Trump late last night and noted he had a "very productive, constructive, lengthy and substantial" phone call.

"I put the argument very much to the President, as a friend of the United States, we would request that to be considered," Albanese said.

Trump recently slugged trading partners, including Australia, with a new tariff of 10% to 12.5% on the premise of pressuring foreign governments to strengthen bans on "the importation of goods produced with forced labour."

On February 20, the US Supreme Court terminated the reciprocal tariffs imposed under the International Emergency Economic Powers Act in April 2025. The court deemed the Liberation Day policies unlawful.

Trump subsequently imposed a global, blanket 10% Temporary Import Surcharge, which applied to most goods imported to the US. These temporary levies expired on July 24, with the forced-labour tariffs replacing them.

In response, the government decided to add more "teeth" to the Modern Slavery Act, by making large corporates liable to criminal offence where they fail to prevent modern slavery in their supply chains.

"I informed him about our record when it comes to dealing with issues such as modern slavery, the strengthening that we have put forward as well to look and hold companies accountable for the supply chain process as well," Albanese said.

Albanese added that while Trump holds a different position on tariffs, he pushed Australia's case by highlighting the growing presence of Australian superannuation funds in the US.

"Australian Super, for example, our biggest industry fund, has a presence and an office in the United States. It's no accident that we chose Heather Ridout as our Consul-General in New York and that the President knows, and I repeated last night, that our funds will grow to $5.5 trillion over this coming decade," Albanese said.

"That represents a very significant fund. They make decisions, of course, in the interest of their superannuates, in the interests of retirees, but that also represents an investment vehicle from Australia, including into the United States. And so, I put the case as strongly as I could."

The central bank felt the economy has been broadly evolving as it expected, with three prior rate rises having helped tighten financial conditions.

The RBA noted "momentum in the housing market has shifted" with falling house prices.

However, the RBA said there continues to be "heightened uncertainties" around the outlook for domestic economic activity and inflation.

"Resolution of the Middle East conflict remains uncertain, and there are scenarios where inflation is higher and activity lower than forecast," it said.

"A period of prolonged uncertainty may also cause growth to be lower overseas and in Australia. So far, growth in Australia's major trading partners has been stronger than expected, as the boost from AI-related investment has outweighed the adverse effects of the Middle East conflict. In Australia, historically weak productivity growth continues to constrain potential growth."

Betashares chief economist David Bassanese said the RBA likely feels the domestic capacity pressures on inflation are easing, albeit remain too firm.

"Should economic growth continue to ease as expected, these capacity pressures should abate," Bassanese said.

"At the same time, higher energy prices arising from the Iran war are adding to short-run inflationary pressure, though the 'impact so far has been less than expected.'  It's also hard to tell how long and protracted the war will turn out to be.

"In short, it now seems likely the Reserve Bank can remain on hold this year provided it is not forced to revise up its inflation forecasts again - due, for example, to stronger than anticipated domestic inflation in areas such as housing and market services. Indeed, the RBA has warned that it stands ready to raise the cash rate further 'if upside risks [to its inflation outlook] materialise'."

Bassanese said his base case remains that the RBA will be on hold for the remainder of the year with a rate cut "pencilled in" for the first half of 2027.

KPMG Australia chief economist Brendan Rynne said the RBA "finds itself between a rock and a hard place", saying another rate hike is on the cards.

"Bringing inflation back to 2.5% is not going to happen overnight. The process is likely to be gradual and may require a further tightening in policy if demand does not slow sufficiently and productivity growth fails to improve," Rynne said.

"[The RBA] is trying to bring inflation back to target without causing unnecessary damage to the labour market, but ultimately its primary responsibility is price stability. On balance, we would not be surprised to see another rate increase in the coming months if inflation and labour market data remain stubbornly strong."

"The deadline for meeting most of the targets is 2031 so we are already past the halfway point. Governments will need to redouble their efforts for the promise of the National Agreement on Closing the Gap to become a reality," PC commissioner Selwyn Button said.

"The Agreement makes it clear that the best way to make progress is through governments acting on the four priority reforms: sharing decision making, building the community controlled-sector, transforming government organisations and sharing access to local data.

"Where governments have started sharing power with communities, progress has followed."

The ADCR incorporates the latest data from the Closing the Gap Dashboard, which the PC said has also been updated. The 2026 ADCR includes new data for nine socio-economic targets and 34 supporting indicators, with a further 12 supporting indicators reported for the first time.

Of the nine targets with a new year of data, the assessment of progress has changed for two: preschool enrolment has gone from 'improving and on track' to 'met' (as the target year for this indicator is 2025) and healthy birthweight has gone from 'improving but not on track' to 'no change from the baseline'.

"We can't look at any of the outcomes in isolation. For example, while the target for enrolment in preschools has been met, the target for children assessed as developmentally on track is worsening nationally, with uneven progress across places and groups," Button said.

"Programs that put communities in control of providing culturally safe early childhood education and care services, like the Connected Beginnings program, are showing the way forward."

The PC said for the first time the ADCR has been able to incorporate Aboriginal and Torres Strait Islander community-governed data.

"Communities gaining greater control of their data is a bedrock ambition of the Agreement. This is a meaningful step in the right direction," Button said.

The ADCR highlights that significant gaps remain in the data that's available to assess progress.

"We're now past the halfway point for all the targets in the Agreement and we still lack the data we need to fully evaluate progress," Button said.

"Governments are still developing ways to measure progress towards the four Priority Reforms which are at the heart of the Agreement.

"We will be looking at these issues and more in our second inquiry into the government's progress towards the Agreement, which we are due to commence this year."

Housing came out to be the largest contributor to annual inflation for the month. Trimmed mean inflation remain unchanged for the month at 3.6%.

The inflation data was the last major economic data prior to the RBA's monetary policy meeting next month.

Speaking the Anika Foundation in Sydney, RBA governor Michele Bullock said since monetary policy operates with a lag, the full effects of this year's cash rate increases are yet to be felt.

"A key question in the period ahead is whether the tightening in monetary policy earlier in the year is sufficient to achieve this," she said.

Last week, Australian employment jumped by a substantial 76,300 jobs in June, above the market consensus of 15,000 jobs creation.

HSBC chief economist Paul Bloxham had noted the August RBA meeting will be a live one with the inflation jobs market still a little tight, despite being on a loosening trend.

First Sentier short term investments and cash senior portfolio manager Ben Samuel said: "Today's inflation print came in slightly below expectations and below the RBA's latest forecast, for both the headline and the trimmed mean series."

"Taken together with recent data and RBA commentary, a 'give it time' hold decision is likely for the RBA's next meeting in August. Markets have moved accordingly, with pricing now implying almost no chance of a hike in August, from around a 20% likelihood immediately prior to release."

BNY macro strategist for APAC Wee Koon said overall, the data reinforced the view that inflation remains sticky, rather than signaling a decisive disinflation trend.

"Combined with a resilient labour market and a buoyant equity market, the Australian economy remains on a solid footing. This should support the RBA's hawkish bias, although the data are not strong enough to justify a resumption of rate hikes," Koon said.

"Markets reacted negatively, with front-end yields falling and the Australian dollar weakening."

Bullock added the board is prepared to act as required to achieve its mandate, including by increasing the cash rate further if needed.

Bullock added against a backdrop of ongoing global supply shocks, the board remains focused on preventing elevated cost pressures from entrenching inflation.

"This does mean that some further easing in the growth of demand is likely to be required if we're to bring inflation back down sustainably to target," she said.

The unemployment rate remained ready at 4.4%.

HSBC chief economist Paul Bloxham questioned if the rise is a more positive shift in the trend or mostly statistical noise, given that most of the other recent survey indicators for the economy show weakening.

"The sharp rise in employment in June, followed two months which had netted to a close to flat result, which has meant that the three-month average and the six-month average for employment are now both running at 27,000 jobs, which is solid job creation and enough to, in a trend sense, keep the unemployment rate steady," Bloxham said.

However, he noted the underemployment rate and the youth unemployment rate both increased in the month, indicating jobs remain on a loosening pathway.

"We expect that although they [Reserve Bank of Australia] will assess that the jobs market is gradually loosening, they will also say it is still 'a little tight'," Bloxham said.

"All up, with inflation set to still be too high (despite likely being lower than the RBA) and the jobs market still a little tight (despite being on a loosening trend) the August RBA board meeting is a live one."

VanEck senior portfolio manager Cameron McCormack said the investment manager believes there is at least one more rate hike coming this year, and a considerable chance of two hikes.

"Australia's labour market is determined not to give the RBA the breathing room it needs. Unemployment holding at 4.4% for a second consecutive month confirms the jobs market remains tight and firms the prospect of one more rate hike this year," McCormack said.

"With the economy close to full employment, the RBA has greater freedom to focus squarely on inflation without a cooling in the labour market."

"It will also be a tricky one - with the need to balance the high inflation challenge, and still somewhat tight jobs market against forward-looking readings suggesting that growth is already slowing and likely to weaken further yet," Bloxham added.

Australia is listed among 59 other economies that "have failed to impose and effectively enforce a prohibition on the importation of goods produced with forced labour," according to a Federal Register notice.

Australia will cop a 12.5% tariff, alongside countries such as New Zealand, the Philippines, Oman, Russia, Colombia, China and Venezuela.

Meanwhile, Argentina, Bangladesh, Cambodia, Canada, Ecuador, El Salvador, Guatemala, Honduras, India, Indonesia, Jordan, Malaysia, Mexico, Pakistan, Sri Lanka, the UK, and Trinidad and Tobago face a 10% tariff.

US Trade Representative Jamieson Greer said the action covers the top 60 trading partners, representing 99.4% of US imports and is a means to address human rights abuses and distortive trade practices while tackling competitive distortions in global trade.

"President Trump is using both tariffs and trade deals to support American workers and correct trade imbalances, by eliminating trade barriers abroad and supporting domestic manufacturing at home," Greer said.

"Today's action strikes an overdue blow against the prevalence of forced labour in global supply chains and sends a clarion call to the world to join the United States in adopting the most common-sense of policies to combat this indefensible practice."

On February 20, the US Supreme Court terminated the reciprocal tariffs imposed under the International Emergency Economic Powers Act in April 2025. The court deemed the Liberation Day policies unlawful.

Trump subsequently imposed a global, blanket 10% Temporary Import Surcharge, which applied to most goods imported to the US. Some goods are subject to a higher tariff rate, while others are exempt. These temporary levies expire today, with the forced-labour tariffs set to replace them.

Greer added the move forms part of the Trump administration's broader "America First" trade agenda, which has increasingly relied on tariffs and bilateral trade agreements to reshape global trade relationships.

"President Trump is tackling modern-day slavery at its source by requiring our trading partners to enact and enforce import bans to ensure products made by workers under such horrifying conditions are no longer traded in global commerce," he said.

The ANZ-Roy Morgan Australian Consumer Confidence index rose just 0.3 points to 75.6 in the week between July 13 and 19, lifting the four-week average by 0.7 points to 75.4.

Meanwhile, weekly inflation expectations ticked up 0.1% to 5.8%, with the four-week moving average remained unchanged at 5.6%.

The index also displayed a higher confidence on longer-term economy over the next five years (+0.8 points), compared to short-term economic confidence, which declined 1.6 points.

However, consumers are more confident about the current financial conditions, as future financial conditions have fallen 2.1 points.

Finally, the time to buy a major household item subindex gained 3.8 points.

Observing the trend, ANZ economist Sophia Angala said the growth in consumer confidence was slightly affected by ongoing conflicts in the Middle East and untamed inflation.

"ANZ-Roy Morgan Australian Consumer Confidence rose just 0.3 points last week. A jump in the 'time to buy a major household item' subindex was largely offset by weaker confidence in personal finances and the economic outlook," Angala said.

"The re-escalation of conflict in the Middle East last week likely weighed on confidence and partly contributed to the tick up in weekly inflation expectations."

Angala also remains cautious with the development around interest rate, highlighting that the Reserve Bank of Australia (RBA) might place a hike in the upcoming meeting to tame further inflation.

"While our base case remains for the cash rate to stay at 4.35% until H2 2027, we do not rule out the risk of further inflationary pressures to push the RBA to increase the cash rate in November, assuming the monetary policy board leaves the cash rate unchanged at its August meeting," Angala said.

This comes as Reserve Bank of Australia (RBA) assistant governor Sarah Hunter hinted to the Australian Conference of Economists another cash rate hike could be on the cards.

Hunter said the RBA will "continue to act as needed" to ensure inflation returns to the target range of 2-3% and the labour market has sustainable full employment.

"Ultimately, while supply shocks create difficult trade-offs, they do not lessen the importance of maintaining low and stable inflation.

"Supply shocks create unavoidable trade-offs for a central bank and the broader economy, and these trade-offs are complex and multifaceted. What has changed is that these shocks appear to be becoming more frequent," Hunter said.

"That means the RBA - and the economy more broadly - may have to face these trade-offs, and the costs that come with them, more often in the years ahead. That makes it even more important that we understand these shocks well, prepare for them, and respond in a way that minimises the risk of persistent inflation while supporting sustainable activity."

"Annual CPI inflation in May was 4%, down from 4.2% in the year to April," ABS head of prices statistics Rachael McCririck said.

"Trimmed mean annual inflation was 3.6% in the 12 months to May 2026, up from 3.4% in the 12 months to April 2026."

VanEck head of investments and capital markets Russel Chesler said inflation is "no longer just sticky" but rather it is "starting to look stubborn".

"While today's fall in headline inflation to 4% is encouraging, what is worrying and presents a real warning sign, is the trimmed mean inflation lifting from 3.4% to 3.6%. That is moving in the wrong direction and further away from the Reserve Bank of Australia's (RBA) 2% to 3% target band," Chesler said.

"The RBA now faces an increasingly uncomfortable trade-off. We do not expect today's rise in trimmed mean inflation to be enough to force another hike in August 2026, but the case for easing has become harder to make.

"GDP growth is weakening, unemployment has risen to 4.5%, households are running down savings buffers, and spending is already outpacing disposable income."

Chesler added the risk of stagflation is now at the forefront especially as auction clearance rates and consumer sentiment have dropped.

"Inflation is proving difficult to bring down at the same time the economy is losing momentum," he said.

"That may not mean recession, but it does mean investors should be careful about assuming the next phase will be easy. We think the terminal rate for this cycle is either the current 4.35%, or 4.6% if the RBA is forced to move once more later this year."

Deloitte Access Economics partner Stephen Smith said the RBA will be cautious about over-interpreting the slight cooling of inflation.

"The Reserve Bank is already dealing with a difficult mix of softening growth and elevated inflation. The economy slowed sharply in the March quarter, households are cautious, and the labour market is cooling," Smith said.

"That may normally suggest the central bank needs to be patient. But with underlying inflation now above the 2.5% target for almost five years, today's result means the Reserve Bank must remain vigilant."

Greenspan was nominated to chair the Fed by then-President Ronald Regan in 1987 and served under four Presidents in the position until 2006.

During his tenure at the Fed he oversaw periods of both significant economic expansion and periods of considerable stress.

The Fed released a statement noting the institution's "deep sadness" around Greenspan's passing.

"His contributions to monetary policy and economic thought left a lasting mark on this institution, on the broader field of economics, and on the country," the Fed said.

"Under his leadership, the Federal Reserve achieved a sustained era of price stability that supported economic growth and helped anchor the public's confidence in the institution.

"He brought rigorous analytical discipline to monetary policymaking and helped establish the credibility that remains one of the Federal Reserve's most important assets."

Greenspan was born in New York and initially studied music at Julliard before entering the field of economics. He studied economics at New York University in 1945 where he eventually earned his PhD.

He served under President's of both the democratic and republican parties. His supporters often praised him for his steady hand, but others blame him for the 2008 Global Financial Crisis, claiming he had been naïve or failing to rein in markets prior to his departure from the US central bank.

Greenspan's wife, whom he married in 1997, Andrea Mitchell announced his death.

"Alan passed away at our home this morning at the age of 100 from complications of Parkinson's disease," Mitchell said.

"He was a giant of a man who helped shape the US economy for decades under presidents of both parties, but was always honest in acknowledging his mistakes".

"Following the three increases in the cash rate target since the beginning of the year, financial conditions are now tighter than they were, and there are signs that the economy is slowing as expected," the RBA said.

"But inflation is still too high and the board judged that it was appropriate to leave the cash rate target unchanged while it assesses the response to previous interest rate rises and the impact of the oil supply disruption."

The RBA said it will continue to be attentive to the data and the evolving assessment of the outlook and risks to guide its decisions.

"In doing so, it will pay close attention to developments in the global economy and financial markets, trends in domestic demand and the outlook for inflation and the labour market," it said.

"Monetary policy is well placed to respond to developments and the board is focused on its mandate to deliver price stability and full employment. It will do what it considers necessary to achieve that outcome, including increasing the cash rate target further if required."

Commonwealth Bank head of Australian economics Belinda Allen said a hawkish tone was maintained on the inflation side of the mandate at the same time growth was acknowledged to be slowing as expected.

"The key line of inflation risks being tilted to the upside was removed in the statement but in the press conference governor [Michele] Bullock did note inflation concerns and risks were still present. There was also a focus on a plausible scenario where inflation is higher and activity lower than the May forecasts, largely dependent on the path of the Middle East conflict from here," Allen said.

"At this stage we expect the RBA to remain on hold for the remainder of 2026 based on our forecasts for inflation and activity from here. But acknowledge the risks in the near term still sit to the upside. We continue to expect two rate cuts in 2027 based on our economic outlook with cuts in May and August 2027."

HSBC chief economist Paul Bloxham said the RBA appears to be in "wait and see" mode.

"Waiting to see the full impact of the tightening already delivered and of the other shocks to the economy - including the Middle East conflict and recent Federal budget tax changes - on growth and inflation," Bloxham said.

"We find it interesting that the statement essentially suggests that the extent of the slowing in growth is largely as the RBA had been expecting.

"Our own central case is that growth is already weaker than the RBA is assessing, and that this will keep the RBA from hiking further."

"The accounting is straightforward: the value of goods and services we produce is increasing, but not by as much as hours worked. In aggregate, we are working harder and longer, but we are not working smarter," PC deputy chair Alex Robson said.

"The results are particularly concerning in the market sector - labour productivity fell by 0.7% in the quarter, and only grew by 0.4% in the year to March. Non-market sector labour productivity fell by 0.3% in the March quarter, and by 0.1% over the year to March."

Robson said Australia's labour productivity appears stuck at the levels the nation settled into after the COVID-19 pandemic.

"We are now 0.1% below where we were in March 2023, when the 'productivity bubble' we saw during the pandemic burst," he said.

"A productive economy needs reliable and affordable energy. There has been significant investment over the past 20 years to replace coal assets reaching end of life. While this investment was clearly necessary, it has seen measured productivity fall significantly as there is a lag between when new energy assets are built and when they start producing at full capacity."

Robson added that some of the benefits of these investments, like improved network quality and lower emissions, are not picked up in conventional measures of productivity.

"This isn't to say that governments cannot do more to help ensure this transformation evolves in the most productive way possible. Australia should continue to identify and act on opportunities to improve productivity through the most efficient and cost-effective investments," Robson said.

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."