The forecasts in last night’s budget paint a rosy picture of the future.
“A soft landing in our economy is increasingly likely,” the budget said.
“Recent outcomes for inflation and unemployment have been better than expected, and the near-term outlook has improved on both fronts.
“This means that the Australian economy is one of the best-placed to navigate this period of heightened uncertainty,” it said.
Is it too good to believe? Here’s the story in a few graphs and tables.
Major economic indicators are positive
In last night’s federal budget, Treasury’s forecasts for major economic indicators showed things were picking up.
They’re only forecasting the unemployment rate to peak at 4.25 per cent, which is lower than economists once thought possible.
Treasury’s forecasts show things picking up. (2025 Federal Budget)
Annual economic growth is expected to pick up from 1.5 per cent this year to 2.25 per cent next year, and to 2.75 per cent the year after.
And nominal wages are expected to grow faster than inflation between 2024-25 and 2028-29, which means the “real” value of our wages is expected to grow for the next five years.
That rebound in real wages growth will help families to repair their household budgets after years of damaging inflation.
Inflation is tipped to return to target within months
Treasury officials say the recent progress on inflation has been better than anticipated.
They say inflation is now expected to be sustainably back inside the 2-3 per cent target band around the middle of 2025 — just a few months away.
“This is earlier than was forecast at the mid-year economic and fiscal outlook (MYEFO), when inflation was not expected to be sustainably back in the band until late 2025,” the budget papers say.
“Inflationary pressures have eased across a broad range of goods and services.
“Growth in goods prices normalised rapidly in 2023 and 2024, and services prices have shown signs of moderating.”
The budget papers say inflation in insurance prices is expected to have passed its peak, although premium prices have increased substantially to reflect major event risks, repair and replacement costs.
They say growth in rental prices has also moderated as demand has softened and vacancy rates have increased.
See the graph below.
The budget papers expect inflation to stay mostly within the RBA’s target band. (2025 Federal Budget)
Unemployment is low and real wages are growing
Treasury officials say since the mid-year budget update last year, the outlook for employment growth has been upgraded too, and the participation rate is now expected to be higher for longer.
They anticipate the unemployment rate to peak at 4.25 per cent, which is below the 4.5 per cent peak they had been forecasting last year.
Wages growth is expected to be steady. (2025 Federal Budget)
Disposable incomes will keep rising
The budget papers suggest that lower inflation, continued employment growth, higher wages, tax cuts and the recent reduction in interest rates will support a pick-up in real household disposable income in the coming year.
They’re forecasting real household disposable income in 2026–27 to be around 8.75 per cent higher compared to 2023–24.
That’s also expected to support a gradual pick-up in household consumption, with consumption forecast to grow by 0.75 per cent in 2024–25 and 2.25 per cent in both 2025–26 and 2026–27.
Household income and consumption are both expected grow steadily. (2025 Federal Budget)
Complicated forecasts for net overseas migration
However, sitting alongside some of the positive forecasts for major economic indicators is a complicated story about immigration.
In the 2024–25 budget (delivered in May last year), the Albanese government said its migration strategy would deliver a better-managed migration system.
Due to the strategy, it said it was forecasting net overseas migration to approximately halve from 528,000 people in 2022–23 to 260,000 people in 2024–25.
But it has missed that forecast by a large margin.
According to last night’s budget, net overseas migration is now forecast to be 335,000 in 2024–25 — which is 75,000 higher than it was forecasting a year ago.
| Net overseas migration | 2021-22 | 2022-23 | 2023-24 | 2024-25 | 2025-26 | 2026-27 | 2027-28 | 2028-29 |
|---|---|---|---|---|---|---|---|---|
| Budget 2023-24 (forecasts) | 184,000 | 400,000 | 315,000 | 260,000 | 260,000 | 260,000 | – | – |
| Budget 2024-25 (forecasts) | – | 528,000 | 395,000 | 260,000 | 255,000 | 235,000 | 235,000 | – |
| Budget 2025-26 (forecasts) | – | – | 435,000 | 335,000 | 260,000 | 225,000 | 225,000 | 225,000 |
In fact, if you look at the last three years of budget forecasts, Treasury officials have been consistently underestimating the level of migration to Australia in recent years.
They have freely admitted they’ve been caught off guard by the number of New Zealanders moving to Australia to escape New Zealand’s recession-ravaged economy, and by the level of demand from some overseas students in recent years.
However, they also say they’re now expecting net overseas migration to be lower in the next couple of years than they had been forecasting a few years ago.
In that vein, they’re forecasting net overseas migration to be 225,000 a year in 2026–27, 2027–28 and 2028–29.
If that turns out to be correct, that will be 10,000 fewer people than they were forecasting a year ago, and 35,000 fewer people than they were forecasting two years ago.
Has the ‘soft landing’ been achieved?
Overall, the budget papers leave the impression that Australia’s economy will achieve the mythical “soft landing.”
Budget Paper No.1 uses the phrase “soft landing” six times.
“Despite severe weather at home and global uncertainty, the Australian economy is on track for a soft landing and has outperformed most other advanced economies,” it says.
“Australia has been able to record a substantial moderation in inflation while maintaining a low unemployment rate and continuous growth, which is a significant achievement given the experience of other advanced economies and previous inflationary episodes.
“Headline inflation is now less than a third of its peak in 2022 and is near the middle of the RBA’s target band.
“The December quarter 2024 National Accounts showed that the economy had turned a corner, with growth picking up in the quarter,” it says.
And it reminds voters that Australia’s peer economies lifted interest rates higher to kill inflation, but they then experienced weaker economies and labour markets.
“The United Kingdom and New Zealand have experienced multiple quarters of negative growth,” it says.
“In New Zealand, the unemployment rate is 5.1 per cent and in Canada it is 6.6 per cent. In both of those economies it has increased by nearly 2 percentage points from their 2022 lows, more than two and a half times the increase in Australia.”
Australia’s employment growth has exceeded many other economies. (2025 Federal Budget)
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