This week, the Australian government will announce its annual budget, which is expected to end two consecutive years of fiscal surplus and return to deficit status. Behind this transformation are the fiscal measures introduced by Prime Minister Albanese to alleviate the pressure of family living costs, as well as the impact of global economic uncertainty on Australia's economic prospects.

1、 Cost of living pressure becomes the focus, fiscal policy shifts towards expansion

Australian Finance Minister Chalmers stated before the budget release that the new budget will address current economic challenges in a "responsible" manner, with a focus on the issue of cost of living. The government plans to provide financial support to households through targeted measures to alleviate the pressure brought by inflation and rising living costs.

Chalmers emphasized that this is a budget that focuses on the cost of living, aimed at helping households cope with rising prices while enhancing the economy's resilience in the face of global economic uncertainty. This policy shift marks Australia's transition from austerity to expansion in response to domestic and international economic pressures.

2、 Returning to the deficit: the end of the era of fiscal surplus

After achieving fiscal surplus for two consecutive years, Australia is expected to return to deficit in the 2024/25 fiscal year. Although the deficit size may be lower than the government's forecast of AUD 26.9 billion in December last year, this shift still holds significant importance.

Major financial institutions have slightly different forecasts for the size of the deficit: ANZ Bank expects a deficit of AUD 20 billion, AMP expects AUD 17 billion, and the Commonwealth Bank of Australia (CBA) expects AUD 22.5 billion. Despite the resurgence of deficits, Australia's debt to GDP ratio remains relatively low compared to other countries around the world, providing the government with greater fiscal space.

3、 Economic prospects intertwined with political considerations

The Australian government's budget decisions are not only based on economic reality, but also influenced by political considerations. Prime Minister Albanese hopes to increase the government's approval rating by reducing the financial burden on families, paving the way for future re-election. At the same time, global economic uncertainty, such as trade tensions and energy price fluctuations, has also cast a shadow over Australia's economic prospects.

The government's fiscal expansion policy aims to balance short-term economic support with long-term fiscal sustainability. However, finding a balance between stimulating the economy and controlling the deficit will be the main challenge facing the Australian government.

Conclusion: Deficit Returns, Australia's Fiscal 'double-edged sword'

The Australian government's budget marks a significant shift in fiscal policy, from surplus to deficit, in response to cost of living pressures and global economic uncertainty. This policy choice is both a reflection of economic reality and a result of political considerations. In the future, how to strike a balance between supporting the economy and maintaining fiscal health will test the wisdom and execution of the Australian government.

The Australian government may exert pressure on the Australian dollar in the short term by increasing spending and returning to the deficit to alleviate cost of living pressures. Fiscal expansion policies often lead to market concerns about an increase in government debt, thereby weakening investors' confidence in the Australian dollar. In addition, the subsidy measures for households in the budget may stimulate domestic demand and further exacerbate inflationary pressures, which may limit the room for the Reserve Bank of Australia to cut interest rates, but the direct impact on the Australian dollar is limited.