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In recent years the exodus of New Zealanders moving to Australia has grown with the number leaving in 2026 reaching 12-year highs. This has been driven by the better economic prospects and higher salaries available in Australia. However, given the economic stormclouds gathering in the continent, may we see a reversal of those numbers soon?
In early March, the government was touting some of the strongest growth figures the country has seen in years with growth in the December 2025 quarter reaching 0.8 per cent, up from 0.5 per cent in the previous quarter. Annual economic growth for that quarter was 2.6 per cent, up from 2.1 per cent from the previous quarter. With the most recent economic data looking so positive, how is it that business and consumer confidence are in the toilet? Business confidence sits at 76.5 points in April’s Roy Morgan poll, lower than during the Covid lockdowns in April 2020. Yes, there is a large impact from the war in Iran but there are plenty of factors being driven by the Australian federal Government.
Inflation in Australia is skyrocketing compared to most developed economies, with the consumer price index growing by 4.6 per cent annually in March 2026, up from 3.7 per cent in February. That is the highest level since September 2023 and while other countries are also experiencing some growth in inflation, it isn’t as serious. The United Kingdom’s inflation is 3.3 per cent, up from 3 per cent; The United States is 3.3% up from 2.4 per cent while New Zealand’s inflation has stayed at 3.1 per cent for the two most recent quarters. Meanwhile, the Reserve Bank of Australia is doing something no other central bank has needed to do: lifting the official cash rate by 0.25 points for three consecutive months. Australia’s Official Cash Rate of 4.35 per cent dwarfs the 3.75 per cent of the United States and United Kingdom, 2.25 per cent in New Zealand and 2.15 per cent in the European Union. The RBA has been clear: while the war in Iran is having an impact on inflation, the government is also responsible.
The federal government will publish their budget on 12 May and, while we have to wait until the books are opened to be sure, economists are expecting a mixture of unrestrained spending and broken promises increasing taxes. While previously heralded tax cuts, reducing the tax on income between $18,500 and $45,000 by one cent, will go ahead, the government is refusing to rule out changes to Capital Gains Taxes or negative gearing. There are also rumours the budget may include a $300 cost of living relief payment that will further fuel inflation. The government’s gross debt currently sits at $962 billion, with the interest costs on this debt approaching $72 million per day. This year’s budget is expected to forecast a deficit of up to $35 billion with no prospect of delivering a surplus this decade.
The Victorian State Government released its budget on Tuesday, projecting a $727 million operating allowance and a $1billion surplus. It is the first time the state government has projected a surplus in seven years, an announcement that has been received with scepticism by virtually everyone else in Victoria. The state government is deeply in debt following Dan Andrews’ “Big Build” projects and a number of inflationary handouts during the Covid pandemic. The budget forecasts borrowing to increase from $203 billion to $243 billion by 2030.
Of course the surplus is fraudulent, achieved through federal handouts and a bit of fortunate timing. Revenue is up $4 billion on the previous year, with 75 per cent of that increased revenue coming from the federal government. The Lottery Corporation has also obtained a 40-year extension on its monopoly licence in Victoria, paying the state government $1.15 billion. Were it not for these fortuitous revenue streams, the budget would be forecasting a $3 billion deficit. It is also duplicitous for the surplus to even be called a surplus when the state is actually planning to borrow $40 billion over the next four years and is yet to pay down any principal on existing debt. The so-called surplus is forecast to grow to $1.9 billion in the following three years.
Aside from an abundance of window-dressing and spin, the budget surplus also depends on some very optimistic assumptions about revenue growth. Stamp duty will bring in $600 million less than the previous year as increasing interest rates dampen growth in the property market. The budget is banking on a 10 per cent increase in stamp duty revenue the following year, which looks doubtful with interest rates likely to remain high over the next 12 months.
The Victorian Government continues to splurge on low-value spending to subsidise daily life in the state. Most recently making all public transport trips ‘free’ through April and May at a cost of $433 million, to be followed by half-price fares for the rest of the year. I use trains to commute to work daily and have seen the impact of this subsidy on the quality of the system. Weekends have become nightmarish, with no increase in services resulting in crammed trains that constantly run behind schedule. I’ll happily pay $5 myself each way for a service that has seats and runs on time instead of paying through taxation for this claustrophobic nightmare.
Wasteful infrastructure projects that have not been factored into this year’s budget include the Suburban Rail Loop, with the initial eastern stage set to cost $35 billion while the proportion that will be funded by Victoria remains ambiguous. The entire project will cost over $200 billion to build and operate over coming decades – the same amount of money Victoria has already borrowed to date.
Aside from a pothole in the road caused by the war in Iran, global economic trends are generally moving in the right direction after the Covid pandemic. With its considerable resources, the “lucky country” should be doing the same, but is bucking the trend with higher inflation and interest rates. Australia doesn’t have a cost of living crisis: it has a cost of government crisis and there is no indication when this problem might be fixed.
