Australia Braces for Bigger Budget Shortfalls Amid Economic Challenges

Australia's government has reduced its expected budget deficit for the current fiscal year but anticipates larger ones ahead due to essential spending on health, cost-of-living, and veterans care. With elections looming, the government remains committed to public spending to alleviate economic slowdowns caused by high interest rates and inflation.

Australia's government on Wednesday trimmed its expected budget deficit for the current fiscal year, while warning of larger shortfalls ahead. The increases are driven by unavoidable expenses in sectors like health, cost-of-living relief, and veterans' care.

The center-left Labor government, facing a challenging election cycle next year, acknowledged the economic pressures from high interest rates and inflation. However, it stood by its public spending measures to ensure a smooth economic transition. Without these investments, the economy might have slipped into recession, according to recent data.

The Mid-Year Economic and Fiscal Outlook (MYEFO) revealed a downward revision of economic growth forecasts for the fiscal year ending June 2025 to 1.75%. Wage growth expectations were also curtailed, underscoring the government's struggle against inflationary pressures. Treasurer Jim Chalmers suggested further cost-of-living initiatives may be introduced, following earlier tax cuts, rebates, and reductions in medicine costs.

(With inputs from agencies.)