The information on this website is general in nature and does not take into account your objectives, financial situation, or needs. Consider seeking personal advice from a licensed adviser before acting on any information.
Concerns are mounting among financial experts that the latest federal budget could prompt a rise in interest rates, adding to the challenges faced by borrowers.
Economists have critiqued the 2024 budget for its "stimulative" nature, igniting fears it may counteract the Reserve Bank of Australia's (RBA) efforts to control inflation. This unexpected budgetary shift has led to speculation of potential interest rate hikes rather than impending cuts, which had been anticipated earlier this year.
David Bassanese, Betashares' chief economist, highlighted the increased fiscal spending as a surprising move, given the current economic climate. "The substantial fiscal expansion seen in the budget, particularly in cost-of-living support, appears to have encouraged higher spending in other areas, possibly underestimating the RBA's tolerance for such policies," he observed.
From a balance sheet perspective, the deficit is projected to jump from $9 billion to a staggering $28 billion in the 2024-25 period. This shift, equaling about 1.3% of GDP, signifies a pronounced swing towards fiscal stimulus, raising concerns about further inflationary pressures.
Furthermore, household disposable income is predicted to rise by 3.5% in the next fiscal year, boosted by tax reductions and an energy rebate of $300. Yet, this does not align with the forecasted 2% increase in consumer spending. Mr. Bassanese warned that if households decide to spend rather than save this windfall, the odds of increased interest rates could climb significantly.
Current estimates now put the probability of a rate hike before the next federal election at 40%, a substantial increase from the previous 10%. The unpredictability of how Australians will utilize their enhanced disposable income keeps both economists and policymakers on edge.
According to Stephen Halmarick, Commonwealth Bank's chief economist, the renewed fiscal approach renders earlier expectations of rate cuts - foreseen to begin as early as November - tenuous. The bank's internal estimates had initially projected a drop to 3% by the end of 2025, but these seem increasingly optimistic.
Budget papers reveal an anticipated modest cash rate reduction of 0.75% by 2026, decreasing from the current rates still north of 4%. This gradual easing may now be viewed in a new light, with inflationary pressures potentially suppressing any significant rate cuts over the short term.
Attention has also been drawn to various initiatives within the budget, especially a $23 billion fund for sectors including green hydrogen and critical minerals, aimed at energizing the domestic economy. However, critics argue that in an employment landscape marked by shortages, such expansive policies could further aggravate inflation.
Carlos Cacho, chief economist at Jarden, estimates the budget will inject an additional $30 billion in fiscal stimulus, risking an upward spiral in inflation. KPMG's Brendan Rynne shares this view, describing the budget as creating "upward pressure on inflation," supported by policies that may only temporarily mask the true economic impact until post-election.
The Australian Chamber of Commerce and Industry's Andrew McKellar echoed these sentiments, asserting that enlarging government size and expenditure could lead to increased costs and taxes, thus complicating the economic landscape for businesses.
Despite the prevailing concern, Shane Oliver, chief economist at AMP, indicated that while the risk of prolonged higher rates remains, there is still a probability of rate reductions starting November. Westpac's economists, on the other hand, argue the budget's specifics should not fundamentally alter the RBA's timeline for potential rate cuts.
The intricate balance between fiscal policies and market reactions makes it crucial for stakeholders to stay informed and prepared for various economic scenarios that lie ahead.
Published:Monday, 20th May 2024 Source: Paige Estritori
Please Note: If this information affects you, seek advice from a licensed professional.
In September 2025, ANZ Bank agreed to pay a record A$240 million fine following investigations by the Australian Securities and Investments Commission (ASIC) into multiple regulatory breaches. This penalty highlights the importance of compliance and ethical practices within the banking sector. - read more
The Commonwealth Bank of Australia (CBA) has reported a record full-year cash profit of A$10.25 billion for the fiscal year ending June 30, 2025. This impressive performance is primarily attributed to robust growth in both home and business lending. - read more
Westpac Banking Corporation has reported a restructuring charge of A$273 million (approximately $177.72 million USD) for the second half of fiscal year 2025. This move is part of the bank's ongoing 'Fit for Growth' program, which focuses on strategic cost management and performance improvement. - read more
In September 2025, Australia's unemployment rate increased to 4.5%, marking the highest level since November 2021. This rise surpassed economists' expectations of 4.3% and has reignited discussions about potential interest rate cuts by the Reserve Bank of Australia (RBA). Find out now if you qualify and compare rates, offers and options from multiple lenders - without a credit check! Find out now if you qualify and compare rates, offers and options from multiple lenders - without a credit check! - read more
The Reserve Bank of Australia (RBA) has observed early signs of loosening financial conditions following three interest rate cuts in 2025, which have brought the rate down to 3.6%. According to RBA Assistant Governor Christopher Kent, credit availability for households and businesses has improved as a result of these adjustments. - read more
Freelancers and self-employed individuals in Australia often navigate a unique set of financial challenges. The unpredictable nature of income can make budgeting and long-term financial planning more difficult compared to those with a steady paycheck. As work comes and goes in fluctuating cycles, financial stability can sometimes feel elusive. - read more
Credit scores play a crucial role in loan applications, determining eligibility and interest rates for borrowers. Understanding how credit scores are calculated and the impact they have on loan applications is essential for anyone who wants to borrow smartly. - read more
Launching a startup is an exhilarating journey, filled with the promise of innovation, independence, and growth. However, it also comes with its share of challenges. From planning and execution to funding and scaling, each step requires careful consideration and decisive action. For many aspiring entrepreneurs in Australia, securing the necessary capital is one of the greatest hurdles they face on the path to success. - read more
Understanding your borrowing power is an essential step for anyone looking to take out a loan. This concept represents the amount of money you're eligible to borrow from a lender, whether it’s for purchasing a home, a car, or investing in your future. Knowing your borrowing power not only sets realistic expectations but also guides you in financial planning and budgeting for your loan repayments. - read more
Pre-approval in the financial world refers to a preliminary evaluation by a lender to determine how much credit or loan they may be willing to extend to an applicant. It's a vital step for any Australian looking to finance a significant purchase such as a home or a car. Essentially, pre-approval provides potential borrowers with an indication of their borrowing capacity, subject to final verification and approval. - read more
Need Help Finding a Loan?
Find out now if you qualify and
compare rates, offers and options from multiple lenders - without a credit check!
All finance quotes are provided free (via our secure server) and without
obligation. We respect your
privacy.
Knowledgebase
Balloon Payment.: A large loan repayment made in order to clear a debt. Usually applied to a short-term fixed-rate loan, which involves small payments for a certain period of time with one large payment for the remaining amount of the principal at a time specified in the future.
