S&P warns that record Australian government spending may strain fiscal health

S&P Global Ratings highlighted that federal payments reached 26.9% of Australia’s GDP in the 2025/26 fiscal year, the highest level in four decades apart from the pandemic period. Martin Foo explained that the country’s strong tax collection, now 24.1% of GDP, masks the underlying vulnerability if commodity prices slip or unemployment rises. He warned that the elevated spending, driven by defence, aged care, social security and interest obligations, is likely to persist and could strain finances when revenue peaks recede.

Veteran economist Chris Richardson echoed the concern, calling permanent promises on temporary windfalls a historic budgeting mistake. Additionally, Foo said the high fiscal stance hampers the Reserve Bank’s inflation-curbing efforts, creating a clash between monetary tightening and government demand. The RBA governor Michele Bullock and Treasury minister Jim Chalmers have each pointed to differing drivers of recent price pressures, while a Mandala report for the Australian Institute of Company Directors suggested regulatory reform could add $20 billion to annual growth.