Every year, the Treasurer stands up in Parliament and sets out how the Government will raise and spend hundreds of billions of dollars. Here’s how the federal budget works, and how it reaches your wallet.
The federal budget is the Government’s financial plan. It sets out how much money it expects to collect, how much it plans to spend, and on what, along with forecasts for the economy.
It is usually delivered on the second Tuesday in May, when the Treasurer gives a budget speech in Parliament in the evening. The 2026-27 Budget was handed down by Treasurer Jim Chalmers on 12 May 2026.
Hundreds of journalists, economists and lobbyists spend the day in a “lock-up” in Parliament House, reading the documents before they’re made public.
Where the money comes from, and where it goes
Most federal revenue comes from tax. Personal income tax is by far the biggest source, followed by company tax and GST, which is passed on to the states.
On the spending side, social security and welfare is the biggest category, covering the age pension, family payments, unemployment benefits and the NDIS. In the 2026-27 Budget, it accounted for about 37% of spending. Health, payments to the states, education and defence are the other big items.
Deficits and debt
When the Government spends more than it collects in a year, it runs a deficit. When it collects more, it runs a surplus. The 2026-27 Budget forecast a deficit of $31.5 billion, about 1% of the size of the economy.
To cover deficits, the Government borrows money by selling bonds to investors. Over time, those deficits add up to the national debt. Gross debt was forecast to be just over $1 trillion in 2026-27.
Australia’s debt is low compared with many other developed countries, but interest on the debt has become one of the fastest-growing costs in the budget.
From announcement to law
A budget announcement isn’t automatically law. Changes to tax and spending usually need legislation to pass both houses of Parliament, which can mean negotiating with the Senate crossbench or the Opposition.
The budget is updated through the year. The Mid-Year Economic and Fiscal Outlook, or MYEFO, comes out around December, and the final budget outcome, showing what actually happened, is released after the financial year ends.
Why it matters
The budget affects everyday life through tax rates, payments, health and education funding and infrastructure.
It also matters for the economy. Big increases in spending can add to inflation, which the Reserve Bank watches closely when setting interest rates. That’s why economists pay close attention to whether a budget adds to or reduces pressure on prices.
