ASFI 2025-26 Budget Wrap

The Albanese Government’s 2025-26 Budget is a relatively restrained work with few surprises. The Government has chosen to focus its resources on measures that it sees as central to cost of living concerns, such as increasing Medicare resourcing for bulk billing, fully funding public school education, small additional tax cuts and continuing energy bill subsidies. Outside of these areas, the largest investments were made in infrastructure projects, with previously announced commitments under the Future Made in Australia agenda for green aluminium and bailing out the Whyalla steelworks also featuring in the Budget papers.

In contrast to the previous two years, there is a noticeable absence of measures that further the sustainable finance and broader sustainability agendas. This includes no new spending for Australia’s efforts to host UN COP31 climate conference in 2026 – an expensive task. The government has bet on cost-of-living measures and budget restraint as an election winning strategy, and will punt important decisions about Australia’s climate transition to the other side of what it hopes will be an election victory.

Overall, the Budget papers are heralding the ‘soft landing’ from the 2021-24 inflation episode, predicting that inflation will this year squarely hit the middle of the RBA’s 2-3% target, unemployment will remain low at just over 4%, and that wage growth will hit 3%, continuing to overtake inflation. Real GDP growth is expected to be just over 2% per annum. However, in the absence of significant structural changes to the Budget, the overall fiscal position falls back into deficit, with deficits of $28-42 billion – or just over 1 per cent of GDP – expected for each of the next four financial years.

Roses

The Government’s relatively restrained spending priorities yield few big ‘winners’ this year, although modest additional spending under Future Made in Australia ($3.2 billion over the next two decades) helps build confidence for long-term investment in Australia’s future green export industries. Additional funding for further Closing the Gap measures ($506.4m over 5 years), including Indigenous Business Australia’s home ownership program ($70.9m over 2 years) is positive. The previously-announced additional $2 billion in capital for the Clean Energy Finance Corporation also provides possibilities for additional blended finance investment in net zero industries in Australia.

Thorns

The Government has chosen to extend subsidies for household energy bills ($1.8bn over 2 years). While these subsidies will undoubtedly assist some householders struggling to pay their energy bills, they are not targeted and could work to mute price signals to invest in energy efficiency or household renewable energy production. The Budget also does not signal increasing ambition in addressing climate change, significantly improving outcomes for nature, or advancing the sustainable finance agenda. Specifically, no further allocation for spending related to Australia’s efforts to co-host COP31 climate conference with Pacific Island countries in 2026.

Buds

The Government has directed some funding towards more novel solutions to the housing challenge, including movements towards scaling up prefabricated home building ($54 m over four years). This could help mitigate both labour constraints in building homes, as well as reducing the environmental impact of home construction. However, only a small amount of funding is provided, meaning that industry would rapidly need to scale up to realise these outcomes.

In contrast to many other nations that are either cutting or reprioritising foreign aid, Australia’s Official Development Assistance budget remains steady, increasing in line with inflation over the next four years. This is a positive sign for continued development of blended finance opportunities for Australian financial institutions.

The relatively stable budgetary situation also provides some ability for the Government to make further movements later, and it is possible that the forthcoming election campaign could yield greater commitments to advancing sustainable finance in Australia.