The 2025–26 Mid-Year Economic and Fiscal Outlook (MYEFO) was released on 17 December 2025. It reveals (Table 3.2, p. 56) that the forecast deficit over the forward estimates period (2025–26 to 2028–29) has been revised down to $143.2 billion, from the $151.6 billion estimated in the 2025 Pre-election Economic and Fiscal Outlook (PEFO). The improvement in the budget position (on an underlying cash balance (UCB) basis) is largely due to savings measures and higher-than-expected tax receipts outweighing increased payments. 

Budget spending in 2025–26 compared with 2024–25

The budget position for 2024–25 was a deficit of $10 billion; the estimated deficit for 2025–26 is $36.8 billion. The estimated receipts for 2025–26 are 4.6% higher in nominal terms than 2024–25, while estimated payments are 8% higher than 2024–25.

Improvements to the budget over the forward estimates period

The estimated cumulative deficit over the forward estimates has improved by $8.4 billion compared to the 2025 PEFO. Of this, net policy decisions taken since the 2025 PEFO account for $2.2 billion and better-than-expected ‘parameter and other variations’ account for the remaining $6.2 billion (Figure 1).

Figure 1: Net impact of underlying parameter and policy variations since the 2025–26 Budget

Note: UCB = underlying cash balance
Source: Parliamentary Library analysis based on Jim Chalmers (Treasurer) and Katy Gallagher (Minister for Finance), Mid-Year Economic and Fiscal Outlook 2025–26.

Policy decisions

New policy decisions since the 2025 PEFO are anticipated to decrease total receipts by $1.6 billion and decrease payments by $3.8 billion over the forward estimates period. Net policy decisions are positive in 2027–28 and 2028–29 (Figure 1), improving the budget position by $2.2 billion over the forward estimates.

The top 5 largest measures by value over the forward estimates are:

• Further Reducing Spending on Consultants, Contractors and Labour Hire, and Non‑wage Expenses (p. 215). This measure is expected to decrease payments by $6.8 billion. The measure includes reducing spending on external labour and other non-wage expenses, expanding Australian Government Consulting (in-house public service consultancy) and transitioning Australian Government Consulting to a full cost-recovery basis from 2026–27.
• Sustaining the Cheaper Home Batteries Program (p. 210). This measure is expected to partially offset the increased costs of the Cheaper Home Batteries program by $6.7 billion by adjusting eligibility settings (see below Economic Parameters).
• Boosting the Low Income Superannuation Tax Offset and practical changes to Better Targeted Superannuation Concessions (p. 179). This measure is estimated to decrease receipts by $3.8 billion and increase payments by $475.8 million.
• Resetting Social Security Deeming Rates (p. 284). This measure is estimated to decrease payments by $1.9 billion and decrease receipts by $0.1 billion resulting in net savings of $1.8 billion.
• Pharmaceutical Benefits Scheme New and Amended Listings (p. 254). This measure is estimated to increase payments by $1.8 billion.

Economic parameters

Over the forward estimates, total receipts have been revised up by $41.3 billion and total payments have been revised up by $35.1 billion, compared to the 2025 PEFO, due to parameter and other variations. The positive receipts variations offset the negative payments variations.

Key revisions to receipts over the forward estimates period, since the 2025 PEFO, include:

• Personal income tax receipts have been revised up by $23.2 billion. This is due to better-than-expected employment data, with employment growth 0.25% higher in 2025–26 than forecast in the 2025–26 Budget.
• Company tax receipts have been revised up by $12.8 billion. This is due to higher non-mining profits from the private sector and higher-than-expected bulk commodity and gold prices.
• Superannuation fund tax receipts have been revised up by $10.1 billion due to higher wages resulting in higher superannuation contributions.
• Total excise and customs duty receipts have been revised down by $13.1 billion. This is mainly due to lower tobacco excise receipts and lower expectations for alcohol and fuel excise receipts.

Key revisions to payments over the forward estimates period, since the 2025 PEFO, include:

• The overall increase in payments to the Cheaper Home Batteries program is $4.9 billion. The Cheaper Home Batteries program was revised up by $11.6 billion, due to higher-than-estimated demand for the program. This cost increase is partially counteracted by $6.7 billion in savings from the Sustaining the Cheaper Home Batteries Program measure. The revised total cost for the program is $7.2 billion.
• The Fuel Tax Credits Scheme program has been revised down by $3.4 billion due to lower-than-expected Fuel Tax Credit claims.
• The National Partnership Payments – Natural Disaster Relief program has been revised up by $6.3 billion due to updated estimates for future expenditure on past natural disaster events.
• The Support for Seniors program has been revised up by $3.0 billion, due to higher-than-projected indexation rates and an increased number of recipients of the Age Pension.

For further information on the MYEFO, the Parliamentary Budget Office has released its comprehensive snapshot of the budget update.