Australia's Strong Jobs Market at Risk: Government Tightens Budget Amid Global Shocks

The upcoming federal budget will reflect tougher economic conditions — including slower growth, lower employment, and increasingly expensive exports — with revenue predictions downgraded due to global economic volatility, the government has said.

Costs in areas such as health and defence have increased, partly triggered by events such as the war in the Middle East, Treasury warned.

Treasurer Jim Chalmers has said "responsible economic management and spending restraint" would be "defining features" of the 12 May budget.

"That will be crucial in the context of important and unavoidable spending pressures," Chalmers said. He added that the government was "making space in the budget for things that matter" — citing hospitals, defence, natural disasters, PBS listings, and a response to the Bondi terror attack — but warned budgetary allocations in these areas would not be as large as previously hoped.

"The conflict in the Middle East also means higher borrowing costs on the debt that we inherited will hit the budget hard, and higher inflation that will flow through to higher payment costs," he said.

Slower Hiring Expected to Hit Employment Rate

While the ABS recently reported that Australia's seasonally adjusted unemployment rate remained unchanged at 4.3 per cent in March, some economists warn that the nation's historically strong employment rate could be at risk.

Westpac senior associate economist Ryan Wells said economic shocks typically hit the labour market with some lag and doesn't expect the unemployment rate to remain at its current level.

"Higher fuel costs and global uncertainty take time to work through household spending, into margins, and eventually decisions around investment and staffing," he said. "While employers may pause new hiring fairly quickly, they are often reluctant to cut headcount due to the difficulty and costs involved in securing and training new staff."

Wells expects the unemployment rate to rise to around 5 per cent in 2026 and stay around that level in 2027, due to slower hiring rather than mass job losses. However, fuel-reliant industries like logistics, construction and tourism would likely feel employment pressures sooner.

Inflation has surged from 3.7 per cent to 4.6 per cent in March, its highest level since 2023. Rising fuel costs, driven by the Middle East conflict, pushed the Consumer Price Index up 0.9 per cent.

Energy Minister Chris Bowen said Australia was "very well-placed to weather this storm" but warned that even if the war ended today, economic disruption would continue due to supply chain impacts from the closure of the Strait of Hormuz.