Australian government seeks to win back voters with household relief

By Stella Qiu

SYDNEY (Reuters) - Australia's government will dole out billions in cost of living relief measures in its budget on Tuesday to win back disgruntled voters ahead of a tough election in May, tipping the fiscal ledger back into the red after two years of rare surpluses.

Figures from Treasury showed gross debt is expected to hit A$940 billion ($590.23 billion) in the fiscal year to June 2025, with debt as a share of GDP expected to hit a peak of 37% over the coming years. That is still low compared with its global peers.

Details of the budget will be announced by Treasurer Jim Chalmers in parliament at 1930 local time (0830 GMT).

"Tonight's budget will be a responsible budget," he told reporters in Canberra on Tuesday.

"We know that cost of living is front of mind for most Australians and it will be absolutely front and centre tonight in our budget."

Most major initiatives have already been announced by Prime Minister Anthony Albanese who is struggling to soothe voter anger over high living costs, still-elevated borrowing costs and worsening housing affordability.

The budget will feature an A$8.5 billion investment in the public health system and a A$7.2 billion additional funding to upgrade a major highway in Queensland. It will also extend electricity rebates until the end of the year and roll out funding for every public school in Australia.

The increased spending means the underlying fiscal bottom line for the financial year of 2024/25 will be back in the red after two years of surpluses, although analysts expect the shortfall will not be as large as the A$26.9 billion deficit first flagged by the government in December.

However, for the outer years, deficits are set to widen as spending on healthcare, defence, aged care and interest payments ramp up.

"The fiscal policy stimulus has been persistent for many years, and we think seems likely to continue ahead," said George Tharenou, chief economist at UBS, adding that the budget remains an upside risk for growth and inflation.

That could limit scope for the Reserve Bank of Australia (RBA) to unwind its still very restrictive monetary policy.

"Overall, we continue to see the risk around our RBA view is that it cuts the cash rate only once more," Tharenou said.

Australia's economy has moved past its trough, expanding at the fastest pace in two years last quarter. The labour market has stayed surprisingly resilient, with the unemployment rate hovering at a historically low 4.1%.

The central bank also cut interest rates for the first time in over four years last month, helping Albanese's Labor government claw back some ground with disgruntled voters. However, it did warn prospects of further policy easing are not guaranteed.

Investors have not fully priced in another rate cut until July.

($1 = 1.5926 Australian dollars)

(Reporting by Stella Qiu; Editing by Sam Holmes)