The Albanese government's 2025–26 federal budget delivered a second consecutive surplus, continuing a fiscal consolidation that few predicted when the Coalition left office with a projected $78 billion deficit in 2022. The turnaround has been driven primarily by elevated commodity export revenues and a strong labour market generating higher-than-expected tax receipts. But beneath the surplus headline, the structural fiscal outlook remains more challenging than the politics suggests.

The Surplus: Real or Nominal?

A budget surplus means the government is spending less than it collects in revenue. This year's surplus of approximately $9 billion represents roughly 0.3 per cent of GDP — a modest buffer, not a commanding fiscal position. More importantly, it is structurally fragile: it depends on commodity prices remaining elevated, the labour market staying strong, and spending growth remaining below the rate of revenue growth. None of these conditions is guaranteed.

The NDIS Pressure

The National Disability Insurance Scheme is the single largest driver of structural spending growth. Annual NDIS costs are approaching $45 billion and growing faster than GDP, posing a long-run fiscal challenge that successive governments have struggled to contain. The government has introduced reforms aimed at slowing growth, but the NDIS's design — demand-driven, with support determined by individual need assessments — makes it difficult to control from the centre without creating politically damaging stories of people being denied care.

Defence Spending

AUKUS commitments are reshaping Australia's defence spending trajectory. The government has committed to reaching 2.3 per cent of GDP in defence spending by 2033–34, up from around 2 per cent today. The nuclear submarine program alone represents hundreds of billions of dollars in spending over coming decades. This structural increase in defence spending will need to be funded either through revenue increases, cuts elsewhere, or accepting a structural budget deficit — choices that have not been honestly presented to the Australian public.