Better times ahead for economy, despite global woes
Australia's economy is tipped to strengthen over the next few years despite the uncertain global backdrop, but may stagnate without serious tax reforms.
While Australia's economic growth hit speed bumps early in of 2025 from Cyclone Alfred, other weather events and a dip in government spending, Deloitte Access Economics is optimistic the pace of economic growth will accelerate over the coming quarters.
"Conditions are improving," the economic services company said in a report released on Friday.
"Real wages are grinding higher (even if it will be around 2030 before pre-pandemic purchasing power is restored), interest rates are declining, and inflation is no longer preying on consumers' wallets or their psyche."
That suggests consumer spending will pick up, despite the jarring effects of Donald Trump's second US presidency and other global concerns weighing on confidence, the report states.
Construction activity will also be a source of economic strength, with a significant lift in dwelling activity expected across 2026 as the industry works through a backlog of projects and reforms to regulations and zoning take effect.
The quarterly report forecast Australia's gross domestic product would grow by 2.1 per cent in 2025/26 and 2.4 per cent the following year, up from the 1.4 per cent GDP growth in the year to March 2025.
The forecast is roughly in line with estimates from the Reserve Bank, which predicted in May that Australia's GDP would grow by 2.2 per cent in 2025/26 and 2.2 per cent the following year.
The Deloitte report forecasts the central bank will cut interest rates by a total of half a percentage point over the rest of 2025, and again in 2026.
It predicts 2025 will be the nadir for the Aussie dollar, buying just an average of 63.60 US cents, from 66 US cents in 2024.
But it forecasts the Aussie will buy an average of 64.70 US cents in 2026, 67.4 US cents in 2027 and 68.70 US cents in 2028.
However, Deloitte Access Economics partner and report co-author Stephen Smith warned globalisation, financialisation and technology change that had permanently boosted Australian living standards were fading.
Australia couldn't rely on the global economy to drive prosperity, he said.
Mr Smith said one of the most significant levers to drive investment, productivity and efficiency was the tax system, which hadn't been reformed in a quarter-century.
"Since then, the Australian economy has lost its dynamism and competitive edge," he said, adding it was encouraging the federal government had recently raised the topic of tax reform.
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The Advertiser
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"We've increased it by $57 billion over the medium term and by more than $10 billion in the short term as well." Spain objected to the spending pledge and flagged it did not intend to meet the five per cent target. Mr Trump warned the European nation its exports could be slapped with fresh tariffs by the US if it did no commit to the alliance's commitment on defence spending. Asked if he was concerned Australia could face a similar threat from the US president, Mr Albanese played down the prospect. "I'm not going to comment on things between Spain and the United States. What my job is is to look after Australia's national interest, that includes our defence and security interests," he said. Foreign Minister Penny Wong is preparing to fly to the US for talks with US Secretary of State Marco Rubio. The meeting with Mr Rubio will be part of discussions between the foreign ministers of Quad alliance nations, which includes Japan and India. Quad foreign ministers previously met in January, with the alliance focusing on issues in the Indo-Pacific. Opposition defence spokesman Angus Taylor said boosting spending levels was not about doing what the US wanted. "This is not about being bullied," he said. "This is about being doing the right thing for our great country, and that's what we want to see." Anthony Albanese is digging his heels in on lifting defence spending as the US heaps more pressure on its allies to increase their share. NATO members agreed to spend five per cent of their economic output on defence and security, after calls by US President Donald Trump. The boost has led to more pressure on Washington's Indo-Pacific allies to do the same, with White House press secretary Karoline Leavitt saying countries such as Australia should follow suit. "If our allies in Europe and our NATO allies can do that, I think our allies and our friends in the Asia-Pacific region can do it as well," she said. 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