STATES BATTLE DEBT LOADS; ADF’S AI LIFT

NSW Budget flags post-election surplus

New South Wales is projected to post a $2.3 billion budget deficit in 2026-27 amid subdued economic growth, according to the State Budget presented by Treasurer Daniel Mookhey. In its final budget before going to the polls in March next year, the Minns Labor government has outlined a raft of cost-of-living measures, focused on relief in road and transport charges. NSW Budget papers forecast an increase in gross debt to almost $194 billion in 2026-27, rising to $210 billion two years later. Real (inflation-adjusted) growth in gross state product (GSP) is forecast to be just one per cent for each of the next two years, with a $1 billion budget surplus projected for 2027-28.  The budget papers claim NSW’s economy is more sensitive to higher interest rates, given the higher level of household debt.

Queensland lifts debt levels to fund pre-Olympics infrastructure

Meanwhile, Queensland will increase its debt levels to help fund a $119 billion four-year infrastructure program, as the state prepares to host the 2032 Olympic Games. Presenting the State Budget, Treasurer David Janetzki forecast a $6.1 billion budget deficit next fiscal year, with a return to surplus not projected until 2029-30. Total state debt is forecast to rise from $162.6 billion to more than $202 billion over the next three years. Queensland’s public sector debt levels reflect the state’s ongoing ownership of key assets in electricity, bulk water, rail and port services. In its budget, the Crisafulli Government also committed an additional $46 million to accelerate critical minerals projects. Like NSW, Queensland’s economic growth is expected to be subdued, with real GSP falling to 1.75 per cent in 2026-27 and two per cent the following year.

Final Federal Budget outcome poised for $10 billion improvement

In Canberra, higher-than-expected revenue and lower-than-projected (or deferred) payments have contributed to a potential $10 billion improvement in the Federal Budget result for 2025-26. Government financial statements for the year to May show an underlying cash deficit of $10.9 billion, well below the $18.5 billion deficit forecast over the same period. On May 12, Budget papers forecast a final budget deficit of $28.3 billion for the full fiscal year. The headline cash deficit – which takes into account off-budget spending – was $23.8 billion to May, almost $10 billion lower than initially projected for the same period and well below the almost $48 billion deficit forecast for the full year.

Marles talks up AI adoption in defence forces

Deputy Prime Minister Richard Marles says artificial intelligence “will be laced” throughout Australia’s defence force, from an F-35 warplane to submarines to infantry soldiers. The Defence Minister told a national security conference that AI would be present in every aspect of how the nation fought, such as solider wearing an AI-enabled battle management system under the cover of an AI-enabled drone. Mr Marles downplayed the reports of recently-announced export controls imposed by the United States on AI models. He said the controls were “teething problems” that Australia would work through, and it was important to “build some agency” on the use of emerging new technology for defence use. The Deputy PM said that overall, the level of export controls between the US and Australia had been reduced, in the interest of a more seamless industrial base between the two nations.

Annual inflation rates up, and down

Headline annual inflation in Australia eased to four per cent in May, down from 4.2 per cent in April and from a recent peak of 4.6 per cent in March. The Australian Bureau of Statistics said that the annual inflation rate of tradable goods – which includes imported fuel – fell from 3.2 to 2.5 per cent. Annual goods inflation, however, rose by 4.2 per cent, with electricity contributing a 21 per cent rise. Trimmed mean, or core inflation – the Reserve Bank’s preferred measure that excludes volatile items – rose from 3.4 per cent in April to 3.6 per cent in May. Across Australia, the rate of inflation in capital cities varied from 3.5 per cent in Melbourne to five per cent in Hobart.

Cyber sabotage on the march, says ASIO chief

Cyber sabotage, particularly of critical infrastructure, remains an evolving threat in Australia, according to the nation’s Director-General of Security. In his annual threat assessment, Mike Burgess said the scale of cyber sabotage – led by one nation state in particular - was difficult to overstate. The ASIO chief said his agency struggled to find a single country in the region that had not been compromised by the offending state’s cyber apparatus. Critical infrastructure in the energy and communications sectors, as well as infrastructure supporting the military, were top targets.  Mr Burgess also said that Australia’s defence capabilities and components of the AUKUS partnership remained priority targets for foreign intelligence services.