Deloitte Access Economics Business Outlook

27 June 2025: The Australian economy is set to strengthen despite the challenges of an uncertain global economy, according to a new Deloitte Access Economics report, which also warns meaningful reform is needed to realise the promise of productivity and lift living standards.

Releasing the June 2025 edition of the flagship  Business Outlook, Deloitte Access Economics Partner and report co-author, Cathryn Lee said:  “Although the global economic and geopolitical environment is becoming increasingly fragile, there are still reasons to be optimistic that the pace of Australian economic growth will strengthen through the remainder of 2025 and into 2026.

“An important combination of lower inflation, declining interest rates, rising real wages, solid government spending growth and a robust labour market is expected to provide the basis for a gradual improvement in domestic economic fortunes in the near term. 

“Despite those positives, economic growth hit a speed bump at the beginning of 2025 as a combination of Cyclone Alfred, other weather events and a dip in government investment spending constrained growth in the March quarter.

“That result – quarterly growth of 0.21% – triggered some negative headlines, though was not the disaster it has been made out to be. The result was only slightly softer than Deloitte Access Economics’ forecast and was broadly consistent with the weather-related headwinds.

“A strong lift in dwelling construction activity was an unexpected bright spot in the March quarter. However, with commencements softening in late 2024 and approvals waning through 2025 to date, that result may have been nothing more than a false dawn. 

“A more significant lift in dwelling activity is still expected to take place through 2026 as construction sector profitability improves, a previous backlog of projects is worked through, and recent reforms to planning regulations and zoning across multiple jurisdictions start to take effect.”

Deloitte Access Economics is expecting economic growth in Australia to accelerate from an estimated 1.3% in 2024-25 to 2.1% in 2025-26, before lifting further to 2.4% in 2026-27.

A further 50 basis points of rate cuts is forecast across the remainder of 2025, followed by a further 50 basis points in 2026.

Deloitte Access Economics Partner and report co-author Stephen Smith said: “For around the last 40 years, the global economic backdrop has broadly played to Australia’s comparative advantages.

“Over the course of that relatively short period of time, significant structural forces – the mega-trends of globalisation, demographics, financialisation and technological change – have helped to boost growth and prosperity in a manner and magnitude so profound that it has permanently lifted Australian living standards.

“In several important ways, however, the economic tailwinds generated by those forces are now fading. That is a reminder that Australia cannot simply rely on the global economy to drive prosperity.

“Instead, domestic economic policy settings are the key to long-term success. On that score, Australia has faltered.”

One of the most significant levers to drive investment, productivity and a more efficient allocation of resources in the economy is the tax system.

Stephen Smith continued: “The most recent major tax reform in Australia occurred a quarter of a century ago. Since then, the Australian economy has lost its dynamism and competitive edge.

“Major sectors in the economy – such as banking, insurance, supermarkets, airlines, and communication services – are dominated by a very small number of very large firms, supported by an economic system that keeps barriers to entry high. As a result, productivity growth has slowed, with real wage growth following.”

“In this context, it is no surprise that the proverbial pet shop galah is talking about the need for reform. After a poll at which the Labor Party was returned with a significant, expanded majority, the possibility that the economic policy might finally become more ambitious has come to define the post-election zeitgeist.

“To its considerable credit, the Federal Government has leaned into the discussion. Successive speeches at the National Press Club by the Prime Minister and the Treasurer, and the announcement of a looming productivity roundtable in the Cabinet Room, have raised hopes of meaningful change.”

Cathryn Lee continued, saying that while this is all very encouraging, it would be remiss to get carried away: “The Treasurer’s speech at the National Press Club made clear that ‘consensus support’ for a policy change will be required.

“Given almost every meaningful reform would inevitably create both winners and losers, achieving a consensus may prve an impossibly high bar. That would be a deep disappointment after the government has stoked anticipation for change.”

Deloitte Access Economics has long advocated for significant tax reform, most recently in modelling published in the twice-yearly Budget Monitor. That modelling includes tax changes such as:

• Increasing the rate of the goods and services tax (GST) and broadening the base to include fresh food and education
• Fully compensating households in the lowest two income quintiles for the effect of the higher GST on the cost of living
• Flattening the personal income tax schedule by raising the tax free threshold and instituting only two marginal rates
• Reducing the capital gains tax discount from 50% to 33.33%.

Cathryn Lee concluded: “Importantly, this package of reforms would be accretive to the Federal Budget and grow the economy. That is, modelling demonstrates that tax reform can be positive for the economy, positive for the budget, and positive for Australian people.

“That is why the Treasurer’s promise to approach reform ideas from a ‘practical, pragmatic and problem‑solving middle ground’ has the potential to be so significant.”

Key forecasts: Deloitte Access Economics Business Outlook, June Quarter 2025

Business Outlook is a quarterly publication presenting detailed economic forecasts and commentary to help understand the economic forces shaping the business environment. The forecasts cover a detailed assessment of the national economy, world growth prospects, each of Australia’s states and territories, and industries.