Highest month of tax take ever, says Westpac analyst
Federal tax receipts ran hot enough in May to set a record for monthly collections, narrowing Australia's underlying cash deficit to $10.9 billion for the 11 months to 31 May 2026 — a result that beat the government's own budget profile by $7.6 billion.
For mortgage professionals waiting on signs of rate relief, the figures cut both ways: government revenue this strong is also the evidence the Reserve Bank of Australia has pointed to in justifying a wait-and-see approach on the cash rate, rather than a path towards cuts.
The same week the Department of Finance released its figures, fresh inflation data complicated the picture further.
Headline inflation eased to 4% year-on-year in May on a sharp fall in petrol prices, but the trimmed mean measure the RBA watches most closely ticked up, reviving talk of an August increase.
Westpac's rate call remains the most hawkish of the majors, with two 25-basis-point rises pencilled in for August and September that would take the cash rate to 4.85%, while Commonwealth Bank and ANZ expect a hold at 4.35% and NAB has one further rise pencilled in for August.
The same forces driving tax and inflation
Westpac senior economist Pat Bustamante, who covers the budget figures for Westpac, said May's result was unprecedented in scale. "May was the highest month of tax take ever," he said.
Company tax for the 11 months reached $136.6 billion, a figure the Department of Finance linked, alongside individual income tax, to elevated commodity export prices and low unemployment. Total gross income tax withholding came to $292.0 billion against a $291.5 billion profile, while total individuals and other withholding taxation, after refunds, stood at $344.3 billion.
Those same commodity gains trace in part to the conflict in the Middle East, which the RBA has named as a direct complication for its policy settings. The central bank held the cash rate at 4.35% at its June meeting, pausing after three consecutive rises earlier in the year.
Governor Michele Bullock said the conflict had "complicated things immensely" and "made the trade-off much, much worse" for the board, adding that the current rate level gives policymakers some room to monitor how the situation develops.
What this means for credit growth
Total operating receipts reached $693.6 billion for the 11 months, $1.7 billion above profile, while taxes received overall came to $639.3 billion against a $637.0 billion profile.
On the spending side, Bustamante said annual growth had slowed from roughly 10% to 4%, with total operating payments of $704.7 billion running $5.9 billion under the $710.6 billion profile.
That spending restraint sits against a credit market still expanding briskly. RBA data for March 2026 showed total credit growing at 8.3% in six-month annualised terms, well above nominal GDP growth, with housing credit growth at 7.7% over the same measure — comfortably above its post-GFC average.
Investor credit growth has picked up further, sitting only slightly below its 2015 peak, even as owner-occupier credit growth holds closer to its long-term average.
Grants and subsidies paid totalled $239.2 billion, a shortfall of around $3.2 billion against profile, which Bustamante linked partly to states falling short of housing-related grant targets.
"It's not enough to get to a surplus, but it's looking better than expected," he said, putting the likely full-year underlying cash deficit near $15 billion once June figures are included.
That grants shortfall arrives alongside a separate tightening of investor settings. On June 23, the government secured a deal with the Greens to pass its Budget tax legislation through the Senate, including a ban on self-managed superannuation funds using limited recourse borrowing arrangements to buy residential property.
Treasurer Jim Chalmers said the change would "strengthen the rules that limit borrowing by superannuation funds," with existing SMSF property arrangements exempted and a 45-day transition period for deals already in progress.
State revenue tells a parallel story
The federal pattern of strong receipts is not mirrored everywhere. NSW's 2026-27 Budget revealed the state now expects to collect $8.4 billion less than originally forecast from stamp duty and land tax, attributed to a slower property market, while Queensland's Budget still projects $11.5 billion in stamp duty and land tax receipts for 2026-27 — around 38.8% of all state taxes.
The mismatch between federal revenue strength and a cooling property-driven state tax base has already shown up in bank valuations. Commonwealth Bank of Australia lost close to $26 billion in market value in May after a quarterly profit miss, with its concentration in investor property lending cited as a particular exposure once negative gearing concessions for new investors in existing properties were removed.
Jarden analyst Matthew Wilson said the bank "appears quite vulnerable to the negative gearing changes for investor home loans, a space it dominates where loans are typically interest only, wider spread and better asset quality."
The full-year underlying cash deficit is forecast at $28.3 billion, while the headline cash deficit — which includes $12.9 billion in policy-purpose investment outflows covering Snowy Hydro, the National Broadband Network, the Clean Energy Finance Corporation, and Future Made in Australia initiatives — stood at $23.8 billion for the 11 months, against a $33.4 billion profile and a $47.9 billion full-year estimate. The fiscal balance recorded a deficit of $17.0 billion for the period, against a $27.2 billion profile and a $50.1 billion full-year estimate, while the net operating balance showed a deficit of $9.8 billion.
As at May 31, 2026, net debt stood at $537.4 billion against a full-year estimate of $556.0 billion, with net worth at -$586.7 billion and net financial liabilities at $871.0 billion.
