The treasurer maintains his second budget will not nudge inflation higher and trigger another interest rate hike next month.
Jim Chalmers has spent much of the federal budget wash-up explaining how it will not drive up prices, in response to concerns over pumping more money into the economy.
In an address to the National Press Club on Wednesday, Dr Chalmers said more than one-quarter of the budget’s total spending would go towards keeping existing programs running.
He also said the cost of living relief was carefully targeted and relatively calibrated – costing around 0.1 per cent of GDP in 2023/24 – and would be dribbled out throughout the year rather than in one big hit.
Plus, Treasury analysis in Tuesday’s budget anticipates its cost of living measures – including the energy bill relief – will actually shave 0.75 per cent off inflation in 2023/24.
Official forecasts do show inflation coming down faster in this financial year compared to earlier forecasts, but only by 0.25 per cent.
But the inflationary impact of the government’s budget policies remains a live question.
Some economists, such as Rich Insight’s Chris Richardson, noted the cost of living spending was necessary but it would have been preferable to have offset it with money-saving and revenue-raising measures.
Major ratings agency S&P welcomed the government’s decision to bank its revenue upgrades but warned the budget’s handouts may add to inflationary pressures.
Director Anthony Walker also said inflation would likely remain above the Reserve Bank’s target range until 2026, much later than the bank’s and Treasury forecasts.
But several economists, including NAB’s Alan Oster, considered the budget to have a relatively neutral impact on the inflationary environment.
“We see little implication for monetary policy in the near term, with the RBA likely to continue to focus on the ongoing pass-through of rates and the pace of moderation in inflation,” Mr Oster and his colleagues wrote in an analysis.
The opposition has also accused the government of fuelling inflation and claims a family with children is around $25,000 worse off under the Labor government.
“After less than a year in government, there is $185 billion of extra spending, which makes inflation worse and does nothing to help you or your family get ahead,” shadow treasurer Angus Taylor said.
“Instead, this budget makes the situation worse.”
But the treasurer assured his budget would be contractionary when inflation was at its highest.
“The result of our efforts is to improve the fiscal position by around $125 billion over two years since coming to government,” he said.
“All this means that our fiscal position is clearly not working against the RBA.”
He said with the economy slowing, hitting the brakes too hard “would’ve done more harm than good”.
© AAP 2023
