The Albanian government’s claim that the Budget will reduce inflation has been questioned by analysts who say cost-of-living relief measures, such as energy rebates and tax cuts, could make the situation worse.
Energy bill relief and another boost to Commonwealth Rental Assistance were designed to rein in the consumer price index.
The Treasury’s forecasts in Tuesday night’s budget for 2024/25 show that cost of living measures will reduce inflation by about half a percentage point in the next financial year, possibly as early as Christmas.
However, many economists hold the contrary view that if bill refunds and tax cuts produce more consumer spending in the short term, they will only stoke inflation, which in turn will keep mortgage rates high, reducing spending. in the long term and causing a recession.
Australian Economic Development Committee chief economist Cassandra Winzar said non-means-tested cost-of-living relief risks going against the central bank as the rich will simply waste the money. extra.
Jim Chalmers says Treasury forecasts cost-of-living relief will not be inflationary
“Electricity rebates may ease overall inflation, but will boost spending in other sectors,” Ms. Winzar said.
The stage three tax cuts will take effect from July 1.
The government has earmarked $3.5 billion for the upcoming 2024/25 financial year to give every Australian household a $300 discount on their energy bills.
Eligible small businesses will receive a little more relief: $325 will be deducted from their bills during the year.
Treasurer Jim Chalmers defended the government’s decision.
“The clear advice we received from the Treasury was that by designing our cost of living package in the way we have, we will reduce inflation and not increase inflationary pressures in other parts of the economy,” he said.
“We took that advice very seriously and proceeded on that basis.”
Economist and budget expert Chris Richardson said the budget was expansionary, with $9.5 billion in new spending over the next 12 months.
“The government said it would not bring things forward, that it would be careful not to upset the inflationary bear, that it would put it in the back – they absolutely have it in the front,” he said.
The next federal election will be held on September 27, 2025.
Asked if wealthy households needed energy bill relief, Prime Minister Anthony Albanese said the government’s task was to get the tax setup right.
Treasurer Jim Chalmers defended the government’s decision to provide cost-of-living relief to all Australians.
“This is the most effective way to do it,” he told ABC television.
Business Council of Australia chief executive Bran Black said he hoped the Treasury’s prediction that inflation would fall by half a percentage point thanks to cost-of-living relief would prove correct.
“But we do see that when there is more money in the economy, that means there is a chance that people will spend more and that can put pressure on inflation,” he added.
“We hope that is not the case, but we are aware that there is that risk.”
Annual inflation is 3.6 percent.
