Treasurer Chalmers signalled the fiscal blueprint to be handed down in two months’ time will contain a broader focus than inflation. — Reuters
SYDNEY: Australia will provide further cost-of-living relief to households struggling with sticky inflation and high interest rates while pressing for a second budget surplus to rebuild fiscal buffers, Treasurer Jim Chalmers says.
A falling iron ore price and rising unemployment will mean smaller revenue upgrades than in the past, Chalmers said in a pre-budget address to the Committee for Economic Development of Australia.
He signalled the fiscal blueprint to be handed down in two months’ time will contain a broader focus than inflation, as economic growth slows and a per capita recession deepens.
“Any extra help will be targeted, responsible and affordable. There will not be big cash splashes in the budget, simple as that,” Chalmers said yesterday in the speech that comes about a year out from the next election. “We believe budgets should be shaped by the economic cycle not the electoral cycle.”
Chalmers said additional cost-of-living measures in the budget to be handed down on May 14 won’t be “anywhere near the magnitude” of the multi-billion dollar tax cuts announced in January. “We are still shooting for a second surplus,” he said.
The centre-left Labour government recorded Australia’s first budget surplus in more than 15 years in fiscal 2023, coming in at A$22.1bil (US$14.6bil) thanks to an ultra-tight labour market and elevated commodity prices.
But with the cash rate at a 12-year high of 4.35%, unemployment is beginning to rise.
The central bank is trying to return inflation to its 2% to 3% target after it hit 7.8% in late 2022.
Chalmers has sought to buttress those efforts with tight fiscal policy, although with the economy slowing he now needs to expand his focus.
“There will still be a primary focus, but not a sole focus, on inflation,” he said.
The treasurer highlighted five points of difference between his first two budgets delivered in 2022 and 2023 and the one coming.
Chalmers had forecast a return to deficit in the current fiscal year, however with further revenue upgrades expected, many economists predicted another surplus was likely.
At the budget update in December, the government estimated the deficit would be a razor-thin A$1.1bil in fiscal 2024.
“The three biggest drivers of our thinking about this third budget are global uncertainty, persistent cost of living pressures, and slowing growth,” the treasurer said.
Australia’s gross domestic product (GDP) rose just 0.2% in the final three months of 2023.
In per capita terms, GDP fell 0.3% from the third quarter and was 1% lower than a year earlier, the deepest downturn outside the pandemic since 1991, according to Bloomberg Economics. The jobless rate has climbed to 4.1% from 3.4% in late 2022.
“We know we can’t yet ring the bell in the fight against inflation,” Chalmers said. “And we know our economy is slowing, quite substantially.”
The budget will try to aid the expansion, he said. “When we say we will go for growth we mean it. But we also mean sustainable growth.” — Bloomberg
