Australians should temper expectations of major cost of living payments ahead of May’s federal budget, the treasurer has warned, as curbing inflation remains at the centre of Labor’s economic policy agenda, even as the budget is expected to head back into surplus.
Speaking to the annual Chifley Research Centre conference on Sunday, Jim Chalmers took the opportunity to outline the government’s economic policy agenda for the new parliamentary year, which he said will focus on providing cost of living relief so long as it doesn’t add to inflation.
In the wake of eight consecutive interest rate rises, Chalmers said any cost of living relief worked into the May budget will have to come in the spirit of “restraint”, as was the case in October, when the government banked unexpected revenue instead of spending it.
“And I think we’ve been right about this… if we sprayed around the same amount of that upsurge in revenue as our predecessors did, then that would add to inflation,” Chalmers said.
“Instead, we showed restraint that hasn’t been seen for a long time.”
The strategy has so far seen the government swat away calls to either axe or redesign the stage three tax cuts, which are set to take effect from July 2024 at a cost of $243 billion in lost tax revenue, along with calls to increase welfare payments.
Instead, its cost of living relief measures have included funding cheaper childcare, as well as co-payment price caps on the Pharmaceutical Benefits Scheme, which kicked in on January 1, and extending paid parental leave.
Looking ahead, Chalmers announced the release of a new tax expenditure statement later this month, along with a review of the Reserve Bank of Australia (RBA) in March. An employment white paper is expected to come later in the year, he said, as well as an intergenerational report and a wellbeing framework.
“But the point I want to make today is that it’s possible to maintain a focus on the pressures people are feeling now, advance a big agenda this year, and still sketch out a framework for the future — all at the same time,” Chalmers said.
The December quarter delivered an inflation result of 7.8%, below the RBA’s 8% forecast, prompting Chalmers to declare that the worst of Australia’s price pressures were in the rearview mirror.
On Tuesday, the Reserve Bank of Australia is expected to extend its eight-month run of interest rate rises, with some economists forecasting a lift of as much as 0.4%, which would bump the cash rate up to 3.5% and add more than $100 to the average monthly home loan repayment.
Chalmers said the 2020s will be a “defining decade” for Australia, pointing to a recent 6000-word essay he penned for The Monthly, which has generated a stew of ongoing controversy in the pages of Australia’s national newspapers.
In a brief recap for his audience, he said the essay, titled “Capitalism after the crises”, was guided by five core principles.
First, that the three major economic crises in the past 15 years have been “united by the vulnerabilities they created”; second, that “our big chance” is to align social and economic goals; third, that “we need to take advantage” of the shifts underway in the Australian economy, namely the climate and energy transition.
Fourth, that “we can modernise” the economy with better informed and designed markets and synthesis between private and public sectors; and fifth, that the result would be a more “resilient and more adaptable economy that grows in more sustainable, more inclusive ways”.
Chalmers accused his critics, whom he characterised as “the usual suspects”, of “hyperventilating” to the extent “they might spontaneously combust”.
“Both internationally and in the investor circles I move in as treasurer, the ideas laid out in the essay are mainstream,” Chalmers said.
“We are realistic about the political and economic challenges we face together in 2023 as we navigate the peril and polycrisis confronting us. But we’re optimistic too.
“Optimistic that we can find a place for real people and real communities in an unfolding story of national economic success, true to our values, and in ways which strengthen our society and strengthen our democracy as well.”
