Treasurer’s Theory of Economics to Be Put to the Test

The treasurer defends cost-of-living relief, disputing inflationary impacts.
Treasurer’s Theory of Economics to Be Put to the Test
Treasurer Jim Chalmers holds a budget paper in Canberra, Australia, on May 14, 2024. (Tracey Nearmy/Getty Images)

The government brands its budget as an inflation-fighting weapon of precision but economists warn broad cost-of-living relief such as energy rebates and tax cuts for all may make things worse.

An expanded version of the energy bill relief delivered in last year’s budget and another boost to Commonwealth Rent Assistance are expected to help tame the consumer price index.

Treasury forecasts on the budget on the night of May 14 have those measures reducing inflation by about half a percentage point in the next financial year, possibly providing relief by Christmas.

Committee for Economic Development chief economist Cassandra Winzar said handing out cost-of-living relief via the stage three tax cuts and energy bill relief that’s not means tested risked working against the central bank.

“Electricity rebates may alleviate headline inflation but will drive spending elsewhere,” Ms. Winzar said.

Treasurer Jim Chalmers defended the government’s decision to provide cost-of-living relief for all Australians, not just lower-income households, and confirmed it was the Treasury’s view it would not be inflationary.

“The clear advice we got from Treasury was that by designing our cost of living package the way we have will take the edge off inflation and won’t add to inflationary pressures elsewhere in the economy,” he told ABC TV after the budget.

“We took that advice very seriously and we proceeded on that basis.”

Economist and budget expert Chris Richardson said the budget was expansionary, with $9.5 billion (US$6.3 billion) in new spending in the next 12 months.

“The government said it wouldn’t front-load stuff, it would be careful not to poke the inflationary bear, it would put it at the back—they have absolutely got it in the front,” he said.