Jim Chalmers has dismissed concerns from Michele Bullock that planned cost-of-living relief in the upcoming federal budget could fuel inflation.
Bullock warned that government cash handouts to households could make it harder for the Reserve Bank of Australia to curb rising prices, after the bank lifted interest rates for a third straight meeting to 4.35 per cent in an 8–1 decision.
Chalmers described the warning as “hypothetical,” insisting the budget would not stimulate the economy.
“The budget won’t be pumping a whole heap of stimulus in the economy. That hypothetical question, based on that budget speculation, the governor did her best to give a hypothetical answer to that question,” he told ABC News Breakfast.
“We are managing the budget in the most responsible way we can, and that’s because we understand and acknowledge these inflationary pressures.”
The Treasurer is expected to unveil an “earned income offset” of between $200 and $300 for wage earners who pay tax.
Bullock said increased government spending during an economic crisis linked to the Iran war risked worsening inflation, warning that providing households with more money “makes it harder to dampen demand.”
“When governments are spending a lot of money and we’re running up against capacity constraints, then they do need to think about whether or not there’s ways they can help the inflation problem by looking for ways to constrain demand,” she said.
She also cautioned that Australia could face a recession if businesses struggled with rising costs, adding that rate rises would not affect inflation in the short term.
“The first thing is that these interest rate rises are not going to do anything for inflation in the next six months. That’s done and dusted,” Bullock said.
Prime Minister Anthony Albanese said the budget would be “very conscious” of inflation pressures, while declining to confirm the offset.
Opposition figures were critical, with Angus Taylor describing any new payment as “a Band-Aid on a bullet wound,” and shadow treasurer Tim Wilson saying rising rates reflected government policy.
Economists also warned of risks, with AMP’s Shane Oliver urging lower public spending, while HSBC’s Paul Bloxham said a more expansionary budget could force further rate hikes.
The RBA’s latest forecasts show weaker economic growth, with GDP expected to rise just 1.3 per cent this year, while inflation is projected to peak at 4.8 per cent before easing.
Source: The Australian.
