Jim Chalmers says Labor’s razor gang made hard decisions to bank extra revenue rather than spend it as he insists his second federal budget will drive down inflation.
The Treasurer has defended splashing $21bn amid debate among some economists over whether the measures will make the inflation crisis worse and tempt the Reserve Bank to further raise interest rates.
A $14.6bn cost of living package will cover energy bill subsidies, an increase to commonwealth rent assistance, bulk billing incentives and an expansion of income support for students and people out of work.
The budget is forecasting total payments from the commonwealth sector to go up by 3.7 per cent in real terms over the coming financial year.
Speaking at the National Press Club on Wednesday the day after he delivered the budget, Dr Chalmers said he was “supremely confident” it would relieve the strain on Australians without adding to inflation.
Asked if it would be “his fault” should the RBA raise interest rates when it meets next month, Dr Chalmers stressed the independence of the central bank and said he wouldn’t pre-empt its decisions.
But he said inflation had been the “defining influence” on the decisions made by the expenditure review committee and federal cabinet in preparing the budget.
Government spending on the cost of living package would only add 0.1 per cent of GDP over the coming financial year, he said.
Dr Chalmers again promised the government’s energy bill rebates and price caps on wholesale coal and gas would shave 0.75 percentage points off the inflation rate over the same 12-month period.
He said many economists had welcomed the budget and others had said “at worst” its impact on the economy would be “neutral”.
“There won’t be unanimity about that, you can always find if you look hard enough, you can always find a view on either side of the spectrum,” he said.
“We’re confident we got the balance right. We’re giving people a bit of help without making the cost of living challenge worst.”
The RBA will decide whether to lift the cash rate — which guides interest rates set by lenders — from 3.85 per cent when its board meets on June 6.
The central bank took the financial market by surprise when it resumed interest rate rises in April — its 11th hike in the space of a year — after a one-off pause in March
Treasury and the RBA both expect inflation to have begun to moderate after reaching a 30-year high at the end of last year.
Tuesday’s budget forecasts inflation to slow from 7 per cent in the March quarter to 6 per cent for the April-June period and down to 3.25 per cent by June next year.
Dr Chalmers said on Wednesday Treasury had advised the government that none of its budget measures would have a “counter-productive impact” on inflation.
Additionally, he said the total government spending announced for next year related to keeping existing government programs going and extending pandemic support.
He said the cost of living relief for households would be delivered throughout the year rather than in “one big hit”.
The budget’s “centrepiece” is a $3.5bn cash injection for Medicare that will triple the bonuses for general practitioners who don’t charge concession card holders, pensioners or children any out-of-pocket costs.
Dr Chalmers said on Wednesday the government was attempting to “shift the needle” on plummeting bulk billing rates by providing more lucrative incentives to GPs who bulk bill 11.6 million eligible Australians.
The budget has also forecast a slim surplus of $4bn in this financial year, which would be the first time the a federal government has saved more than it spends in 15 years.
But the return to balance won’t last long, with the budget projected to dive back into deficit for the next four years.
Dr Chalmers said the return to surplus had been made possible because the expenditure review committee had made the difficult choice to bank 82 per cent of revenue upgrades rather than spend the extra money on new policies.
“I reject the idea that there is something automatic about the restraint that we showed in the budget,” he said.
“There are hard decisions associated with not spending much at all of the upward revision in revenue.