Treasurer urged to rein in spending as inflation spikes
Labor’s second federal budget should reflect the economic landscape of Australia, with limited spending, relief for small businesses and families and simpler taxes, the opposition has warned.
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Spending restraint, “simpler and fairer” taxes and “measured” relief for small businesses and families without adding to inflation will be key tests for Labor’s budget amid the cost-of-living crisis, the opposition has warned.
Economists are confident new Consumer Price Index (CPI) figures due to be released on Wednesday will show Australia passed the peak of inflation in December, but financial markets are still factoring in a low chance the Reserve Bank will raise interest rates next week.
Amid the volatile conditions the Coalition will sharpen its economic attacks on the federal government this week with a call for Labor to fix the inflationary “mistakes” made in its last budget, which included increased overall spending.
Opposition treasury spokesman Angus Taylor said the May 9 budget was an opportunity for the government to clamp down on inflation, which soared to 7.8 per cent over the year to December.
“With independent economists predicting a commodities and income tax windfall of more than $90 billion, Labor must use this opportunity to pay down debt, not spend more,” he said.
“This isn’t just about the bottom line. It’s about making tough decisions on spending, and not raising taxes that will kill aspiration, hurt families and delay investment that provides jobs and helps small business to grow.”
Opposition finance spokeswoman Jane Hume said the budget must provide a fiscally responsible plan to address the cost-of-living crisis.
“If Labor delivers another big spending Budget, it will be like having one foot on the accelerator while the Reserve Bank is putting its foot on the brake,” she said.
“The RBA has paused giving a chance for Labor to make the right call in this Budget. If they squib it, Australians will pay the price.”
St George senior economist Pat Bustamante said markets have priced in a 20 per cent chance of a 25 basis point hike when the RBA board meets next week.
Mr Bustamante said there are early indicators inflation peaked in the December quarter, with “one-off” factors, like the unwinding of state electricity subsidies and the fuel excise cut leading to the increase in prices at the end of least year.
“As these factors dissipate, inflation will mechanically fall,” he said.
“We expect core inflation to be around 6.7 per cent over the year to the March quarter.”
CBA economists have also said the rate rises were pulling back inflation, but the annual rate would “still take some time to come down” due to the huge jumps last year.
Westpac has forecast inflation would rise 1.4 per cent in the March quarter, taking the annual pace down 7 per cent from 7.8 per cent.
“We believe that December was the peak for annual inflation and it is expected to continue to moderate from here,” a statement from Westpac economists said.
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