We needed cost-of-living relief. Did we get it?

Jim Chalmers couldn’t have been clearer. “We understand Australians are under the pump right now,” he said in the opening stages of his budget speech.

“That’s why providing responsible, targeted relief is the number one priority in our budget.”

Anxiety about household finances is off the charts. It’s no surprise cost-of-living relief is the centrepiece of the budget.Credit: Getty Images

It is no surprise that cost-of-living relief is the budget’s centrepiece.

Opinion polls show public anxiety about household finances is off the charts. Normally, when voters are asked to identify their biggest concerns, there is a range of responses including healthcare, the economy, the state environment, housing and crime. But, during the past year, a single worry has come to dominate: the cost of living.

The Ipsos Issue Monitor, which each month asks a representative sample of people to select the top three issues facing the nation, shows more than 60 per cent of respondents now rank cost of living among their top worries – by far the highest level for any issue in the 13-year history of the survey.

But let’s not get too carried away about Labor’s cost of living plan.

First, it’s relatively modest. The two main components – reducing energy bills and lowering out-of-pocket healthcare costs – will together cost the budget $6.5 billion over the next four years. That’s a tiny fraction of the hundreds of billions the federal government will spend on its activities in that period.

Second, the immediate cost-of-living relief carefully targets the most vulnerable, especially those on low incomes.

Under the government’s plan, more than five million households will have up to $500 deducted from their power bills in the next financial year and GPs will be assisted to provide free consultations to about 11.6 million eligible Australians – including children, pensioners and other concession cardholders – with a $3.5 billion boost.

Those changes make sense, but many middle-income families feeling the immediate effects of high inflation who miss out might be disappointed. But there is some good news.

Inflation is expected to fall from 6 per cent this year to 3.25 per cent next year. Meanwhile, wages growth is now forecast to reach 4 per cent in the year ahead – up 0.25 of a percentage point from what was anticipated in October. This combination of lower-than-expected inflation and higher wages means a welcome return to real wages growth.

While the budget’s cost-of-living relief is relatively constrained it still puts more money into the economy at a time of high inflation.

More cash in people’s pockets will in turn add to demand across the economy and potentially put upward pressure on prices – exactly what the Reserve Bank is trying to prevent with its recent spate of interest rate increases.

The government’s attempts to alleviate cost-of-living pressures may not result in further interest rate hikes, but it could mean rates remain higher than they otherwise would have been.

That would be bad news for borrowers now under pressure, including first home buyers on lower incomes who took out a loan recently. The Reserve Bank says there are “early signs” of stress among some borrowers.

Chalmers claims his budget will not put upward pressure on inflation. His budget speech described it as “responsible and affordable”.

But with the official inflation rate still around 7 per cent, it is a fine balance.

What Treasurer Jim Chalmers giveth, Reserve Bank governor Philip Lowe can always taketh away.

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