Federal budget 2024: Treasurer hands Albanese, Labor option for early election

Prime Minister Anthony Albanese and federal Treasurer Jim Chalmers. Picture: NCA NewsWire / Martin Ollman

This is a parachute budget.

If the Albanese government needs to hit the election silk this year, before it’s due in May 2025, it can.

Jim Chalmers has melded an economic plan with a political strategy that doesn’t necessarily have to wait for the economy or cost-of-living pressures to improve overall, just to start to do so.

The Treasurer’s much-vaunted “new economic orthodoxy” blends old-school government intervention and big spending with private investment priming to meet the “greatest challenge since the industrial revolution” in the decarbonisation of the economy.

The new economic orthodoxy is starting the fight on inflation by using taxpayers’ funds to buy a cut – half a percentage point – in the inflation rate and care less about long-term deficits.

Chalmers’ own touch in 2024 includes overturning his long-held inflation mantra of “higher for longer than we want” to simply: “lower, sooner”.

In the name of slaying the inflation dragon in the short-term, Chalmers is prepared not only to risk having his gamble go wrong but also to wear a decade of deficits after producing the first back-to-back budget surpluses in two decades.

For Chalmers it’s about trying to help “everyone, every community, every region and every worker” with cost-of-living relief and boost the economy with billions in building projects and simultaneously cut inflation – he hopes by the end of the year, a sort of mission accomplished by Christmas.

Of course — apart from the cost of energy, housing and groceries — the real hit on people in the current economic environment is high interest rates, and the whole point of cutting inflation is to reduce interest rates.

However, part of the new economic orthodoxy is for Chalmers to eschew any responsibility for interest rates and to say he’s doing his job by cutting inflation and leaving interest rates to the Reserve Bank.

Indeed, the budget papers contain two assumptions that go to the heart of this orthodoxy: one, the inflation rate will be below the Reserve Bank’s target rate of 2-3 per cent by the end of the year; and, two, the cash rate will not start to fall until the middle of 2025.

It is here that the new political orthodoxy comes into its own, because Chalmers is prepared to argue that if he trims inflation, interest rate cuts will follow and negate the idea of putting off an election until the middle of 2025.

If there isn’t going to be an interest cut before a May 2025 election, then there’s no advantage in waiting.

Of course, Chalmers’ new orthodoxies may fail – inflation may not fall into the RBA’s target range before Christmas, and another budget in March next year — which the Prime Minister has flagged — will have little credibility.

If inflation falls without cost cutting, Chalmers can appeal to people to “trust me” on economic management and vote Labor in 2025, but if the forecasts are off there will be no room for “trust me”.