Budget 2022: Labor must pull its finger out or gas-price pressure will explode

A gas pipeline near Gawler in South Australia. Picture: Colin James

The need for the federal government to step in on gas prices has now become critical.

The latest inflation numbers are horrendous.

Jim Chalmers argues that they are broadly in line with expectations.

Economists disagree.

This makes more likely, not less, the realisation of a worse-case scenario tucked away in Tuesday night’s budget that measured what could happen should inflation tick up higher than the forecast peak next month.

This scenario puts the economy a lot closer to recession and unemployment back above 5.5 per cent should inflation peak 1 per cent higher.

Economist Chris Richardson puts it quite simply.

“We are taking aim at our own foot and going on to rapid fire. We can do better,” Richardson says. “It is beyond urgent that they do something.”

He says the political and economic equation isn’t that complex.

Higher gas prices drive up electricity prices, which are set to drive up inflation, which drives up interest rates, which slows the economy, which results in people losing their jobs.

Chalmers says that a lot of the inflation factors are out of the government’s control. This is true. Vladimir Putin’s war on Ukraine is global in effect.

But gas is definitely a factor that is in the hands of government to do something about.

The Treasurer in his National Press Club speech on Wednesday was asked multiple times what the government intends to do about Treasury’s forecasts of a 40 per cent rise in gas prices and 56 per cent rise in electricity prices.

They are going to do something, he suggests. But he doesn’t know what that is yet.

The answer isn’t that complex. The government can either intervene on prices, via a price cap, or through supply. Or it can subsidise low-income households and let prices rip.

The Turnbull government’s approach to force down prices was to get more supply into the network by convincing the chief executives of Shell, Santos and Origin to pump more in with a carrot-and-stick approach.

They offered to help out on carbon capture and storage and helping them get supply out of the ground.

The Coalition’s argument is that a retail price cap won’t solve the problem – the problem being the wholesale price – and gas suppliers would simply restrict supply domestically.

And a heavy-handed approach may have unintended consequences.

Richardson’s view is that this issue is the other side of the coin to the other crisis issue of the budget – the $50bn structural spending gap.

In other words, the two major issues are gas and the NDIS. And by fixing the first, you can help fix the second.

Chalmers on Wednesday said the government intended to do something, but it was an issue that involved multiple levels of government and arguments were yet to be had around the Albanese cabinet table.

A federal government source said this argument had yet to be resolved – suggesting there was a clash of views under way.

This issue was but one of the gloom-ridden outlooks in Chalmers’ first budget.

But it exemplifies the fundamental problem with it.

The budget was successful in highlighting the problems but absent of a grand strategy or detailed plan to deal with them.

Chalmers was full of empathy and hit the right retail note on the government’s concerns about living standards.

And it ticked the boxes for some of Labor’s key constituencies.

But the reality of what is coming is going to hit the politics pretty soon.

This doesn’t mean that people will jump back to the Liberal Party.

But the honeymoon phase for Anthony Albanese might soon come to an end if there isn’t swifter action on all the disasters that Chalmers is projecting.