Federal Budget 2024: Jim Chalmers $7.8bn cost-of-living relief
Jim Chalmers has splurged $7.8bn on cost-of-living measures including $300 energy subsidies to artificially lower inflation and heap pressure on the RBA to cut rates.
Jim Chalmers has splashed $7.8bn on new cost-of-living measures including $300 energy subsidies for every household and boosted rent assistance designed to artificially lower inflation and heap pressure on the Reserve Bank to cut rates ahead of the 2025 election.
In a big spending pre-election budget, Dr Chalmers will run combined deficits of $122bn over the next four years to accommodate more than $32.5bn in new Labor spending measures authorised since the December mid-year budget update.
A year out from the next scheduled federal election, the Treasurer on Tuesday flipped his long-held economic narrative from inflation remaining “higher for longer” to “inflation is expected to be lower, sooner”.
The government unveiled production tax credits for critical minerals and green hydrogen worth $13.7bn under its landmark $22.7bn Future Made in Australia agenda.
Energy bill relief
Dr Chalmers said the $3.5bn energy bill relief package providing all households with $300 credits and one million small businesses with $325 credits, and a $1.9bn boost to Commonwealth Rent Assistance for a million families would directly cut sticky inflation.
With the consumer price index currently sitting at 3.6 per cent, Treasury has baked in ambitious forecasts, assuming inflation will return to the RBA’s target band of 2 to3 per cent by Christmas.
Leading credit ratings agency S&P Global said on Tuesday night the additional cost-of-living measures were “mildly inflationary” and would make the RBA’s job more difficult.
“Rent assistance or electricity rebates might be administered in a way that lowers measured consumer price index inflation but they also put more money into consumers’ pockets to spend on other goods and services,” S&P analyst Martin Foo said.
“Consequently, the ‘last mile’ of the RBA’s inflation fight could remain challenging.”
As new budget forecasts warned of a softening economy, higher unemployment and lower economic growth, independent economist Chris Richardson agreed that budget spending had made the RBA’s “juggle trickier”.
“My key test for the budget was that it not poke the inflationary bear,” Mr Richardson said.
“I don’t think it’s passed that test. I’ve consistently been saying for a long time that I didn’t see a rate cut until the end of this year but that’s starting to slip into next year. It looks harder to get one ahead of the election.”
Dr Chalmers told The Australian: “We don’t tell the Reserve Bank how to do its job and they don’t tell us how to do ours”.
Asked if he was buying his way out of inflation, the Queenslander said the government’s cost-of-living relief was “just part of our effort”.
Cost-of-living relief
Cost-of-living spending in 2024-25 alone will be $26.3bn, after combining the costs of Labor’s revamped stage three tax cuts with $3.3bn in new cost-of-living measures.
Tasked with preparing a budget that could buttress an early election push by Anthony Albanese, Dr Chalmers rejected suggestions that Labor’s cost-of-living relief measures and spending splurge would have inflationary impacts.
Dr Chalmers became the first treasurer to announce back-to-back surpluses in nearly two decades, with Treasury forecasting a $9.3bn surplus in 2023-24.
A $6.7bn election warchest was included under the undisclosed “decisions taken but not yet announced and not for publication” budget line item. The funding over the forward estimates has been allocated since the December mid-year budget update.
The structural budget deficit is likely to deteriorate further in the next budget, when multi-billion-dollar new school and hospital deals with the states are fully accounted for.
Analysis by The Australian shows that spending as a percentage of GDP across the next four budget years was projected to be higher than the post-global financial crisis budget of former treasurer Wayne Swan, who is Dr Chalmers’ former boss and mentor. Spending as a percentage of GDP in coming budgets is expected to stay above 26 per cent across the forward estimates.
The 46-year-old, considered a future Labor leader, used his budget speech to make a pitch to voters that his economic manifesto left “everyone” winners including taxpayers, industries, university students and pensioners.
“This government and this budget delivers for every Australian,” Dr Chalmers said.
Asked if his budget was “expansionary”, he told The Australian: “I don’t accept that … I know that there’s a view that you take one number or one rule of thumb but I think it’s more nuanced than that. For example, our cost-of-living package puts downward pressure on bills.
“If you look at the spending in the next financial year, all of it is what any reasonable, objective person would consider to be unavoidable spending in the health system or extending funding for MyGov combined with the cost-of-living spending. We’ve made a $215bn improvement over six years in the budget. We’ve got a second surplus.”
Ahead of Peter Dutton’s budget reply speech on Thursday, opposition Treasury spokesman Angus Taylor said the budget confirmed that Australians were “poorer under Labor”.
“At a time when the budget forecasts unemployment to rise, the Albanese government is increasing the size of the public service by an astonishing 36,000 additional bureaucrats in Canberra,” Mr Taylor said.
S&P said fiscal policy under Labor was “tilting to a more expansionary footing”, and the ongoing tax windfalls from the commodity price boom were “papering over fiscal cracks” driven by spending pressures in social welfare and defence.
Inflation
Treasury is forecasting inflation to fall to 3.5 per cent by June and 2.75 per cent by mid-2025, which would ramp up calls for the RBA to cut the 4.35 per cent cash rate. The RBA predicts inflation will be 3.8 per cent in June and won’t return to the 2-3 per cent target range until the second half of 2025.
In his third budget speech, Dr Chalmers said the cost-of-living policies would shave 0.75 of a percentage point off inflation this year, and 0.5 percentage point next year.
The Prime Minister’s signature Future Made in Australia policy includes a $1.7bn innovation fund and expands the hydrogen headstart program by $1.3bn.
The budget revealed $14.4bn in blowouts over the four years to 2026-27 despite revenue upgrades of $26bn over the forward estimates due to an improved outlook for wages and company profits.
In his budget speech, Dr Chalmers made no mention of the need to improve stagnant productivity growth despite Treasury forecasts predicting that wages will continue rising. The government is funding wage increases for low-paid workers in the child care and aged care sectors.
Dr Chalmers said gross debt was “expected to peak at 35.2 per cent of GDP in 2026–27 before declining to 30.2 per cent by 2034–35”.
“This year gross debt will be $904bn instead of the more than one trillion we inherited, meaning debt is $152bn lower,” he said.
“A stronger budget means we save around $80bn in interest costs over the decade.”
