Jim Chalmers clings to sales pitch for growth as retail takes a hit
The Treasurer says a slump in retail spending in March is ‘more evidence’ of the need to shift focus from containing inflation to supporting growth, putting him at odds with leading economists.
Jim Chalmers says a slump in retail spending in March is “more evidence” of the need to shift focus from containing inflation to supporting growth, putting him at odds with leading economists who believe the upcoming budget must alleviate persistent price pressures by reining in spending.
After a shock consumer price report last week undermined Labor’s planned strategic fiscal “pivot”, the Treasurer pounced on new Australian Bureau of Statistics figures showing retail spending dropped by 0.4 per cent in March, well below the consensus forecast for a 0.2 per cent rise, as February’s Taylor Swift-driven spending boost reversed the following month.
There were declines across all categories aside from food retailing, the seasonally adjusted data showed, with annual growth dropping to 0.8 per cent, the lowest level on record outside the pandemic and the introduction of the GST at the turn of the century.
A sharp acceleration in inflation through the first three months of 2024 has triggered a dramatic reassessment of the path for interest rates.
Several analysts now expect the Reserve Bank will no longer be able to deliver a rate cut this year, with Capital Economics on Tuesday even predicting the RBA would hike rates at its board meeting next Tuesday.
Leading independent analysts, including Chris Richardson and Saul Eslake, as well as chief economists from EY, AMP and KPMG, have raised concerns that the level of government spending is complicating the RBA’s fight to regain control of inflation.
But the Treasurer in a statement said the weak retail figures supported the flagged change to Labor’s fiscal and economic strategy. “While the fight against inflation isn’t over, this is more evidence of the shifting balance of risks in the economy from inflation to growth,” Dr Chalmers said.
“That’s why the budget … will focus on easing cost-of-living pressures, not adding to them. It will strike a careful balance between getting inflation under control and building a stronger and more resilient economy.”
CBA on Tuesday joined a raft of analysts to delay predictions of a first rate cut, in this case from September to November, as head of Australian economics Gareth Aird flagged there was some chance of a rate hike in the next six months.
Having just abandoned explicit consideration of a rate hike at its last meeting, the RBA board meets next Monday and Tuesday, and will consider a new set of forecasts that will factor in the unwelcome strength in inflation in the March quarter, as well as the surprisingly resilient jobs market.
While Dr Chalmers remains coy on whether he will reveal a second straight surplus, Deloitte predicted a $13.4bn surplus this financial year, after the previous year’s $22.1bn figure.
Deloitte Access Economics partner Stephen Smith said the nation’s finances would quickly plunge back into the red in 2024-25, with deficits extending into the foreseeable future.
His report said there was “a list of reasons why government spending needs to be restrained in the short term” – from restraining inflation, to taking the pressure off future budget shortfalls.
“The highwire balancing act of supporting growth but not reigniting inflation is the stuff of budget nightmares,” Mr Smith said.
On Labor’s Future Made in Australia policy, he said “Australia’s deep, long-term fiscal deficit threatens to be eroded further if new industry policy is poorly designed or poorly implemented”.
“The fiscal position looks increasingly dire the further out one looks. With a set of known spending challenges looming on the horizon – and the likelihood of plenty of currently unknown spending challenges, too – the budget needs reform on both the tax and spending side to shore up Australia’s fiscal health for the long term.
“At the same time, the tax system is not fit for purpose – particularly, but … not solely, because of its heavy reliance on personal and company income tax. Australians will need to pay more tax in the years ahead … for governments to afford the raft of long-term spending promises made by both major political parties. How that tax is raised matters enormously for Australia’s prosperity.”
ANZ head of Australian economics Adam Boyton said the budget would show a $4.5bn surplus this financial year, estimating an extra $22.5bn in new spending over the four-year forward estimates period, including $10bn in 2024-25. But he said the extra spending would not move the dial on growth or inflation.
“Of more importance for those forecasts will be how consumers respond to the stage three tax cuts, to which we’ll be looking to consumer confidence for an early guide,” he said.
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