Treasury modelling shows money to pay down debt

ONE-OFF cost-of-living measures would have added an extra half a per cent to skyrocketing inflation, driving interest rates even higher.

That’s according to the latest modelling by the Treasury, which says while the federal budget is projected to be $114 billion better off over the coming four years, nearly all that money will be spent on paying down debt.

Treasurer Jim Chalmers said the October budget returned $114b of tax upgrades to the budget over the forward estimates, thanks to high commodity prices and low unemployment.

He said the government would return 99 per cent of the upward revisions for the next two years, and 92 per cent over the forward estimates.

He says this will not cause any further inflationary pressures and will keep Australia’s economy strong.

“The budget was carefully calibrated to deal with the inflation challenge in our economy,” he said.

“If we had spent all the extra revenue it would have caused more pain in the long run for Australian households and for the economy.

“Our budget doesn’t add to inflationary pressures in our economy, (it) makes responsible savings, and provides targeted cost-of-living relief with an economic dividend.”

Dr Chalmers said the more than 90 per cent return was well above previous governments, notable in comparison to the Howard-Costello average of around 30 per cent, and the previous government’s average of around 40 per cent.

Inflation is currently up 7.3 per cent from a year ago, the highest rate in 32 years.

In an attempt to drive down inflation, the Reserve Bank of Australia has hiked the interest rate from 0.1 per cent to 2.85 within seven months.

Treasury modelling has found if the government had instead pledged a lower return, and used some of the money to dish out one-off payments, for example, it would have worsened the economy.

Such measures would have prompted a bigger increase in the consumer price index.