Numbers don’t add up

Treasurer, Reserve Bank at odds on inflation prediction

The Coalition is demanding answers and has brought Labor’s economic credibility into question after the government revealed its inflation forecasts were at odds with those of the Reserve Bank.

Treasurer Jim Chalmers will hand down his third budget on Tuesday night, which will assume inflation is due to return to the RBA’S target range of 2 to 3 per cent by the end of 2024. This would pave the way for interest rates to be slashed ahead of a May 2025 election.

Budget papers will show annual headline inflation, at 3.6 per cent in the year to March, is expected to ease to 3.5 per cent by June and 2.75 per cent by December.

In comparison, the RBA last week forecast inflation to stay at 3.8 per cent until December before falling to 3.2 per cent next June and 2.8 per cent next December.

The spending decisions of budgets, including the electricity rebates and increases to rent assistance expected to be in Tuesday’s budget, are not factored into RBA forecasts.

Opposition finance spokeswoman Jane Hume said Labor’s optimism was either because the government expected the RBA to do the heavy lifting with interest rates to keep consumption – and therefore inflation – down or it thought unemployment would increase.

She said it was “up to the Treasurer to tell us exactly how the government is going to bring inflation back down sooner”.

“Or is it because he thinks the economic conditions in Australia are going to worsen and that will dampen consumption? All of these things need to be explained by the Treasurer,” she said.

Given Dr Chalmers said the focus of this budget was putting downward pressure on inflation in the near term, while also delivering cost-of-living assistance, Senator Hume queried how any of the government’s pre-election announcements could be driving inflation down.

“There hasn’t been a single budget announcement so far that has demonstrated that commitment to tame inflation. The government seems to be on a spending spree,” she said.

Finance Minister Katy Gallagher defended the budget, saying the Treasury forecasts considered “all of the decisions we’ve taken in our budget”.

“It’s going to be a responsible budget. It’s going to put downward pressure on inflation. It’s part of the solution,” she said.

Senator Gallagher said the cost-of-living relief in the budget would reduce inflation but wouldn’t be drawn on what that might look like, given that the government has all but ruled out raising the Jobseeker rate.

“So housing, housing supply, the energy transformation, these are all things that government is responding to, but we’re responding to it in a measured way through each budget that we hand out,” she said.