Treasurer Jim Chalmers has dismissed a fresh warning from the RBA governor on the risk of cost-of-living handouts stoking inflation, as the Albanese government considers a one-off cash boost for Australian workers in next week’s federal budget.
The RBA lifted the cash rate by 0.25 percentage points to 4.35 per cent on Tuesday, its third consecutive rate hike this year.
RBA governor Michelle Bullock told reporters that both private sector and government spending had contributed to demand. She warned cuts should extend to cost-of-living measures.
“The extent to which government make up the shortfalls for households by giving them more money, it makes it harder to dampen demand,” she said.
“When governments are spending a lot of money and we’re running up against capacity constraints, then they do need to think about whether or not there’s ways they can help the inflation problem by looking for ways to constrain demand.”
The Australian reported this week that Mr Chalmers was preparing to unveil a one-off stimulus – dubbed an “earned income offset” – between $200 to $300 for every Australian who gets a wage or salary and pays tax in the upcoming federal budget.
But on Wednesday Mr Chalmers dismissed Ms Bullock’s comments as a response to a “hypothetical” question based on speculation.
“The governor was asked, based on all of this budget speculation, a hypothetical question about how would the bank consider if there was a whole heap of extra stimulus pumped into the economy by the government.
“And she gave a hypothetical answer to that question.
“The issue is, the budget won’t be pumping a lot of extra stimulus into the economy.
“In fact, overall, we’ll be winding back spending in the budget. We’ve made that clear already, but nobody should assume that the question that was put to governor Bullock by that journalist is the reality of the budget.”
Earlier, Opposition Leader Angus Taylor blamed the rate hike on excessive federal spending and accused the Albanese government of “coming after” Australians with higher taxes.
The RBA board said inflation was too high at 4.6 per cent, well above its target range of 2-3 per cent, and did not rule out further rate hikes.
Mr Taylor told Channel 9 the higher interest rates – used as a tool to cool inflation – had been caused by federal spending having “gone up too fast”.
“The Treasurer told us and the Prime Minister told us that they’d beaten inflation. No, inflation has beaten them,” he said.
“What we would have done in government is keep control of this out-of-control spending, build the confidence that businesses can invest and (ensure) the speed limit in the economy can be higher without causing inflation.
“But that’s not what we’ve got right now.”
He later told the ABC a Coalition government would prioritise cuts in green hydrogen and power line projects, as well as welfare programs.
“They’re big dollars, these programs. They’re adding to the inflation fire, we’re about to cross the threshold of a trillion dollars of debt. And that adds to the inflation fire,” he said.
But Mr Chalmers defended Labor’s management of the economy, telling the ABC that critics were not taking into account the economic pressures triggered by the US and Israel’s war in Iran.
“I think a lot of the commentary today tries to pretend that there isn’t a major war in the Middle East pushing out prices, particularly at the bowser but also throughout our economy,” Mr Chalmers said.
“And so we need to have that perspective … Australians didn’t choose this war in the Middle East, we have no control over when it ends, but we are paying a hefty price for it at the bowser and beyond.
“So we know that people are under very serious pressure, we know these price pressures have escalated because of the war in the Middle East, but we had inflationary challenges before that as well.
“And again, that’s why this budget is a really important budget.”
Mr Chalmers will deliver the federal budget on May 12.
