Treasurer Jim Chalmers says his first budget will be "family-friendly" but has conceded that wage growth is not expected to match the rising cost of living until the year after next at the earliest.
Key points:
- Inflation is expected to reach 7.75 per cent in December
- Treasurer Jim Chalmers says it is the "primary influence" on the latest federal budget, to be handed down on Tuesday
- Social security payments are expected to be $32.8 billion higher over the next four years compared to pre-election forecasts
This means that workers' pay will effectively go backwards until 2024-25 when inflation is forecast to be back within the Reserve Bank's target range of 2-3 per cent.
In an interview with the ABC, Mr Chalmers has also revealed that Tuesday's budget will include a near $33 billion increase to social security payments, mostly as a result of high and persistent inflation.
"We've been up-front about what's happening with real wages," Mr Chalmers told the ABC.
"Real wages were falling before the election, and they've been falling since the election. That's because inflation is higher for longer as a consequence of the war in Ukraine, natural disasters and issues in our own supply chains here at home, and also a consequence of a decade now of wage stagnation."
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Inflation is expected to reach 7.75 per cent in December and is forecast to fall to 5.75 per cent by mid-2023 and 3.5 per cent a year later.
"Inflation is the primary influence on this budget. It guides our approach to cost-of-living relief. It guides our approach to targeted investments in a stronger, more resilient economy," Mr Chalmers said.
"This will be a family-friendly budget which recognises that our pressures on the economy come from around the world, but they're felt around the kitchen table.
"It will be a responsible budget. It will be solid, sensible and suited to the times because when you've got all of this uncertainty around the world, the best possible response is a responsible budget at home and that's what this will be."
High inflation not only hurts households and workers, it affects government payments that are consumer price index-linked, including the age pension.
Mr Chalmers revealed that social security payments are expected to be $32.8 billion higher over the next four years compared to the pre-election forecasts, primarily because of anticipated automatic inflation adjustments.
Almost a third ($11.8 billion) will be in higher age pension payments, with $10.6 billion in JobSeeker payments, plus $4.4 billion in increased family assistance. Support for carers and people with a disability are expected to rise by $6 billion combined over the next four years.
"One of the pressures on the budget is making sure we can find room for that indexation so that people who are on pensions and payments, get a little bit of help twice a year to try and keep up with the skyrocketing costs of living," Mr Chalmers said.
The war in Ukraine has also contributed to sky-high commodity prices, with Australia expected to reap an extra $100 billion in extra revenue over the next four years from its iron ore, coal and gas exports.
But Mr Chalmers said it would be irresponsible for that extra revenue to be spent in such a high-inflation environment.
"Our responsibility when we've got lots of inflation is not to spray money around in an indiscriminate or untargeted way because that would make our inflation problem worse," he said.
"There are lots of things that we would like to do in this budget that we can't afford to do. When you've got all of this global uncertainty and all of this inflation you need to put a premium on what's solid and sensible and suited to the times."
Asked what lessons could be drawn from the collapse of Liz Truss's prime ministership in Britain after her mini-budget, Mr Chalmers said: "You need to get your fiscal policy and your monetary policy nicely lined up.
"You need to make sure that governments aren't working against the difficult job that central banks are asked to do. And I think what we've done in the budget, we have nicely lined up those two things.
"But I think as well, if you want to make big changes in the budget, you need to have a run up you need to explain them to people, you need to make sure that you're bringing people along on the journey. And I think that's another lesson from what we've seen."
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Shadow Treasurer Angus Taylor urged the government to exercise spending restraint, cautioning against cost-of-living measures that would drive up inflation.
"Any cost-of-living initiative, direct relief, of course, has to be seen through that lens," Mr Taylor told the ABC's Insiders.
"You've got to be cautious not to have spending proposals that fuel additional inflation and bring about the Reserve Bank adding to interest rate pressure."
Mr Taylor argued the Coalition left the economy and budget in a strong position and was reluctant to concede the budget is in structural deficit.
"We have a very strong economy and actually a surprisingly strong budget right now," Mr Taylor said.
"We've seen a dramatic improvement in the budget situation just over recent months and indeed a $50 billion turnaround in the last financial year.
"What is needed now is a responsible budget and a recognition that economic growth over the medium term has to be stronger than spending growth.
"It is achievable, it is hard, it requires enormous discipline."
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2022-10-22 23:15:12Z
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