Chalmers prepares for weak economy to hit budget bottom line

The economy has struggled over the past 12 months, weighed down by high inflation, the Reserve Bank’s increases to official interest rates and a rise in the general tax take on working Australians.

Deloitte Access, in its pre-budget economic outlook, has forecast the economy to grow by just 1.7 per cent through 2024-25 after 1.5 per cent growth in the current financial year. Beyond that, it is not expecting economic growth to surpass 2.2 per cent until 2027-28.

But it is forecasting inflation to fall back within the RBA’s 2-3 per cent inflation target in the coming financial year, down to 2.7 per cent.

Deloitte partner and report lead author Stephen Smith said cost-of-living pressures were likely to ease over the coming 12 months but the economy would continue to struggle.

“The second half of 2024 will bring the revamped stage 3 tax cuts and gradual improvements
in real wages, much to the relief of households,” he said.

“At the same time, the outlook for growth is clouded by fading business investment, a housing construction sector spinning its wheels and a global environment that’s uncertain at best.”

The May 14 budget will confirm the government’s revamped stage 3 tax cuts which begin on July 1, plus assistance for low-income earners and small businesses to deal with high electricity prices.

The government is under pressure to overhaul the indexation process for income-contingent loans for university students after a spike over the past two years due to elevated inflation. Teaching and nursing students carrying out unpaid work experience are also struggling to deal with cost of living pressures.

Chalmers signalled both issues could be addressed next month.

“Whether it’s HECS relief or assistance for people on prac, on placements as they finalise their degrees, we are looking at both of these things for the budget,” he said.

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The budget will also contain key elements of the government’s “future made in Australia” package, with Chalmers rejecting claims that the extra spending in the policy would add to inflation.

He said the government was looking to support businesses to increase their investment in the country which would help reduce inflationary pressures. The timing of extra funding would also ensure the program did not add to inflation in the near term.

“There’s been a little bit of rubbish, I think, said and written about the potentially inflationary impact of a Future Made in Australia. It assumes wrongly, that all the investment that we are contemplating hits the economy at once at the front end,” he said.

“We care about not just the quantity of investment, but the quality of investment.”

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