Inflation will fall back to within the Reserve Bank’s target range a year earlier than the bank has forecast, according to government figures released before Tuesday’s federal budget.
But the numbers also reveal that the economy growing slower than expected, with the budget papers set to warn that “considerable uncertainty” surrounding the global and domestic economic outlook is making accurate forecasting more difficult than usual.
In a round of television interviews on Sunday morning, the treasurer, Jim Chalmers, foreshadowed some good news, indicating that the budget would show inflation falling faster than the Reserve Bank has suggested. The government later released figures indicating it could be back below 3% by the end of this year.
Chalmers said Tuesday night’s budget was designed to push inflation down, not up, but would also “make things a little easier for people”.
“It’ll be a budget for mums and middle Australia, a budget for families, and pensioners, and students, and young people, which recognises the pressures that people are under,” he told the Seven Network.
His language has prompted speculation about a possible boost to family payments, now paid to 1.3 million families including 2.5 million children.
But to reach another likely slim surplus, Chalmers also insisted he would still bank most of the revenue gains from a strong labour market and high commodity prices. The shadow finance minister, Jane Hume, mocked his “magic numbers”.
Chalmers emphasised his forecasts would be rosier than those the Reserve Bank has produced because they were based on more up-to-date information.
“Our forecasts take the budget into consideration, so they’ll be a little bit different,” Chalmers told Sky News.
Details of the inflation forecasts released after his round of Sunday interviews confirmed that the budget would forecast headline inflation returning to between 2% and 3% by the end of 2024, not 2025 as the Reserve Bank says. The last official figures put inflation at 3.6% for the year to March, already better than the mid-year forecast.
But the budget will also dampen growth expectations, with December’s mid-year forecast of 2.25% real growth in gross domestic product for 2024-25 now downgraded to 2%, and from 2.5% to 2.25% the year after.
The shadow treasurer, Angus Taylor, said the budget must rein in spending and bring down inflation.
“They should make sure that the economy grows faster than spending,” he told ABC TV, saying spending was Labor’s “natural instinct”.
Chalmers acknowledged the tension between needing to grow the economy and provide real relief without increasing spending that could push up inflation and make things worse.
He said the budget involved hard choices and would balance “restraint” with “relief” and “reform”.
“We’re also conscious that the economy is not especially strong right now, and so there are some fine balances to strike,” Chalmers told the Nine Network.
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Speaking to Guardian Australia on Thursday, the treasurer effectively ruled out increasing jobseeker and related payments but promised other forms of indirect support instead and all but confirmed another increase in rent relief. He also did not dampen speculation that he intends to extend the energy rebate program, due to expire on 30 June.
But he has ruled out re-freezing fuel excise, pointing to what he says are more effective forms of relief including tax cuts.
The government has also foreshadowed funding for an extra 29 urgent-care walk-in clinics across Australia as part of an $8.5bn investment in health, though it has not yet indicated where they will go. The Royal Australian College of GPs criticised the move, calling it disruptive to regular GP care. The health minister, Mark Butler, responded that the clinics were for urgent care and were not designed to replace GPs.
The college president, Dr Nicole Higgins, questioned the government’s priorities, suggesting that failing to boost funding for chronic or mental health would be “a missed opportunity”.
The budget will also earmark money to cover superannuation on paid parental leave, which Chalmers confirmed would cost $1.1bn upfront and $600m a year ongoing.
Chalmers is describing the government’s version of the Coalition’s stage-three tax cuts, worth $36 a week on average, as the “foundation stone” of budget relief. He restated Treasury’s finding that they would not be inflationary because they were costing broadly the same as the Coalition’s, just adjusted towards the lower end.
His assurances came as the opposition appeared to confirm it would go to the next election promising further tax cuts.
“You will see a tax policy from the Coalition to the next election that restores the balance,” Hume told Sky News. She said Labor had “trashed” tax reform and that the Coalition would abolish “that insidious bracket creep”.
Taylor declined to directly endorse Hume’s suggestion that the Coalition would return some of the higher-end generosity Labor removed.
“The really insidious effect we’re seeing on personal income taxes right now is inflation,” Taylor told ABC TV. “We’ve seen a 23% increase in personal income taxes being paid and the best way to get personal income taxes back to where they need to be is to put downward pressure on inflation.”
He said the Coalition would produce a tax-reform policy well before the next election but would only commit to expanding accelerated depreciation, already announced.
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