PM asserts budget created space for RBA to pause hikes

The Albanese government says its budget strategy has taken pressure off the central bankā€™s need to hike interest rates.

But the opposition says it could be doing more.

Prime Minister Anthony Albanese said the last budget, handed down in May, was working for the Reserve Bank of Australia and not against it.

ā€œThatā€™s why we banked those revenue upgrades to the bottom line so that we didnā€™t provide the Reserve Bank with any more arguments that they should have further increases,ā€ he said, in the wake of the RBAā€™s July cash rate call.

The RBA opted to keep interest rates on hold at its board meeting on Tuesday ā€“ marking the second pause in its aggressive tightening cycle to target too-high inflation that began in May 22.

The opposition has criticised the governmentā€™s budget management, saying itā€™s fuelling inflation and keeping pressure on the RBA to keep lifting interest rates.

But the federal government rejects this, arguing its decision to bank most of the revenue upgrades from people working and earning more, plus higher commodities, is helping to take some of the heat out of the inflation challenge.

Combined with lower spending on welfare due to record-high unemployment, the government is on track to deliver the first surplus in more than a decade.

Department of Finance budget data suggests the government could deliver a record-breaking surplus for 2022/23 after the underlying cash balance for the year to May came in at $19 billion.

Opposition finance spokeswoman Jane Hume said the government was ā€œplaying around the edgesā€ to tackle the inflation challenge and it needed to double down.

ā€œWe would like to see the government do its bit to actually bring inflation down, not just wave the white flag and say ā€˜thatā€™s not our responsibility, thatā€™s the Reserve Bankā€™s responsibilityā€™,ā€ Senator Hume told Sky News.

ā€œIt should be doing its bit to actually have deflationary measures.ā€

Senator Hume conceded the government had offered some cost of living relief but she also said this was tinkering around the edges and that reducing aggregate demand was the only way to effectively bring inflation down.

ā€œAnd the only way our government can do that is to curtail its innate desires to spend and spend and spend more,ā€ the senator said.

She said the Labor government had added an extra $185 billion in spending over the last two budgets.

Mr Albanese said the governmentā€™s cost of living relief would take pressure off inflation, with its energy price relief plan expected to take three-quarters of a percentage point off the headline figure.

ā€œYou need to make sure that every dollar of spending is done in a way that takes pressure off inflation,ā€ Mr Albanese said.

The RBA has been raising interest rates to try and push annual inflation back into its two to three per cent target range.

While it agrees inflation has peaked, the central bank warned it could raise rates again in the future if it believes itā€™s not falling fast enough.

Several economists, including those from Commonwealth Bank, NAB, ANZ and AMP, all expect one or two more hikes in coming months despite the July pause.

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Poppy Johnston and Tess Ikonomou
(Australian Associated Press)

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