Labor’s first budget since winning the 2022 election is measured and conservative, reflecting the local and global growth outlook.
Federal Treasurer Jim Chalmers’ budget speech1 highlighted that both the global energy crisis and inflation were slowing the global economy and contributing to Australia’s economic growth.
According to the budget papers, the deficit for the 2022/23 financial year is expected to be $36.9 billion, an improvement of $41.1 billion versus the previous budget.
The Australian government is still expecting the economy to grow by 3.25% this financial year, before growth drops to 1.5% in the 2023/2024 financial year.
Despite this, the unemployment rate is predicted to remain at a historically-low rate of 4.5% this financial year and next financial year. Wages have risen since the Labor Party took office in May this year.
“Inflation is expected to peak at 7.45% later this year, before moderating over time to 3.5% through 2023/24, and returning to the Reserve Bank’s target range in 2024/25,” Federal Treasurer Jim Chalmers said in the budget statement. The target range is 2% to 3%.
MyState CEO Brett Morgan said the inflation forecast is likely to have an effect on the cash rate.
“If inflation heads towards the target band, it’s likely over time the RBA will moderate future interest rate rises. This has different effects on different asset classes. It may mean borrowers paying a variable interest rate pay less interest on their loans. But returns from cash and fixed interest may drop,” he said.
This budget includes a $7.5 billion provision to ease cost-of-living pressures, including a $350 million allowance to build 10,000 affordable homes.
Energy was a focus in the budget and the federal government has pledged $20 billion to fund the transmission to renewable and cleaner energy sources. The $800 million Powering Australia Plan will also reduce taxes on electric cars, pay for a national electric vehicle charging network and hydrogen refuelling stations and give solar battery storage to up to 100,000 homes.
Budget spending promises aside, saving was also emphasised in this budget. Labor’s spending audit found $22 billion in savings over four years.
Overall, it’s a budget designed to keep money in Australians’ pockets and return the economy to more normal trading conditions over time.
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