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‘Jim Chalmers has got to be a little bit worried’: Reacting to the Federal Budget

One of Australia’s top economists has weighed in on the Federal Budget announcement, saying Treasurer Jim Chalmers will be in the hot seat for some time.

“It’s a budget that really doesn’t change the macroeconomic picture all that much,” economist Stephen Koukoulas said, of his first impressions of the Federal Budget.

Koukoulas made these comments on the Fear & Greed podcast on Wednesday morning, where the ‘election budget’ was discussed.

“There’s a range, a big array of small or medium- sized issues that are going to be impacting specific parts of the economy, or dare I say the electorate,” Koukoulas said. “But the ones that sort of seemingly will impact everybody, of course, the statutory tax cuts – but they’ve been around for quite a while now.

“So we know that they’re included in the budget figuring. There’s across-the-board relief on electricity prices, with a subsidy that goes to every household and quite a few of the small business sectors. So that’s a big item that’s going to save people a decent amount of money. And for renters, there’s an increase in the rental rebate, which of course is also a very important part of the cost of living pressures.

“And interestingly, and I won’t say cynically, but strategically, those last two measures, the electricity subsidy and the rent rebate are going to slice something like three quarters of a percentage point off the measure of inflation. Because of course, rents and electricity in the inflation basket. And that’s why Treasury has come up with a forecast for inflation to be roughly a percentage point below what the RBA was saying just a week ago for the end of 2024.

“So it is a cost of living budget. We have slipped back into deficit for the financial year, ’24, ’25. It’s not a huge deficit, but it’s one of those ones where I think we just sort of move on and then start re-analyzing the economic data and what that might mean for RBA interest rate settings.”

Koukoulas also notes there’s “not a lot of flesh on the bones of some of these policies, in the years ’25, ’26 and beyond”, and predicts this won’t happen until the election campaign heats up – “or even after the next election”.

As for when that election will be, analysts are predicting February or March next year.

“If Jim Chalmers could wave his magic wand — and clearly he could only wave a dead stick at the moment, not a magic wand — but he would love to see a couple of interest rate cuts before election day, and he would love to see an upgrade to those budget deficit projections out there.”

Koukoulas explains that, in December, “there is this thing called the PEFO, the pre- election fiscal outlook, where the secretaries of Treasury and Finance produce a budget document, based on the latest numbers, completely independent of the government of the day, which has those budget numbers there.

“So Jim Chalmers has got to be a little bit worried that while he is got two surpluses under his belt, and that’s a good thing, those deficits [in future years] could be pretty significant. And when that PEFO comes out or the next budget, if there is one before the election, we could be sort of having a bit of a debate again about budget deficits of $28, $30, $40 billion or thereabouts.”

Listen to the entire interview here.

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