The doom and gloom from the Treasurer really annoys me

- May 17, 2024 3 MIN READ
Jim Chalmers doom and gloom with Federal Budget 2024

All this doom and gloom from the Treasurer annoys me. I know he wants us to stay in the bunker and not party with our spending to bring inflation down. However…

Yes, the economy is fragile, but it’s not too bad.

We’re still only one of nine countries with an AAA rating from all international credit ratings agencies and we’re still pumping out budget surpluses ($20 billion this financial year and $9 billion next financial year) which, as you can see from this chart is rare.

Most advanced countries in the world are adding to their debt with budget deficits. I know the forward budget projections are for future deficits, but if commodity prices remain at these levels there is every likelihood of surpluses.

Can we believe the budget anyway?

As you all know, I think it is appalling how governments rig the Federal Budget by severely underestimating the income they will earn.

With just a month left in this financial year, this government says they will make a $9.3 billion Budget surplus. But in their Budget this time last year they were predicting a $13.9 billion deficit and even five months ago in the mid-year update they forecasted a $1.1 billion deficit.

If you or I got our family budget this wrong the bank wouldn’t approve any sort of loan. It’s disgraceful. It makes a mockery of the Budget.

How do they get it so wrong?

They underestimate the income they will earn over the next year from our two biggest exports: iron ore and coal. The Budget assumes iron ore exports will sell for $US60 a tonne and thermal coal exports for $US70 a tonne; iron ore currently sells for $US116 a tonne and thermal coal at $US120 a tonne.

If you or I underestimated our income by that much the Tax Office would hit us with a huge fine.

Last year I called out the Treasurer on his $13.9 billion budget deficit prediction and bet him a bottle of red wine that he’d end up with a healthy budget surplus. He hasn’t paid up.

But that’s not the point. Budgets have to be honest and give us a realistic assessment of the nation’s finances and a clear financial blueprint of the next 12 months. Not talk the economy down and build a huge slush fund of cash from underestimating income.

You can’t rig the inflation figure to reduce interest rates

Reserve Bank Governor, Michele Bullock, has been warning that inflation is staying stubbornly high and taking longer to bring back within the 2-3 per cent target range than originally thought. The effect is that interest rates will have to stay higher for longer.

Two of the big drivers of inflation are energy prices and rent increases.

So the Budget provides a $300 power rebate for every household ($325 for small business) and increases rent assistance by another 10 per cent. Add in state-based subsidies and these two inflation drivers will drop significantly.

That’s why the Treasurer is saying he expects inflation to drop to within the RBA target band before the end of the year but the RBA reckons it will be mid next year. The expectation is that when inflation does get to within 2-3 per cent then interest rates will fall.

I think the RBA won’t be fooled by a government manipulating the inflation rate by artificially providing short term subsidies.

The risk is that these two subsidies, combined with the 1 July tax cuts could in fact fuel inflation as it puts more money into the pockets of consumers. As you can see, it is very high-risk.

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