Treasurer Jim Chalmers has outlined the federal government’s three-part plan to tackle Australia’s “unacceptably high” levels of inflation.
Ahead of the budget in May, Dr Chalmers indicated that the government will focus on responsible cost‑of‑living relief, supply chain issues, and keeping spending under control.
“It’s our job to use the levers we’ve got to get on top of the inflation challenge in our economy,” he wrote in an opinion piece for The Australian on Friday.
“There are three key parts to tackling inflation — helping people who are hurt most by it, addressing the supply pressures that help cause it, and delivering a responsible budget to avoid adding it — and our plan hits all these targets.”
Dr Chalmers’ comments follow the latest decision by the Reserve Bank of Australia (RBA) to lift interest rates by 25 basis points — the ninth consecutive hike from the central bank — with RBA governor Philip Lowe admitting that further hikes will be needed to combat inflation.
“Rising interest rates are a consequence of the inflation challenge that is weighing heavily on our economy — as pressures that come at us from around the world are felt around the kitchen table,” the Treasurer said.
“The job for the independent Reserve Bank is to get on top of this inflation without crunching the economy. Central banks around the world face the same conundrum.”
In a separate opinion piece for The Daily Telegraph published also on Friday, Dr Chalmers once again stressed the RBA’s independence from the government.
“The Reserve Bank acts independently of the government — its job is to try and get on top of inflation without crunching the economy, and it does that without any interference from the Treasurer of the day,” he said.
“Our job is to do what we can to address the broader pressures facing our people and our economy — and that’s exactly what the Albanese government is doing.”
Budget measures to tackle inflation
Regarding specific cost of living measures, Dr Chalmers said that the government’s May budget will include energy bill relief for households and businesses, building upon cheaper childcare and medicine announced in the October budget last year.
“These measures are targeted and affordable, taking some of the pressure off household budgets without putting more pressure on inflation,” he suggested.
In response to supply chain problems, the Treasurer noted that the government is investing in cheaper and cleaner forms of renewable energy and firming up the energy grid.
Furthermore, encouraging more people into apprenticeships and vocational training, increasing Australia’s skilled migration intake, improving the NBN, and establishing the National Reconstruction Fund are all said to form part of the government’s response.
Finally, Dr Chalmers stated that delivering a responsible budget, with spending restraint as its hallmark, was a high priority for the federal government.
“On this measure, we’ve made substantial progress already. The October budget banked 99 per cent of the revenue windfalls over the next two years — when inflation is at its highest — so that we weren’t contributing further to inflation in the economy,” he said.
In its latest Statement on Monetary Policy, the RBA revised up some of its inflation forecasts, but said that inflation likely reached its peak at the end of last year.
Included in the RBA’s updated forecasts is the expectation that headline inflation will not return to the top of the central bank’s 2–3 per cent target band until June 2025.
“Inflation is still unacceptably high, and it will stay higher than we want it to for longer than we want it to. But there is growing evidence that inflation is now around its peak and will begin to moderate in 2023,” Dr Chalmers said.
“Plenty of the factors influencing inflation and interest rates are outside the government’s control — like the war in Ukraine, the volatility in global supply chains, and the independent decisions of the central bank.”
While acknowledging that there is still a long way to go, the Treasurer claimed that the government’s plan to tackle inflation will indeed work.
“The Albanese government will keep its focus on delivering responsible cost of living relief and dealing with the inflation challenge — today, tomorrow, and every day in 2023,” he said.
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.