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Labor faces delicate balancing act ahead of budget

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With only weeks to go, the government faces its biggest task yet – introducing a budget that does not put upward pressure on interest rates.

With inflation at a record high and predicted to increase further to 7.8 per cent by the end of the year, Treasurer Jim Chalmers faces his biggest challenge yet in handing down the Albanese government’s first budget in an inflationary environment.

“The budget has got a big job to do because we've got to make sure that we're not adding to inflationary pressures that the Reserve Bank (RBA) is dealing with independently,” Mr Chalmers told media this week.

And given momentum in consumer spending, a continued tight jobs market and recent US Fed hawkishness, the RBA is predicted to lift rates a further 50 basis points (bps) next week towards 2.35 per cent. Despite delivering 175 bps of tightening in just 90 days, beyond October the bank is expected to continue hiking, albeit at a slower pace.

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As such, Treasurer Chalmers does not want to do anything that may further stoke the inflation inferno.

“These are the key priorities of the budget,” he said.

But also on the government’s radar are supply chain issues, with a broad range of sectors, including production, construction, retail, hospitality, and distribution industries still reeling under the impact.

“We've got to make sure we're doing what we responsibly can to deal on the supply side with some of these pressures in our supply chains, whether that is labour shortages, whether it's some of the issues around self‑sufficiency,” Mr Chalmers said.

Taking a not-so-veiled swipe at his predecessor, the Treasurer blamed a “wasted decade” for making Australia more vulnerable to some of these external shocks.

The job of this budget, he said, is to “try and make us more resilient”.

“And that's a difficult balance to strike when you've got our fiscal constraints. But that will be the task of the budget to try and provide responsible cost-of-living relief in a way that delivers an economic dividend to implement our election commitments.

“And to make a start on this legacy of rorts and waste, which has been a defining feature of the budget for too long,” the Treasurer said.

Questioned about Labor’s continued support for stage three tax cuts, Mr Chalmers said “our position hasn’t changed”.

“Our focus is elsewhere.

“Our focus is multinational tax reform, but more immediately it’s on these big issues in the labour market: stagnant wages, weak productivity, the fact that we’ve got these skills and labour shortages.”

Earlier this week, the Prime Minister Anthony Albanese confirmed his government intends to keep the legislated tax cuts despite suggestions that there could be sufficient support in the Senate to abolish them.

Stage three tax cuts, due to begin on 1 July 2024, are set to abolish the 37 per cent tax bracket and reduce the 32.5 per cent tax rate to 30 per cent for all incomes between $45,000 and $200,000.

The government earlier said it is aiming for 25 October 2022 to hand down the budget.

Labor faces delicate balancing act ahead of budget

With only weeks to go, the government faces its biggest task yet – introducing a budget that does not put upward pressure on interest rates.

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Maja Garaca Djurdjevic

Maja Garaca Djurdjevic

Maja's career in journalism spans well over a decade across finance, business and politics. Now an experienced editor and reporter across all elements of the financial services sector, prior to joining Momentum Media, Maja reported for several established news outlets in Southeast Europe, scrutinising key processes in post-conflict societies.

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