Some economists were critical of the Albanese government’s 2023–24 budget delivered earlier this month, which includes $20 billion in spending over the next three years.
The lion’s share of new spending forms part of a $14.6 billion cost-of-living package aimed at offsetting higher daily living expenses, particularly rising energy costs.
Westpac’s chief economist Bill Evans said the fiscal stimulus could prolong contractionary monetary policy settings targeted at curbing inflation.
“It could mean that over the course of that year, that the opportunity to cut rates as early as February starts to fade away,” he said.
“That’s the one thing I’m worried about with regard to the budget.
“I think you’ll find there’ll be a lot of nervous nellies out there that will say this is an inflationary budget and the RBA will have to go and raise rates very soon.”
But in his appearance before the Senate standing committee on economics on Tuesday (30 May), Treasury secretary Steven Kennedy defended the Albanese government’s fiscal strategy over the forward estimates.
He claimed the budget sought to address dual risks to the economic outlook, namely the ongoing battle against inflation and looming economic downturn triggered by aggressive monetary policy tightening.
“I would just encourage everyone to keep in mind that the risks around the outlook are not one sided, they are clearly two sided,” he said.
“[There are] risks around significantly lower aggregate demand or lower consumption and concerns that swing in the other direction.
Looking ahead, he stressed the global economy is likely entering a period of “very low global growth by historical standards”.
“So, in trying to set policy with the balance of those risks, I think it’s quite sensible what the government’s done in both the near term and the longer term,” he added.
When pressed by Liberal Senator Andrew Bragg, Dr Kennedy said Treasury does not expect the government’s fiscal policy to trigger an upward revision of inflationary expectations.
Treasury is forecasting a return to the 2–3 per cent inflation target during the 2024–25 financial year.
Annualised inflation peaked at 7.8 per cent over the December quarter of 2022 before easing to 7 per cent over the March quarter. This trend is projected to continue over the coming months, coinciding with below-target GDP growth over the forward estimates — just 1.75 per cent in 2023, 1.5 per cent in 2024, and 2.75 per cent in 2025.
As for global GDP growth is estimated to slow to 2.75 per cent in 2023, 3 per cent in 2024, and 3.75 per cent in 2025.
Treasury’s outlook is dimmer than the International Monetary Fund’s (IMF) projections of 2.8 per cent growth this year.
Both Treasury and the IMF expect China and India to drive global GDP growth over the coming years, with the Chinese economy expected to grow 5.75 per cent this year, exceeding projected growth of 5.5 per cent across the Indian economy.
Meanwhile, Treasury expects the US economy to stagger through 2023 with GDP growth of just 1 per cent, followed by 0.75 per cent growth in 2024.
