Leading bank says budget won’t add to inflation

Adam Bandt responds to federal budget

Australia’s largest bank says it does not think the federal budget will add to inflationary pressures in the economy or push up interest rates.

The Commonwealth Bank’s latest economic note came as Opposition Leader Peter Dutton sought to cast blame on the Albanese government for driving up inflation and making the prospect of another rate rise more likely.

“Our assessment is that the 2023 commonwealth budget does not add to inflationary pressures in the economy,” CBA economists said.

“As such, we have not changed our forecast profile for inflation or our call on the RBA.

“Our central scenario puts the current 3.85 per cent as the peak in the cash rate, while the near term risk sits with another rate hike.”

Energy price relief in the budget would take 0.75 percentage points from headline inflation in 2023/24.

Medicare bulk billing incentives along with childcare subsidies will also put downward pressure directly on measured inflation, the bank said.

The CBA expects the Reserve Bank to cut rates by 50 basis points in the fourth quarter of this year and 75 basis points in 2024 taking the cash rate to 2.6 per cent.

Treasurer Jim Chalmers described the summary as a big endorsement of government measures announced in this week’s budget.

It confirmed measures designed to take some the sting out of cost of living pressures, such as energy bill relief and increased rent subsidies for low-income earners, would not add to inflation, Dr Chalmers said.

“Inflation is the defining influence on our economy right now,” he said in Brisbane on Friday.

“The budget was geared to address it without adding to it and that’s why so many economists have come out and backed the strategy that we announced on budget night.”

Peter Dutton's budget reply

The budget papers stated policies to reduce the cost of living would directly reduce inflation in 2023/24 by 0.75 of a percentage point.

Opposition Leader Peter Dutton said the government’s decisions over the past 12 months were adding to inflation and pushing up interest rates.

Mr Dutton said in his budget reply speech on Thursday night the coalition had bequeathed Labor with “interest rates at historic lows”.

He quoted respected economist Chris Richardson as saying: “I had thought the Reserve Bank was done and dusted but this has notably raised the chance they will do another swing of the baseball bat.”

Mr Dutton said government spending would increase by a $185 billion over five years compared with the coalition’s last budget.

However, across the two Labor budgets net policy decisions have totalled $15.2 billion, compared with $39.3 billion in the last coalition government budget before the 2022 election.


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