The prime minister and treasurer will give the surest sign yet that households won’t get a cash handout to help with rising costs, with a warning that “one-off giveaways” would only cause higher rate hikes.

In a speech on Wednesday, The Australian reports Anthony Albanese and Jim Chalmers will launch a defence of the budget, arguing that “reform” is the way forward in tough economic times — not a vote-buying “cash splash”.

Mr Albanese will argue that it was the Coalition government’s penchant for handouts to “buy a headline” that had “got Australia into this situation”.

“The easy option would have been for us to funnel these savings straight into a cash-splash, a one-off giveaway to buy a headline,” Mr Albanese will say, according to News Corp.

“Cheap politics and hugely expensive economics. Not just because of the dollar cost. Not just because that’s ­exactly the sort of short-term ­approach that got Australia into this situation.

“But because the ­untargeted spending would make the problem worse.

“Instead of helping households, it would only add to the inflationary pressures that are eating away at family budgets and devaluing wages. Fiscal policy needs to work with monetary policy, not contradict it.”

‘Reform’ is the solution

Instead, Mr Albanese will say that Australia will have to “reform our way through” the economic pressures that are being felt across the world.

“Rising inflation is biting here and overseas – and central banks are responding with the sharpest and most synchronised tightening of monetary policy for decades,” Mr Albanese will tell the audience at The Australian-Melbourne Institute Outlook conference on Wednesday.

“And while the long tail of Covid continues to impact supply chains and construction costs, the new economic downturn we are facing is very different to the recession brought on by the pandemic.

“We can’t close our borders and wait it out, we have to reform our way through.

“Our budget was framed in recognition of this global uncertainty – as well as the intensifying fiscal challenges here at home.”

No easy decision

Mr Chalmers will say it “would have been easier – and no doubt more popular – to splash borrowed cash on an ­expansionary cost of living response”.

“But in the long run, that would have delivered a deeply damaging outcome for Australians and for their economy.

“So we made the responsible decisions, not the easy ones. Doing what is right and necessary for the challenges we confront.”

The Treasurer will say that if the government had not cut spending and found $22billion in savings, “it would have compounded inflation, compelled the RBA to go harder and sent the cost of living even higher”, The Australian reports.

“Treasury analysis shows that’s exactly what would have happened if we had spent the tax receipt windfall in payments to households, instead of returning it to the budget,” he will say.

“Their work indicates that inflation would have increased by up to an additional 0.5 percentage points over the next year, if we had gone down that path.”

His speech comes a day after the RBA lifted interest rates for the seventh consecutive month and governor Philip Lowe warned that inflation would get worse and last longer that previously thought.

Interest bill soars

Mr Albanese will warn that ­the fastest-growing cost in the budget in the increase in the interest bill on the government’s debt repayments.

“Our government has inherited the highest level of debt as a share of GDP in over 70 years,” he will say. “And we face higher borrowing costs to service this debt.

“At $12billion, the increase in the interest bill over the next four years is not just the largest payment variation in the budget, it is also the fastest growing cost. And this interest bill is forecast to rise at more than 14 per cent a year over the next decade.

“We are serious about the work of budget repair, because we know how important it is to build a fiscal buffer against international uncertainty. To plan and prepare for the unknown, for the global shocks that expose a domestic weakness.”

Australia ‘in better nick’

Mr Chalmers has been upfront about the inflation challenge facing the economy but says Australia is in a better position than other nations.

“We’re in better nick than most – if not all – the countries with which we compare ourselves,” he said at a post-budget business event in Sydney.

He said his trip to the US ahead of the October budget to meet with his G20 colleagues, the head of the US central bank and other key officials helped him understand the implications for Australia of a global downturn.

“There is genuine concern, if not fear, in the global economy about how things might play out,” Dr Chalmers said on Tuesday.

“Some of the closed-door sessions at the G20 meetings were confronting.”

He said that was why his first budget focused on banking the surge in revenue and restraining spending to build buffers.

“Our supply chains, our economy, is really more resilient than others but not quite resilient enough,” he said.

“And so our job, as a commonwealth government working with everyone, is to work out how we can make ourselves more resilient.”

Dr Chalmers said the budget included modelling for likely scenarios and worst-case scenarios.

“That’s really to spur us and to give the context for all of our efforts to rebuild those buffers,” he said.

-with AAP