On Monday (7th May), the center-left Labor government of Australia announced that it will allocate AUD 14.6 billion (equivalent to $9.84 billion) over the next four years in the federal budget to provide relief to families and businesses from the rising cost of living. The government assured that this measure will not lead to inflation. The primary aim of this plan is to directly alleviate the impact of price pressures and inflation. Although inflation has reduced in the first quarter, it remains close to its highest level in three decades, at 7.0%.
“The centerpiece of the budget … will be cost-of-living relief that doesn’t add to inflation,” Treasurer Jim Chalmers said in a statement, ahead of Tuesday’s federal budget.
“People are under the pump. We have carefully calibrated and designed this Budget so that it takes pressure off the cost-of-living rather than add to it.”
As part of the budget, the government is planning to introduce financial aid for over 5 million low-income families, small businesses, and pensioners who are facing difficulties due to the high cost of electricity.
Chalmers has emphasized multiple times that his budget will have controlled spending to prevent contributing to inflationary pressures. However, the budget will provide some relief. The Reserve Bank of Australia surprised the markets last week by increasing the interest rate, contrary to the expectations of traders, who had anticipated an extended pause.
On Friday, the RBA cautioned that inflation risks are tilted towards the upside due to low productivity growth, increased energy prices, and a surge in rents.
Following this, the government has announced additional relief measures, which includes allocating AU$11.3 billion over four years for wage increases for aged care workers. Moreover, the government has imposed a 5% increase in tobacco tax and will levy an additional AU$2.4 billion in taxes on oil and gas producers.
The budget is likely to demonstrate a significant reduction in Australia's deficit as the country is receiving a large sum of money from taxes on commodity exports. However, despite the boost in revenue, the overall outlook remains challenging due to fiscal hurdles that need to be addressed.
