The outlook for Australia's economic growth is worsening and inflation forecasts remain uncertain, with the federal government battling to simultaneously spur growth and rein in rising costs.
Forecasts for economic growth next financial year have been revised down, with earlier forecasts of 2.25 per cent real GDP growth dropping to 2 per cent.
For the following financial year, the forecast has gone from 2.75 per cent in last year's budget, to 2.5 per cent in the mid-year update, to now 2.25 per cent in the budget being handed on Tuesday.
It is understood the budget papers point to "considerable uncertainty" about the extent of economic growth in both the domestic and global economy.
Real GDP forecast
| 2024/25 | 2025/26 |
|---|
Budget 2023/24 | 2.25% | 2.75% |
Mid-year update | 2.25% | 2.5% |
Budget 2024/25 | 2% | 2.25% |
Inflation remains the major concern, with a slightly improved forecast compared to expectations six months ago, but still worse than what the federal government was anticipating this time last year.
The consumer price index, the measure of inflation used in the budget, is expected to come down to 3.5 per cent by mid-year and then settle at the higher end of the 2-3 per cent target range for the following two years.
Consumer price index forecast
| 2023/24 | 2024/25 | 2025/26 |
|---|
Budget 2023/24 | 3.25% | 2.75% | 2.5% |
Mid-year update | 3.75% | 2.75% | 2.5% |
Budget 2024/25 | 3.5% | 2.75% | 2.75% |
Treasurer Jim Chalmers is crediting spending restraint and targeted cost of living relief with helping inflation moderate since the last set of forecasts.
But he acknowledges the difficulty in getting inflation below 3 per cent.
"Our budget will be part of the solution to cost of living pressures, not part of the problem," Mr Chalmers said.
"Inflation is moderating in welcome ways, but it's not mission accomplished because people are still under pressure."
"Inflation is still the big near-term challenge in our economy which is why the government is doing its bit in the budget."
Coalition accuses Labor of spending too much
Shadow Treasurer Angus Taylor accused the government of having a spending problem that was fuelling inflation.
"What we have seen from Labor to date is two failed budgets," he told the ABC.
"They haven't delivered this cut in homegrown inflation that we have seen under Labor, and the result is if we have another flop in this budget, Australians are going to pay a very, very high price."
Earlier this year, Labor announced an overhaul of the stage 3 tax cuts, which will see all taxpayers get a tax cut from July.
Mr Chalmers told the ABC the income tax cuts were the centrepiece of the cost of living relief and that he stood by the decision to give the highest income earners a tax break, too.
"The way that we've redesigned the tax cuts are bang on for the circumstances we confront," he said.
Mr Chalmers said the budget would offer greater cost of living relief beyond the tax cuts.
"We've found other ways as well to provide cost of living help to people who might not be in the tax system for example," he said.
Loading...The government has hinted last year's energy bill rebates could be extended.
Mr Taylor said Labor had been relying on high commodity prices to pay for its spending, rather than growing the economy.
"They should make sure the economy grows faster than spending, and that's the exact opposite of what we've seen in the last two years," he said.
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