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Mar 23, 2023
Australia’s Budget to Show Restraint as Global Volatility Rises
(Bloomberg) -- Australia’s elevated inflation means the May budget will again show “restraint,” Treasurer Jim Chalmers said, even as the economy is set to slow substantially due to worsening global conditions and high interest rates.
In remarks in Canberra, Chalmers said elevated consumer prices are the “primary challenge,” while highlighting the budget faces “intensifying and compounding spending pressures” even as revenue is aided by strong commodity prices. “We’re still working to find the best balance of near-term and longer-term priorities,” he said
The treasurer will unveil his second budget in just under seven weeks as a banking crisis from the US to Europe is roiling financial markets, leading to debate over the best path for monetary policy. The Federal Reserve this week took a position of inflation first when it hiked for a ninth-straight meeting, while Australia’s Reserve Bank seems keen to take a breather in April.
“The uncertainty and the volatility on markets is feeding into concerns about the global economy more broadly, with forces pushing and pulling the expectations in different directions,” Chalmers said.
“Some of the slightly more positive expectations in China, North America and even Europe are now being tempered by this uncertainty.”
In Australia, where the banking system is sound and fallout from the global banking stress is likely to be limited, money market bets imply the RBA will stand pat at 3.6% next month, with cuts priced in for later in the year.
The RBA’s rapid-fire rate hikes from a record low 0.1% in May 2022 are slowing economic activity and driving up interest costs on government debt. Chalmers highlighted that this is happening at a time when the budget already has an “enormous amount of heavy lifting” to do in eight key areas:
- Cost of living relief to households
- Investing in growth and productivity on the supply side
- Funding national security priorities including the Aukus deal
- Strengthening care and essential services economy
- Breaking down barriers to full labor market participation for women
- Targeting entrenched inequality
- Maintaining funding for programs that were left without budget allocations by the previous government
- Showing restraint in other areas to make the Budget responsible
“It is a pretty ambitious list, deliberately so, but we think this is the right combination of priorities for the second budget,” Chalmers said. “We hope that that gives you a sense of where we’re headed and why we’re headed there and I’m optimistic that we can land it.”
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