Treasurer Jim Chalmers has ‘little room to move’ on cost-of-living relief

Treasurer Jim Chalmers insists his Federal Budget due next month will remain focused on cost of living and housing measures, saying they can be addressed without adding to the nation’s inflation challenge which on Wednesday became more persistent.

Though the annual inflation rate to the March quarter fell from 4.1 per cent to 3.6 per cent, according to the Australian Bureau of Statistics on Wednesday, over the quarter inflation was one per cent — higher than forecast and up from 0.6 per cent in the December quarter.

In response several economists pushed back their forecasts for the first interest rate cuts from the Reserve Bank of Australia — some even suggesting next year was now more likely — while others cautioned the data gave Dr Chalmers little room to move.

Calls for the Government to prioritise cost of living relief in the Budget have increased as inflation proves particularly sticky, with much of it driven by services such as education, insurance and medical prices. University fees were a big driver, also renewing calls for the Federal Government to examine its HECS indexation policies.

“Today’s result doesn’t give the Government much room to move as it finalises its ... Budget, with any additional discretionary public spending likely to be read as unwarranted by a household sector hoping for rate cuts,” EY chief economist Cherelle Murphy said, adding rate cuts were no done deal “any time soon”.

“There are ongoing threats to further, sufficient declines in inflation. New supply chain risks and rising oil prices from escalating tensions in the Middle East; ongoing strong demand for housing; and a tight labour market will continue to concern a Reserve Bank determined to get CPI back into the target band from mid-2025.”

Dr Chalmers pointed to the Government’s track record with child care subsidies, electricity rebates and rent assistance — the ABS had reported their respective inflation contribution would have been much higher without Federal measures.

“One of the reasons why inflation is moderating in our economy and has moderated so substantially over the course of the last couple of years is our responsible economic management,” he said at a press conference in Brisbane.

“And you can expect to see responsible economic management to be a defining feature of the Budget that we hand down next month.”

Deloitte Access Economics partner Stephen Smith said the RBA would maintain its cautious approach to inflation.

“It also underscores the difficulty of the high-wire act the Treasurer must perform when handing down the budget next month, balancing the need to provide cost of living relief for households while positioning the Australian economy for a pivot to growth after months of inertia,” he said.

“Without this pivot to growth, investment and productivity will languish, undermining Australia’s medium term prosperity.”

Mr Smith added the “staggering rise” for insurance premiums — up 16.4 per cent in the year — and rising education and health costs reinforced the need for stronger, more integrated policies to drive “systemic change”. The surge in premiums is the greatest since 2001, the ABS said.

Dr Chalmers said though people should not expect the revenue upgrades of his previous two Budgets, they could expect “the most responsible approach that we can”.

“Being responsible means getting the Budget in better nick when we can but also investing in the long-term drivers of growth in our economy,” he said. “And those will be important features of the Budget in May.”

The Treasurer also doubled down on defending the Government’s “Future Made in Australia” manufacturing policy, saying the nation needed to attract private investment to future-proof its prosperity.