EDITORIAL: Global crunch ramps up pressure on Federal Budget
Government spending to prop up the economy during COVID has resulted in an ongoing expectation of regular handouts. But the Treasurer should resist the temptation to throw money around in a willy-nilly manner.
It may not be the end of the world as we know it, but we don’t feel fine.
With apologies to R.E.M for mangling the song lyric, things are not looking good.
The war in the Middle East has upended not just that region.
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By continuing you agree to our Terms and Privacy Policy.The oil shock has brought about supply pressures in multiple areas of the global economy and soaring prices.
That means more than just pain for motorists when they pull up to the servo.
Users of diesel are being hit even harder, and pressure on fertiliser supplies and building products are also ringing alarm bells.
In Australia this has come on top of resurgent inflation and rising interest rates.
The national mood reflects this. Consumer and business confidence has crashed.
The Westpac-Melbourne Institute survey showed the consumer sentiment index plunged 12.5 per cent to 80.1 in April, a similar level to recessions in 1983 and 1991 that put hundreds of thousands of people out of work.
A National Australia Bank business survey reported a 29-point fall in a key confidence measure to minus 29 index points in March, the lowest since the onset of the COVID pandemic in early 2020.
Corporate giants Qantas and Westpac on Tuesday warned of hits to their bottom line and Reserve Bank deputy governor Andrew Hauser described high inflation as a “nightmare” and likened the global oil shock to a minefield.
The Reserve Bank of Australia has lifted interest rates twice this year and inflation is running at 3.7 per cent, well above the bank’s preferred 2 to 3 per cent target range. The RBA and Treasurer Jim Chalmers have already signalled they are bracing for inflation to soar to 5 per cent this year for the first time since 2023.
There is talk of the R word. AMP chief economist Shane Oliver has warned the risk of recession in Australia this year was now high.
So it is clear there are plenty of losers from the current turmoil.
It would not be right to call it a winner, but the Federal Government is however set to reap billions of dollars in extra revenues from higher commodity prices.
It is a scenario which brought a call from the International Monetary Fund for governments to make spending more efficient and manage windfalls prudently to replenish buffers for future shocks.
“Where fiscal support is deemed to be necessary to protect the most vulnerable against extreme external shocks, it should be targeted, timely, temporary, and funded within current budget envelopes,” the IMF said.
It was a timely warning as Dr Chalmers works on the May 12 Budget. Government spending to prop up the economy and households during COVID has resulted in an ongoing expectation of regular handouts. But the Treasurer should resist the temptation to throw money around in a willy-nilly manner.
What is required is to address lamentable productivity with a policy mix that promotes education and skills, reduces union interference and cuts red and green tape to allow the private sector to flourish.
