Federal budget 2024: Call for spending cuts to take heat off interest rates

Tens of billions of dollars of extra federal and state government spending have added to inflation pressures and must be cut to limit the Reserve Bank of Australia’s interest rate increases, economists say.

Approaching the May 14 federal budget, economist Chris Richardson said the government had loosened the budget via discretionary policy decisions worth $12 billion in the current 2023-24 year, in the middle of the RBA’s inflation battle. Iron ore prices remaining higher for longer would deliver the budget an extra $9.9 billion in corporate tax over the three years to 2024-25and the RBA’s preferred underlying inflation measure was a sticky 4 per cent – above its 2-3 per cent target.

The Abbott-Hockey government’s first two budgets announced policy net spending cuts and tax increases to improve the budget by $11.4 billion over four years.This included a $17.5 billion improvement in the 2014-15 budget and a further $3.2 billion improvement in the mid-year budget update, partly offset by a $9.3 billion deterioration in the 2015-16 budget as some previously announced spending cuts were abandoned amid a voter backlash.

“Will they cut Medicare like they tried to when Peter Dutton was health minister in the last Liberal government? Former Treasury budget economist Steven Hamilton said that although the government had allowed the budget’s “automatic stabilisers” to collect windfall tax revenue, his criticism was that it had added about $15 billion of discretionary spending in the last budget.

Source: Loan Digest (loandigest.net)

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