The Albanese government’s cost of living package will drive inflation higher as households spend the extra cash elsewhere in the economy, economists say.
Alex Ellinghausen
Veteran budget watcher Chris Richardson said there was “no magic wand” – a net increase in government spending adds to inflation, regardless of how the support is delivered. “I want them to walk and chew gum,” Mr Richardson said, urging the government to go harder on finding budget savings.The Albanese government’s first budget in October contained a collective set of spending and revenue decisions that caused a $9.8 billion deterioration in the budget bottom-line over four years, funded from the economy delivering the budget an extra $52.4 billion.
Grattan Institute chief executive Danielle Wood said energy subsidies and cheaper medicines would initially reduce inflation, but would lead to higher spending and inflationary pressures in future by increasing household incomes. Outlook Economics director and former Treasury forecaster Peter Downes said a $3 billion federal-state subsidy for energy bills would lead to a 14 per cent cut in electricity prices and reduce the CPI by about 0.3 per cent.
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