Cost-of-living pressure mounts on Albanese ahead of first budget

Anthony Albanese is facing growing calls to deliver substantial cost-of-living relief in his first budget next month as inflation pressures intensify and theReserve Bank of Australia drives up interest rates to their highest level in seven years.

After the RBA on Tuesday increased the cash rate to 2.35 per cent,adding another $242 to the monthly repayments on an $800,000 mortgage,the prime minister declared the October budget would give some respite to voters being hit by a surge in price pressures.

Anthony Albanese says next month’s budget will deliver cost-of-living relief as he comes under pressure to go further.

Anthony Albanese says next month’s budget will deliver cost-of-living relief as he comes under pressure to go further.

The bank,which had official interest rates at just 0.1 per cent at the start of May,has now increased rates by a combined 2.25 percentage points in five months. It is the most aggressive tightening of monetary policy since 1994,with the bank signalling it will continue to increase rates in coming months.

The lift in rates is aimed at bringing inflation,currently at 6.1 per cent and forecast by the RBA to reach 7.75 per cent by year’s end,under control. But it is also adding thousands of dollars a year to the interest bill on mortgages which climbed to record highs during the pandemic.

Albanese,who campaigned during the election on lifting wages and reducing price pressures on voters,said cost-of-living relief was coming in a budget the government would also use to honour many of its campaign promises.

“We are engaged in the cost-of-living relief and that is what you will see in our budget,” he said.

The government has promised cost of living relief in the upcoming budget as interest rate rises continue.

On Thursday,the first element of that relief will go to parliament when the government introduces legislation to reduce the maximum general co-payment on Pharmaceutical Benefits Scheme scripts.

It will drop to $30 from $42.50 in a move the government says could save a person taking three medications up to $450 a year.

But the change will not kick in until the start of the new year,while the government’s signature childcare subsidy expansion is slated to begin from mid-2023.

There is some internal government pressure to extend the 22.1c-a-litre reduction in petrol excise that ends on September 28.

Treasurer Jim Chalmers cautioned about increased spending,saying the lift in interest rates also meant tougher budget choices as they increased the cost of servicing the government’s near-$1 trillion in debt.

“It is our job to do what we responsibly can to help Australians deal with these pressures in the near term and to build a much more resilient economy into the future that is able to withstand some of these global and domestic shocks,” he said.

Shadow Treasurer Angus Taylor said the government needed to do its bit to ensure the RBA could limit future rate rises.

“If the Reserve Bank doesn’t have the supporting policy it needs from the government,it will have to inflict more pain on Australian households and that’s a bad thing. That’s what we don’t want to see,” Taylor said.

“That’s why the government having a comprehensive plan is so crucial for this nation.”

Reserve Bank governor Philip Lowe said both global and local factors were driving inflation to its highest rate since the early 1990s,noting there was strong demand from households.

He said the economy was continuing to grow “solidly”,noting unemployment could edge lower than its current 48-year low of 3.4 per cent.

“Job vacancies and job ads are both at very high levels,suggesting a further decline in the unemployment rate over the months ahead,” he said.

Illustration:Matt Golding

Illustration:Matt Golding

Greens treasury and economic justice spokesman Nick McKim said Lowe,who argued as recently as November last year that interest rates could remain at 0.1 per cent until 2024,should resign as governor for “misleading Australians about interest rate rises”.

“Dr Lowe induced hundreds of thousands of Australians into taking out massive mortgages by effectively saying that interest rates would not rise until 2024,” he said. “Having failed to keep that commitment,he should now resign. ”

Lowe signalled people expecting respite in rate increases were likely to be disappointed,but there were some signs the RBA could move to smaller increases in interest rates at future meetings. It has delivered four half-percentage point rate rises in a row.

AMP chief economist Shane Oliver said the significant hikes in the past five months and the lagging effect they had were among the reasons the RBA could move to smaller rate hikes in coming months.

“There is a strong case for the RBA to slow the pace of tightening to give more time to assess its impact so far,” he said. “Failure to do so risks recession and overkill in taming inflation.”

KPMG chief economist Dr Brendan Rynne said the RBA’s rate hikes could be nearing a “neutral” point. He expects the bank to raise the cash rate by 0.25 percentage points next month before pausing hikes in November.

“In terms of ‘where to next’,this statement has stopped referring to ‘the normalisation of monetary policy’,suggesting that are current levels we are close to the RBA’s expectations of a neutral rate,” he said.

Commonwealth Bank economists also believe Tuesday’s hike was the last of the “out-sized” 0.5 percentage point increases.

Cut through the noise of federal politics with news,views and expert analysis from Jacqueline Maley.Subscribers can sign up to our weekly Inside Politics newsletter here.

Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.

Rachel Clun is an economics correspondent for The Sydney Morning Herald and The Age,based at Parliament House in Canberra.

Most Viewed in Politics