21 May 2024
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Chalmers promises a budget that’s finger lickin’ good

Peter Switzer
9 May 2024

When leading the Bolshevik revolution in Russia, along with land and freedom, Vladimir Lenin promised a chicken in every pot. US Republican President Herbert Hoover went further, actually promising “a car in every garage and a chicken in every pot” for his 1928 election win.

In 1988, Treasurer Keating promised a $9 billion budget surplus but switched from chickens to pigs when he called his Budget the one that “brings home the bacon.”

Next year is an election year and surprise, surprise, Treasurer Jim Chalmers and his team in Canberra calculate the average household will be better off to the tune of $2,800! That will buy quite a few KFC or bacon burgers! On a supermarket price, I calculate that being 280 uncooked chickens for the year ahead!

Apart from being grateful to Dr Jim, you can thank higher wages, stage 3 tax cuts and lower inflation, which the Treasurer has to be presuming will bring lower interest rates.

If it happens, this latter change could be a real kicker for income spikes and household happiness, which has to be a part of the political plan for the Albanese Government for 2025.

The CBA’s economics team has a base case for a rate cut in November (instead of three this year starting in September), but next year the number of cuts looks better.

“We have pencilled in one 25 basis point rate cut in each quarter over 2025,” said CBA's head of Australian economics, Gareth Aird. “Such an outcome would see the end‑2025 cash rate at 3.1 per cent [compared with our previous call of 2.85 per cent].

This means by election day (likely to be in May), three rate cuts would deliver around a $300 reduction per month on a $600,000 home loan taken out over 30 years.

The Daily Telegraph has given us Treasury’s calculations which say: “Households will have at least $2800 in extra disposable income on average next financial year, according to new budget figures…”

For those who like percentages, that’s about 3.5% lift in real or inflation unaffected disposable or after-tax income.

In case you’re wondering, the latest Australian Bureau of Statistics (ABS) data of average weekly disposable household income is $1,124 in 2019-20, so a 3.5% increase is at least $39.34 extra per week.

The tax cuts will give households a 1% boost alone “with the average worker estimated to keep an extra $1,888 of their wage in 2024-25 compared to this financial year,” Treasury has told The Telegraph.

While this sounds great, what has to happen to make sure this chicken or bacon or ‘magic pudding’ from Dr Jim is brought home to households?

Try this:

  1. Cassandra Winzar, chief economist for The Committee for Economic Development of Australia, says productivity must increase or inflation will persist, which will spoil Treasury’s figuring and reduce the predicted gains for households.
  2. The Budget and Government won’t do enough to increase business investment that powers productivity gains.
  3. The Budget can’t be excessively pro-inflationary.
  4. Budget savings have to offset giveaways to households or else inflation won’t fall enough for the RBA to start cutting rates.
  5. War in the Middle East has to dissipate to help push oil prices down.
  6. The Australian dollar needs to rise to help inflation, that’s brought in by imports, fall.

If next week’s Budget is too political and not economically responsible, then these promises could leave households very hungry for hip pocket relief come May next year. That could be bad for PM Albanese’s re-election plans.

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