The Daily Telegraph has an interesting story on page 2 talking about the pressure on the Treasurer to create a Budget that doesn’t add to inflation. The irony is that the pressure is coming from Opposition Treasury spokesman Angus Taylor, whose team created some of the inflation we’re worried about. They did this to rescue us from the Coronavirus-lockdown-recession.

Of course, the Opposition always plays on the minds of the economically untrained, wanting them to believe that inflation and interest rate rises come down to bad governing out of Canberra. These are the silly games both sides of Parliament play, and the media goes along for the ride because it creates headlines.

After reading the Telegraph story, here are the real headlines that many Aussies should care about.

First, St George Bank economist, Pat Bustamante, says money markets are betting that there’s only a 20% chance of a rate rise next week!

Second, today’s inflation numbers are likely to bring the good news that the March quarter CPI increase could be 1.4%, if Westpac economists are on the money.

Now, if you annualise that (you multiply it by four because there are four quarters in a year), it would imply an annual rate of inflation of 5.6%.

Annual inflation in the December quarter was 7.8%, so if the March annual figure has a 5% or 6% number, it would be the kind of progress that could stop Dr Phil Lowe slugging us with another rate rise.

While there are potentially good revelations in this Tele yarn by Clare Armstrong, here’s the news I think is HUGE, and it actually came from Angus Taylor!

Taylor told us that independent economists have predicted “a commodities and income tax windfall of more than $90 billion” is coming down the road for Treasurer Jim Chalmers.

This has given Mr Taylor’s colleague i.e., finance spokeswoman Jane Hume, the opportunity to say to Dr Jim that if you “squib it” and overspend this $90 billion, you’ll add to inflation and “Australians will pay the price.”

Of course, this is good politics but arguably it’s bad economics.

You see, looking at the economy now, using old data that we get today, makes Jane Hume’s advice to Dr Jim seem sensible. It would be dumb of Labor to spend too much and add to inflation when the RBA has used 10 rate rises to kill it.

However, the Budget is about Labor Government spending from July 1 this year and going forward, when the mortgage cliff sees fixed rate loan borrowers shift to variable rate repayments.

This will mean less consumer spending and a slowing economy that will create higher unemployment.

This budget can’t be a horror budget, which a lot of Treasurers try in their first year so they can be generous in the year before the next election.

That $90 billion should be used to partly reduce government debt, which is about 35% of our total production (or GDP). This is low compared to most Western economies. The US debt-to-GDP ratio is 129% and the UK is at 101%, so we’re pretty good on an international basis.

That said, if the Treasurer tries too hard to pay down debt and adds to the slowdown in the economy, then unemployment will increase, dole payments will rise, tax collections will fall, the budget deficit will be bigger and debt will increase.

Dr Jim should not be over-influenced by the advice from Angus and Jane. The Treasurer can’t add to inflation but also he can’t create a recession by playing Scrooge, because by Christmas, if we are in a recession, a lot of unemployed voters won’t be happy with the Albanese Government.