21 May 2024
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Powerful Treasurer handouts coming but will they push up inflation?

Peter Switzer
3 May 2024

It’s ‘leak time’, when Treasurers like Jim Chalmers release an idea that could not only have economic consequences but also political implications. And the idea of a second round of power bill discounts passes the political test as well as cop a tick for the social effects of keeping energy prices as low as possible.

However, the fact that the discount comes as a rebate on the quarterly bill for low income households could be inflationary because those who earn less tend to spend most of their income.

The Treasurer says it won’t be inflationary, but he would say that, wouldn’t he? But the size of the bill shock has been so horrendous for all Australians, this measure has to be supported. That said, there needs to be greater Government support for the ACCC to make sure power suppliers and other big price-setting businesses don’t price gouge consumers, when beating inflation to lower interest rates is a prime goal.

Right now, every new measure put forward by the Albanese Government is being put through an “is it inflationary?” filter. Even the Future Made in Australia Act is being tagged inflationary, as the loans, grants and equity stakes that drip into the economy over time will keep prices elevated.

That is a dumb argument that can apply to all spending by all governments. If these support measure for tech businesses deliver productivity gains, it will kill costs and cut inflation.

Sure, power bill help is political and the AFR’s Phil Coorey tells us that “…the Queensland government, which will struggle to be re-elected on October 26, yesterday announced its own power price relief, promising every household a $1000 electricity bill credit from July 1”.

The biggest cost-of-living issue will be big for the Queensland election in October this year and the Federal poll next year, and that’s why power bills are a big issue.

If this power bill discount idea coincides with inflation remaining elevated, then the Government could be blamed for working against the RBA’s efforts to start cutting interest rates. To be fair, these discounts/rebates will be on top of big tax cuts for lower income Australians and won’t help crush inflation.

This comes as more economists are pushing out the start date for rate cuts to November, while others are saying it will be a 2025 thing! Then there are those like Judo Bank’s Warren Hogan who can see three more rate rises!

If this happens between now and the May election, Australian voters could seriously start liking the idea of a Prime Minister called Peter Dutton!

The Treasurer is right to argue that inflation was a shorter-term challenge, and the Future Made in Australia initiative is aimed at longer-term growth and the inflation effect is ignorable.

On the other hand, power discounts, tax cuts and thumbs up to wage rises are inflationary. The Treasurer needs economic data to show the economy is slowing and the heat is coming out of inflation ASAP. If that doesn’t happen soon and rates rise, the Government could be fried alive at the next election.

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