Today at 1930 AEST the federal government’s budget is presented. RBA Governor Bullock said that Treasurer Chalmers has reassured her that inflation is at the front of his mind. There seems to be a lot of pressure to increase spending and stimulate growth though. A $9.3bn surplus is estimated for FY24 but deficits over the rest of the forecast horizon are likely to deepen. Treasury is to forecast inflation below target by end-2024, a year ahead of the RBA, probably driven by certain subsidies (see MNI Treasury Expects Inflation To Return To Target A Year Before RBA and Pressure On Budget To Support Growth & Hold Back Inflation).

• A $1.1bn deficit was forecasts for FY24 in the MYEFO and due to strong tax revenue and better commodity performance. The deterioration in deficits over the subsequent four years is likely to be “sizeable” according to senior government sources in The Australian.
• Westpac expects about half of this year’s windfall, up from 14% last budget, to be spent due to $21bn of new spending commitments since December and a smaller windfall. UBS has revised up its forecast fiscal stimulus to $50bn over 4 years or 2% of GDP up from 1%.
• Over the weekend $1.1bn over four years for super contributions on paid parental leave was announced then $620mn per year, which is higher than preliminary estimates.
• There will be an extension of rent assistance and energy bill relief which may put temporary downward pressure on the CPI. Former RBA Board member McKibbin said that without measures to improve supply and productivity, increased fiscal spending will add to demand and inflation and subsidies will too.
• Other major costs include stage 3 tax cuts, subsidised aged/child care wages, Future Made in Australia, HECS relief, defence and indexation of welfare payments. The states will also receive $1bn to build infrastructure for new housing developments.