Every November, weeks of detailed meetings around the Cabinet table determine how the mid‑year budget update will look.
This year the timing is the same, but the context is vastly different.
Two related events this week remind us just how volatile the economic environment is and why that’s heaping pressure on people.
The first was the RBA’s decision to lift interest rates again, which will stretch family budgets further and slow our economy.
The second was the US midterm elections, now seen as a referendum on the Iran war and its consequences for fuel prices and inflation more broadly.
Australians are paying a hefty price for this war.
Our challenges are familiar to the US. The difference is Americans have a say in how and when the war ends but Australians do not.
War is a primary cause of recent inflation spikes but not the only cause.
The faster‑than‑anticipated recovery in the private economy late last year meant we were already dealing with excess demand when the war began – a point Governor Bullock and I have made repeatedly.
But pretending the war is not the primary driver of higher prices this year would mean disregarding the data.
Higher fuel prices were the biggest driver of higher headline inflation in last week’s CPI data – up 9.4 per cent in the month and almost 24 per cent in the year.
In August, the RBA’s forecasts assumed a global oil price of around $81 a barrel for the December quarter. That’s now been substantially revised up to just below $110.
RBA analysis this week showed fuel costs are pushing up underlying inflation throughout the economy and this is expected to continue.
It’s tempting but wrong to claim this inflation challenge is solely because of government spending. It’s just not supported by the facts.
It’s equally wrong to say the government takes no responsibility, when I’ve repeatedly said I take responsibility for our part of the fight against inflation. I take this very seriously.
The RBA Governor and I have both said public demand is part of aggregate demand – nobody contests that. That’s why it’s significant the RBA just substantially downgraded public demand growth this year.
It’s also significant that last financial year, public demand growth halved while private demand growth almost tripled.
In other words, at a time when aggregate demand is too high, public demand’s near‑term contribution to that demand is going down.
But just because budgets aren’t the primary driver of prices, they can still play a helpful role. That’s why there will be savings in MYEFO, just like the 8 updates before it.
In May we delivered the largest budget savings package in the Commonwealth’s history – over $60 billion – as part of $180 billion in savings since 2022.
In comparison, the Coalition’s budget update before the 2022 election didn’t save a cent.
The mid‑year update last December and the May Budget delivered the first back‑to‑back net savings in almost a decade.
In 9 years, only 2 updates delivered net savings – both under our government.
Despite the partisan attacks, the numbers are clear: responsible economic management is a defining feature of our time in office.
The Budget is already $230 billion better than we inherited, deficits are lower, and we’ve delivered the only surpluses in 2 decades. Gross debt is expected to peak significantly below the Coalition’s forecasts.
The IMF says Australia’s state and federal government spending as a share of GDP is lower than the G7 average. By 2030, it’s expected to be lower than every single G7 economy.
Average real payment growth under our government is just 1.5 per cent a year through to 2029-30 – the lowest rolling eight‑year average in almost 40 years and around a third of the Coalition’s 4.1 per cent average.
Nobody is saying the job is done. Improving the budget is a job that never ends.
This progress is the foundation for our five‑part economic plan.
First – delivering responsible budgets with sensible savings, to help take pressure off inflation.
Second – giving tax cuts to workers and small businesses, boosting wages.
Third – helping families with more bulk billing and cheaper medicines.
Fourth – making housing more affordable by building more homes and winding back investor tax breaks to help more first homeowners into the market.
And fifth – driving growth by investing in skills, technology and AI, speeding up approvals, attracting more investment and boosting trade and resilience.
We know things might get harder before they get easier. Inflation data in a few weeks will reflect the higher fuel prices we’re paying today.
Instead of helping, the Coalition are blocking over $10 billion of budget improvements in the parliament and racking up at least $110 billion in unfunded promises. By their own logic, inflation and interest rates would be higher under them.
But despite the economic, fiscal and political pressures coming at us, there are reasons to be optimistic.
Australia is in a better position than most other countries with a stronger budget, lower debt, triple‑A credit rating and resilient labour market.
The RBA and Treasury expect inflation to return to the target band next year.
We are better placed, better prepared and have a better plan to manage these challenges – helping take pressure off inflation and pressure off family budgets, while building a stronger and more resilient economy.
That’s our focus as we prepare the mid‑year update that Katy Gallagher and I will hand down next month.
