The Albanian government should cut spending more aggressively or the RBA may be forced to continue raising rates

“It can be inflationary.”

Inflation was 6.1% in the June quarter and is expected to reach nearly 8% by the end of this year, due to a combination of high global oil prices, supply chain disruptions and huge central bank and government stimulus in response to the pandemic.

The RBA has raised the cash rate to 2.35% since May and signaled that a sixth consecutive monthly interest rate hike will take place in October.

Westpac chief economist Bill Evans raised his interest rate forecast on Monday, betting that the RBA would hike the cash rate by 0.5 percentage points to 2.85% on October 4 and hit a rate peak of 3.6% in February.

Outlook Economics director Peter Downes said the government should “not have one foot on the pedal and the Reserve Bank one foot on the brake”.

“The more restrained Commonwealth spending, the less [RBA governor] Phil Lowe is going to have to do,” he said.

The Albanian government’s first federal budget on October 25 will have to factor in an additional $19 billion in Labor election spending pledges over the next four years.

Treasurer Jim Chalmers ruled out “savage” spending cuts but said the Albanian government would eliminate the “rorts and waste” inherited from the former coalition government. Regional infrastructures and subsidies are threatened.

Dr Chalmers also promised ‘better quality’ spending in areas such as childcare.

Federal and state governments such as NSW and Victoria are also considering postponing some of their multi-billion dollar infrastructure spending as the construction sector battles labor shortages and steep increases in jobs. material costs.

Much of the extra infrastructure spending was incurred during the pandemic when governments feared a deep recession and massive unemployment, not the current unemployment rate of 3.5%, the lowest in nearly 50 years.

The federal government faces budgetary pressures on the national disability insurance scheme, elderly care and defence.

The annual cost of the NDIS will reach about $60 billion by the end of the decade, according to a Morrison government actuarial report.

Beyond COVID-19 emergency spending, the former Morrison government added to inflationary pressure during the election by injecting discretionary $17 billion into the economy in the March budget, via cash payments on the cost of living, additional tax offsets and a temporary fuel excise. To cut.

The work corresponded to the promises.

Shadow Treasurer Angus Taylor said: “The government must avoid adding more structural spending to the budget which will put additional pressure on inflation.”

RBA Governor Philip Lowe said last week that the bank would monitor the Oct. 25 budget, but he had no immediate concerns about the government’s fiscal policy.

But Dr Lowe said the federal government’s continuing budget deficit was a “significant issue” that needed to be addressed in this Parliament to allow for the additional spending expected by the community on disability support, care for people elderly, defence, health and infrastructure.

Dr Lowe suggested that over the next few years a combination of higher taxes, lower spending and/or faster economic growth through structural economic reforms was needed to fix the entrenched budget deficit over the medium term. .

Tax payments as a share of the economy hit a 16-year high and could top the former coalition government’s tax cap, after record profits in mining and energy and a boom in jobs have generated a windfall of several billion dollars for the federal budget.

EY’s spending analysis covers direct consumer spending by federal, state and local governments, such as health and education services, as well as investments in public infrastructure.

Figures exclude government transfers, such as social assistance.

EY’s Ms Murphy said most of the increase in government spending over the past two years was related to COVID-19.

“But in 2022, with the economy rebounding and lockdowns ending, government spending has remained high,” she said.

“This is due to a number of reasons, including continued healthcare system spending and the flood-related recovery.

“There are also structural reasons why expenses are high, such as the needs of the NDIS.”

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