Forecasts embedded in the Albanese government's third budget show inflation will go back within the two to three per cent range targeted by the Reserve Bank in 2024/25, helped along by cost-of-living relief measures.
The expansion of energy bill relief and another boost to Commonwealth Rent Assistance are expected to wipe half a percentage point off inflation.
The government will give households and small businesses up to $325 off their power bills. (Dave Hunt/AAP PHOTOS)
If inflation makes it back to the target band before the end of the 2024 calendar year - which the government says is possible - it would be a year earlier than the central bank predicted just weeks ago.
Yet unlike Treasury, its forecasts do not include the cost-of-living relief measures contained in state and federal budgets.
For borrowers waiting for interest rate cuts, inflation coming down faster should mean interest rate cuts sooner and could soothe nerves following a hotter-than-expected March quarter consumer price index outcome.
Countering claims of some economists that subsidising rents and energy bills leave households with more room to spend - adding to demand and pushing up prices - Treasurer Jim Chalmers said individuals react differently to lowered bills when compared to, say, cheques in the mail.
"The way we have designed the cost of living relief means it won't add to broader inflationary pressures in the economy," he told reporters in the budget lockup on Tuesday.
Treasurer Jim Chalmers is confident about the impact his budget will have on inflation. (Mick Tsikas/AAP PHOTOS)
Economist and budget expert Chris Richardson said the budget would "poke the inflationary bear" because there was too much front-loaded new spending.
He said $17 billion had been added to federal spending in the next 12 months, $12 billion of which were due to new decisions announced on Tuesday.
"So this budget narrows the Reserve Bank's already narrow path," Mr Richardson said.
Shadow treasurer Angus Taylor said the government had delivered a "cost-of-living con job" and had added too much new spending at a time when restraint was needed to curtail price pressures.
"After two years in office and three Labor budgets, the government is no closer to dealing with its homegrown inflation crisis – which means more pressure on cost of living and interest rates higher for longer," he said.
Treasury's forecast for economic growth had been reduced to two per cent for the coming financial year and then 2.25 per cent for 2025/26 and 2.5 per cent in 2026/27 - all of which are a quarter percentage point lower than predicted in the December mid-year budget update.
A slowing economy typically implies a weaker jobs market and a tick up in the unemployment rate.
The economy is expected to keep adding more jobs, but at a slower rate over the coming two financial years compared to the December predictions.
Treasury estimates workers can still expect to see annual wages growth of more than three per cent. (Dan Peled/AAP PHOTOS)
Unemployment forecasts are largely unchanged, however, with the jobless rate expected to rise to more like 4.5 per cent in the next financial year, from around 3.8 per cent in March this year.
Dr Chalmers believes he has delivered a budget that caters to stubbornly high inflation and slowing growth.
The budget is focused on addressing inflation in the near term - including via a second consecutive surplus of $9.3 billion - and growth prospects in the latter years, of which the centrepiece is its Future Made in Australia industry policy.
The well-signposted industry policy includes tax breaks for the critical minerals sector and other incentives to spur investment in clean energy projects and low-carbon industries, but has largely been pushed to start in later years.
Along with "unavoidable spending", the Future Made in Australia policy will also contributed to the wave of red coming in the coming two financial years.
The deficits in 2024/25, 2025/2026 and 2026/27 will be bigger compared to the mid-year budget update, at $28.3 billion, $42.8 billion and $26.7 billion respectively.
