‘Changed dramatically’: Grim warning

International and domestic pressures mean that the next budget slated for October 25 will be a sombre affair as the new government tries to fulfil election promises while also clamping down on inflation.

The March budget was filled with cash stimulus as the Liberals tried to retain power just two months out from the federal election.

This time around, however, the Labor government has a difficult balance to strike, according to experts.

Shane Oliver, chief economist at AMP, issued a warning to the Australian public about what to expect.

“We’re not going to see the scale of the handouts back in March, it was a pre-election budget,” he told news.com.au ahead of the budget.

“Things have changed dramatically since then, the inflation problem is far more serious than it was in March.”

Inflation continues to rise, up from 6.1 per cent in the last quarter to now sit at 6.8 per cent, according to the Australian Bureau of Statistics. Since the March budget, the Reserve Bank of Australia has hiked interest rates for six consecutive months.

“The government has to implement its election promises like childcare and parental leave,” Mr Oliver explained. “By the same token, it seems pretty well aware it can’t provide another round of stimulus. It’s a bit of a balancing act.”

Professor Robert Breunig, from ANU’s Crawford School of Public Policy Expertise, also said not to pin your hopes on the upcoming economic package.

“It’s a very tricky environment at the moment for the government, both domestically and internationally,” he told news.com.au.

“We have inflation, it’s difficult to know how permanent it will be.”

He said the Russia-Ukraine conflict as well as Covid stimulus packages had created the perfect environment for inflation. The flooding that has been going on throughout the year, including the most recent in Victoria, was also another short-term factor.

Prof. Breunig warned that the world was headed for a global recession, which didn’t bode well for fiscal policies in the near future.

“We’re facing a high probability of some global recession,” he said.

However, Australia could weather that storm because of surging commodity prices, according to him.

Both Prof. Breunig and Mr Oliver expect inflation to reach more normal levels of around two or three per cent next year.

What happened in the UK to serve as a warning

On Sunday, Treasurer Jim Chalmers acknowledged the tightrope he had to walk and

The UK’s former Prime Minister Liz Trust lost her role as Prime Minister and

She rode to a resounding victory in the Conservative Party’s leadership contest in early September by winning over grassroots members with a pledge to cut taxes and help families pay their energy bills at the height of a cost of living crisis.

But after the Covid pandemic saw government borrowing hit record levels, pledging to lend more to pay for her costly policies did not sit well with the markets.

“There will be a substantial impact on the cost of living [from the floods], there will be a substantial impact on the budget and there’s no pretending otherwise,” Dr Chalmers said.

“We don’t yet know what the full impact will be on the cost of living, we don’t yet know how many billions of dollars this flood and its recovery will cost. What we don’t want to do, and we’ve seen this overseas, is provide cost-of-living relief in a way that just creates more inflation and pushes interest rates up higher than they would otherwise be.”

Dr Chalmers pointed to the UK, where Prime Minister Liz Truss and Chancellor of the Exchequer Kwasi Kwarteng’s tax-cutting mini-budget last month caused chaos in money markets and brought the country’s pensions schemes to the brink of implosion.

Mr Oliver said what happened to Liz Truss would have a direct impact on Australia’s mini budget.

“It will probably be a bit more austere than might otherwise have been the case,” he said.

The worst thing the government could do was “make the RBA’s job even harder”, Mr Oliver pointed out, by deepening the country’s inflation nightmare, like what had happened in the UK.