Originally published in The Guardian on May 11, 2023

Rather than be a budget that will fuel inflation, the budget is actually closer to austerity than stimulation

The Budget announced this week by Treasurer Jim Chalmers revealed a projected surplus in 2022-23 before returning to a deficit in the future years. In response many commentators and economists have suggested that the budget is therefore expansionary and will fuel inflation. But as policy director, Greg Jericho notes in his Guardian Australia column given the projected slowing economy, if anything the budget should be more expansionary.

Most of the claims around the budget fueling inflation are based on the movement of the budget from surplus in 2022-23 to deficit in 2023-24. And usually, this would suggest that the government is stimulating the economy. But when we look at the actual figures within the budget, the overwhelming reason for the shift from surplus is due to parameter changes relating to oil, gas, coal and iron ore prices. The spending measures the government is proposing are hardly expansionary at all. Their direct impact on total household income is minimal, and the largest spending is on reducing medical and energy bills rather than directly giving households more money.

When we look at the forecasts for public demand growth we see a level of expansion that is more akin to an austere budget than one attempting to stimulate the economy.

But when we also look at the forecasts for economic growth over the next two years we see an economy slowing quite abruptly in a world that is teetering on a global recession. In the past, such weak forecasts for household spending and GDP growth would have seen governments spending more and lifting economic growth.

This budget appropriately deals with the concerns of inflation by directly lowering the costs of energy and medical bills – it demonstrates that governments do have a role to play in lowering inflation and that it need not be done purely by the traditional view that the government must slow the economy. The economy is already projected to slow, and by this time next year the calls will likely be less about why the budget is not in surplus and more about what is the government doing to simulate the economy

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