Treasurer Jim Chalmers has rejected claims the federal budget will make the nation's inflation problem worse, declaring the government is "supremely confident" its financial statement will not add to price pressures.
Significantly divergent views have emerged among prominent economists about the potential impact of the spending unveiled in the budget, with some expecting it to have only a marginal effect on inflation while others warn it will fuel demand and could lead to higher interest rates.
The government plans a net $12 billion increase in spending next financial year, part of an extra net $20 billion of expenditure over the next three years, driven largely by cost-of-living measures including a $5.6 billion boost for Medicare, a $4.9 billion increase in JobSeeker and the Youth Allowance, $2.7 billion for more generous rental assistance and $1.9 billion to expand access to sole parent payments.
The government claims the effect of this spending on the economy will be broadly neutral and predicts its Energy Price Relief Plan will actually subtract 0.75 of a percentage point from the consumer price index by making gas and electricity bills smaller than they would otherwise have been.
Overall, Treasury predicts inflation will drop to 6 per cent in June and 3.25 per cent by mid-2024, 0.25 of a percentage point lower than forecast in October.
"We are supremely confident that the budget that we handed down last night will take some of these cost-of-living pressures off without adding to inflation," Dr Chalmers told the National Press Club.
"We're confident we got the balance right. We're giving people a bit of help without making the cost-of-living challenge worse."
In Question Time, Dr Chalmers slammed the former Coalition government for leaving behind a "steaming pile of fiscal irresponsibility", saying a big proportion of budget spending was to refinance agencies and programs left in the lurch without ongoing funding by the previous government.
But the Opposition has lashed the budget, accusing the government of a "cost-of-living con job".
Opposition treasury spokesman Angus Taylor said the country needed a budget "that reduces inflation and reins in spending to combat the cost of living crisis facing all Australians. Instead, this budget makes life harder".
"[It] is a typical big-spending, big-taxing Labor budget," Mr Taylor said.
But National Australia Bank chief economist Alan Oster said the impact of the budget on the economy was likely to be "broadly neutral" and Commonwealth Bank chief economist Stephen Halmarick said this year's small $4.2 billion surplus would help moderate inflation in the near-term.
Mr Halmarick warned, however, the spending forecast for next financial year could intensify price pressures.
"The energy price support should lower measured inflation through the CPI, but the increased welfare payments are likely to put some upward pressure on inflation - although this will come at a time when the economy is undergoing a meaningful slowdown," Mr Halmarick said.
Westpac chief economist Bill Evans said Labor had delivered a big spending budget.
But the Westpac economist did not think it would be enough to cause concern for the Reserve Bank of Australia in the near-term.
"There will be a lot of nervous nellies out there that will say that this is an inflationary budget and the RBA have to raise rates very soon," Mr Evans said. "That is not how I read the budget."
But he said there was a risk government spending could delay the timing of the first interest rate cut, which he had forecast to occur as early as next February.
EY Oceania chief economist Cherelle Murphy said the increase in spending was "not huge" but would have the central bank, already "on tenterhooks" about high inflation, alert for signs that pressures are intensifying.
Asked if the budget increased the risk of a rate hike, Ms Murphy said that, "yes, at the margin, I think it does. [But] does it guarantee a rate hike? No," she said.
But Betashares chief economist David Bassanese said the budget was, "unambiguously expansionary".
Mr Bassanese said the budget would deliver an approximate 1.5 per cent boost to growth over the next two years.
"This adds to the risk that the RBA will feel the need to raise interest rates at least once and possibly twice more in the coming months," he warned.
Speaking at the National Press Club about his second budget, Dr Chalmers said combating inflation had been a major consideration in framing the budget and noted that price pressures were moderating after peaking late last year.
Reserve Bank governor Philip Lowe has warned further rate hikes may yet be needed in order to bring inflation, currently at 7 per cent, down.
Asked if it will be his fault if the RBA board puts up interest rates, the Treasurer stressed he did not want to preempt any independent decision.
But he said the budget decisions, including what he called "historic restraint" over spending, will have an impact.
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