Treasurer hopes the price is right for election splurge

Heading to the shops when someone else is paying the bill is fraught with danger.

You buy stuff you don’t really need. The trolley overflows with junk that will get pushed to the back of the cupboard. You pay too much without looking for a cheaper item.

Buyer beware: It’s always easier to fill the trolley when you’re paying with someone else’s cash.Credit:iStock

Josh Frydenberg and Scott Morrison’s latest budget trolley is bulging with a fiscal blueprint that’s long on spending and very, very short on who will foot the final bill.

Into the trolley has been tossed cheap petrol, one-off tax cuts, expensive submarines, cyber-technology experts, new life-saving drugs, wage-subsidised apprentices, local drug manufacturing, high-speed trains, dams, patent boxes and even a railway station car park.

So embarrassed are the political shoppers that a table that normally appears in the budget papers – showing key spending and saving initiatives – has disappeared. There’s simply no savings to talk of.

But the voter shop-a-thon seemingly ignores what will happen beyond the May election.

The Reserve Bank has to start lifting interest rates. And it has to start soon.

Whoever is treasurer after the election will be left with a budget awash in red ink, higher government borrowing costs and a lift in official interest rates for the nation’s home buyers and business operators.

This budget is focused on the six or seven weeks before the election, as it tumbles almost $9 billion in cost of living “assistance”.

That assistance, however, is going to add fuel to the inflation flames already evident across the country.

In its forecasts, the government reckons spending by households – who account for more than 60 per cent of economic activity – will grow by 5.75 per cent next financial year after a solid 3.5 per cent this year.

Yet inflation is tipped to fall from 4.25 per cent to 3 per cent. That looks like an accident in the inflation aisle.

For months, the Treasurer has talked up the $250 billion increase in household savings. There is right now more than $1.2 trillion sitting in household savings accounts in the nation’s banks.

Yet for some reason, these same households need the best part of $9 billion to cover their cost of living troubles.

A case can be made that pensioners and welfare recipients could use the $250 one-off payment to help them fill their petrol tanks and buy groceries.

But it’s almost impossible to claim with a straight face that those people claiming the low- and middle-income tax offset (which skews much more to middle-income earners) need an additional $420 in the three to four months after June 30.

At a point when Treasury is hoping inflationary pressures will be abating, 10 million voters are going to get $4 billion on top of the $1.2 trillion sitting in their bank accounts.

It doesn’t make economic sense. But it makes political sense.

Frydenberg told Parliament his excise/tax cut would save a two-car family about $3700.

But that $3700 won’t go close to covering the cost of a two or three percentage point increase in the repayments on their mortgage if the Reserve Bank has to lift interest rates higher for longer to temper inflation pressures.

This budget does nothing to deal with the core issues around inflation. It’s akin to treating a burn on the skin with cold butter.

Since last year’s budget, government receipts have been upwardly revised by $223 billion over the forward estimates. A strong economy and even stronger prices for commodities plus the lift in inflation has filled the Tax Office bank vault.

But the government has also increased spending by almost $143 billion.

The trolley is almost full.

Jacqueline Maley cuts through the noise of the federal election campaign with news, views and expert analysis. Sign up to our Australia Votes 2022 newsletter here.

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