Uncategorized

Economists warn that Anthony Albanese needs to target the most vulnerable or risk stoking inflation


However, Mr Strickland, along with ANZ, Judo Bank and BIS Oxford Economics, also warned that any government help, including cash handouts or subsidies to households, could accelerate inflation, so measures needed to be highly targeted.

“And if you can do that, then that reduces the potential inflationary impact from it,” Mr Strickland said. “It’s the main hesitation around possibly giving cost-of-living relief in an inflationary environment, as it can perpetuate the rate of inflation for longer.”

While annual inflation fell to its lowest rate in almost two years at 4.3 per cent in November, it is still well above the Reserve Bank’s 2 per cent to 3 per cent target band, which it aims to meet by the end of 2025. The Australian Bureau of Statistics is due to release its December-quarter CPI report on January 31.

ANZ senior economist Adelaide Timbrell told the Financial Review that government subsidies on essentials such as utilities could directly reduce inflation, by reducing the overall price of that products for households.

“The more targeted the cost-of-living measures are to those who need it, the less likely it is to create a significant amount of pressure on inflation,” Ms Timbrell said.

“It’s also important to remember that all policies have benefits and costs, and increasing inflation a little to provide huge benefits elsewhere isn’t necessarily a deal breaker.”

If they are going to provide cost-of-living relief on one side of the equation, then they have to shrink the government.

Warren Hogan, Judo Bank

NAB’s Mr Strickland said a targeted subsidy rather than a cash payment, such as the government’s subsidy for retail electricity prices, would be “less inflationary in a measured sense” than actual inflation.

“Retail electricity prices have risen, but there’s a subsidy in place, so it’s not adding to measured inflation. That’s one way the government can do cost-of-living relief without adding to measured inflation,” he said.

Sean Langcake, BIS Oxford Economics’ chief economist, noted that inflation was already cooling and if the trend continued “it’ll be a bigger boost to people’s real incomes”.

“Things should be getting a bit better over this year,” he said, referring to an easing in inflationary pressure.

While acknowledging that government stimulus could fuel inflation, he said measures would depend on how well-targeted additional policy measures would be to get to the most vulnerable households.

Given the government’s track record of targeted subsidies, such as relief for electricity, it was unlikely that any new measures would be a “huge injection of stimulus to the economy”, he said.

Judo’s Mr Hogan also suggested targeted assistance, such as a temporary tax cut to the lower income bracket or an adjustment to the tax threshold. However, even then, he warned, it still “reeked of fiscal stimulus”.

The economist said the only way the government could “short-circuit” any inflationary complications for the Reserve Bank would be to cut spending elsewhere.

Public-sector cost cuts, including reducing head count, was the only real option for the government to “credibly” provide meaningful relief that was not inflationary in the short term.

“If they are going to provide cost-of-living relief on one side of the equation, then they have to shrink the government. That is all there is to it,” he said.



Source link

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button