Weeks after Prime Minister Anthony Albanese’s attempt to change the Constitution was defeated, the Australian leader says cost-of-living will now be his government’s top priority.
In a keynote address to the Economic and Social Outlook Conference in Melbourne on Nov. 2, Mr. Albanese touched on a number of his short-term aspirations for the economy.
“Our government understands the cost-of-living is the number one pressure on Australian families,” the prime minister said.
Mr. Albanese also highlighted his government’s recent delivery of a budget surplus with government revenues exceeding expenditures.
“Our responsible approach to both revenue and spending has turned the $78 billion deficit we inherited into a $22 billion surplus. The treasurer, the finance minister, and all of us are proud of that unprecedented turnaround and pleased to have delivered the first budget surplus in 15 years,” he said.
“But we did not pursue a surplus for the sake of it. We know a stronger Budget position serves as an important buffer against international shocks and it helps put downward pressure on inflation.”
Although the Albanese government did deliver the first government surplus in 15 years, it was not attributable to fiscal responsibility alone.
The main contributing factor was sky-high commodity prices and higher tax receipts amidst soaring inflation.
Royalties paid by the mining and natural resources industries comprise a large component of government revenues.
According to the Minerals Council of Australia, over the decade to 2021-22, minerals alone have accounted for 21 percent of national GDP growth, $295 billion in company tax, and $127 billion in royalties.
Over the past two years, commodity prices have experienced a stark increase due to spikes in global demand and low availability due to supply chain issues throughout COVID-19.
Tax rates have also increased to their highest levels in 16 years throughout an inflationary economic period, with a tax-to-GDP ratio of 29.6 percent at the end of the 2021-22 financial year. The former Coalition government introduced a self-imposed 23.9 percent cap on this ratio which the Albanese government has removed.
Current Inflationary Pressures
Inflation is hitting Australian businesses and families hard.Recent data from the Australian Bureau of Statistics (ABS) revealed that working families saw a nine percent increase in living costs from this time last year.
Households feel the pinch from rising interest rates, which are flowing through to mortgages. According to the ABS, just under a third of Australians currently have a mortgage.
Then there are general living costs.
Over the 12 months to the September 2023 quarter, the consumer price index (CPI) rose 5.4 percent, with notable increases in fuel and electricity. The CPI experienced a spike unseen in decades at the onset of COVID-19 when between December 2020 and June 2022 it hiked 8.1 percent.
Inflationary pressures will likely be prolonged given they stem from issues outside of the realms of control at the Reserve Bank, who only has access to the cash rate lever.
Amid high inflation levels across Western economies, the saving grace has been low rates of unemployment. However, this trend may be challenged by potential stagflation—a situation where rates of inflation and unemployment are both high.
Further, the Albanese government’s plan to boost immigration to approximately 500,000 net overseas migrants in 2022-23 will see the labour force expand at its fastest rate since the 1970s.
To accommodate such an influx, the labour market must also expand by 37,000 jobs per month, a challenging feat for employers.
Opposition Unconvinced
A number of opposition MPs have been critical of the prime minister and Treasurer Jim Chalmers position.“Australians are being smashed by interest rate rises, rent rises, electricity rises, grocery price rises, fuel price rises, only to see a prime minister who is effectively throwing up his hands and saying, ‘There‘s nothing more we can do to help you,'” Ms. Ley said.
“People are reaching out for help that have never asked for it before because this government doesn’t have a plan to tackle inflation.”
Ms. Ley accused the prime minister of neglecting domestic duties while travelling to the United States and China.
“It’s been 530 days since the prime minister came to office and only yesterday he announced cost of living would be his number one priority. I think he is out of touch, has he been spending too much time in his jet?”
