The first week of the new parliament will contain some dismal news, with Treasurer Jim Chalmers on Monday softening the community to await a “showdown” statement on the economy.
Chalmers said he would deliver his statement on Thursday, July 28. It will contain updated forecasts and bad news about actual wages.
While the discussion of the government’s climate legislation will provide much of the color and movement of the first fortnight in Parliament, which begins on July 26, Chalmers’ statement will go to the heart of the difficulty of the economic outlook and thus , the financial juggling of many people. be in the next few months.
One day before the statement, the inflation figures for the June quarter will be released, which will reveal a new rise. The most recent inflation figure, for the March quarter, was 5.1%.
Reserve Bank Governor Philip Lowe and The Conversation’s survey of economic forecasters predict 7% by the end of the year.
On Monday, New Zealanders learned that their inflation rate had risen to 7.3%
The Reserve Bank is also expected to raise interest rates again the week after Chalmers’ statement.
Chalmers told a news conference on Monday: “When it comes to our inflation expectations, when it comes to the impact of interest rate increases on growth, when it comes to what this increase in inflation means for real wages, there will be aspects of this. ministerial statement that people will find confrontational.”
Pressed on real wages, he said: “You will be confronted in terms of real wages because there is no credible economic forecaster in Australia at the moment who thinks wage growth is going to keep pace with inflation.
“And we will revise our inflation expectations upwards. And that will make the real wage situation worse before it gets better.”
He said raising interest rates would have an impact on growth “and I’ll talk about that in the update.”
“I will provide a set of economic forecasts and an indication of what that means for the budget position as well. My inclination is to be as broad as I can and as complete as I can when it comes to the update.” But he said that he would not announce a new policy.
As the government looks for savings to make in the October budget, Chalmers emphasized the increasing burden that rising interest rates would have on government debt service.
“Every additional dollar in the budget is a borrowed dollar and now it costs us more to pay it back due to rising interest rates.
“And if you think about the consequences of those rising interest rates on the budget: more than a billion dollars this year, more than $5 billion in the last year of term contracts, $13 billion accumulated on future contracts term, $18 billion in 2032-33 So these are not small amounts of money.”
The government increased the budget burden over the weekend when it decided to reinstate COVID pandemic leave pay for workers forced to self-isolate without sick leave. This measure, which will last until the end of September, will have a total estimated cost of around $780 million, although the states have agreed to pay half.
Chalmers said that in speeches this week he would speak on supply-side issues. “We need to recognize that the reason we have high and rising inflation is not just a story about too much demand in the economy, it’s also a story about tight supply.
“And that’s why almost every element of our economic plan is aimed at making our supply chains more resilient.
“Make sure we can get the workers we need, make sure we can get products to market, make sure we can lift the speed limit on the economy.”
Chalmers said the world economy was “a difficult, if not dangerous, place right now. That combination of inflation and rising interest rates and slowing growth and food and energy insecurity, combined with the amount of debt that countries have accumulated is cause for concern in the global community.”
Also on the economic front, Chalmers will imminently announce the panel and terms of reference for a far-reaching investigation into the Reserve Bank.
The treasurer said he would consult the shadow treasurer, Angus Taylor, about the terms of reference for the investigation, but said he hoped he would not have a problem with them. They would be broad enough to encompass any concerns that anyone might reasonably have about the conduct of the bank and the arrangements that govern it.
Of interest in Thursday’s week’s economic release will be the Treasury’s forecast for the unemployment rate, which, at 3.5%, has already fallen below the forecast in the Coalition’s March budget of 3.75%. , and the inflation forecast, which in the March budget was forecast to hit just 4.25% in the year to June 2022.
The latest monthly update from the Department of Finance for May shows a much smaller budget deficit than forecast in March, showing a deficit for fiscal year 2021-22 through May 2022 of $33.4 billion vs. the budget profile deficit of $60.5 billion millions.
