Getting the cost of living down is set to top Treasurer Jim Chalmers’ action plan when he hands down his second budget on Tuesday.

The government is expected to address high inflation while striking a balance between saving and spending, but some economists say tackling the underlying problem of the lack of housing stock will be crucial.

As Aussies feel the pinch of higher prices for essential goods and services along with an unaffordable rental and property market this year’s budget is likely to be cautious with spending outcomes.

Jameson Coombs, economist at the Westpac group, says the budget needs to ease the pain for renters.

“It’s a problem that will take a long time to resolve because the solution is building more available housing stock,” Coombes told Central News.

“Anything that promotes that is welcomed.”

With inflation rising by a 1.4 per-cent in the March quarter, Coombes says the budget is unlikely to include major spending.

“One of the fastest growing burdens on the budget is interest repayments,” says Coombes.

“[It’s about] making sure they’re not making the RBA’s job harder and pumping money into the economy at a time when we’re trying to slow the economy down to bring inflation back under control.”

Isaac Gross, lecturer in economics at Monash University, says inflation would not overlap with spending outcomes in the budget. He said inflation does not always spell bad news for the economy.

“The impacts on the budget are a lot less direct but the budget forecast will be banking on a return of inflation to target,” he says.

“High inflation is not necessarily a bad thing for the budget.”

The RBA raised the cash rate by 25 basis points to 3.85 per cent – the highest at its monthly board meeting, putting more pressure on households.

However,  households and businesses are set for a reprieve on energy bills. It follows the $1.5 billion Energy Bill Relief Fund the government announced late last year to reduce the amount households are spending on their power builds.

Electricity prices reduced during the March quarter compared to the last two quarters according to data from the Australia Energy Market Operator. The price drop was driven by renewable energy.

The stage three [tax cuts] are too big. [It] will cost the federal budget $20 billion in the first year and the annual cost will grow to about $30 billion in 2030.

“I think we probably will see some announcements about renewable energy projects. We do need to bolster renewable supply,” Coombes says.

Cuts to spending on programs such as NDIS and JobSeeker are also expected to be handed down. Despite recommendations from the Interim Economic Inclusion and Advisory Committee the government is expected to rule out an increase to the Jobseeker rate.

The cuts reflect Australia’s structural deficit problem which is leaving a $50 billion hole annually in the economy. The deficit however, is closer to $70 billion given the $50 billion figure does not include expenses such as the $368 billion AUKUS deal.

“If you run this structural deficit per year, that hole is going to get bigger by 2 per cent of GDP… which is huge,” says Iris Chan, Fellow at the Budgets and Government team at the Grattan Institute.

“They’re simply not getting enough revenue for the amount of spending that society wants the government to undertake.”

Chan says Australia’s economy is in a period of expansion with a tight labour market along with high  inflation. She says tax cuts are not a responsible fiscal measure to help repair the budget.

“The stage three [tax cuts] are too big,” she adds. “[It] will cost the federal budget $20 billion in the first year and the annual cost will grow to about $30 billion in 2030.”

Chalmers said the stage three tax cuts would be included in the budget which would see the 37 per cent tax bracket slashed when the measure takes effect next year.

“If the government wants to proceed with stage three, they can do most of it but retain the 37 per cent tax bracket,” says Chan.

“That alone will save $8 billion.”

Coombes says higher commodity prices are expected to improve the budget’s bottom line. The IMF has predicted that Australia’s economy will grow by 1.6 per cent. 

“The economy is in quite a strong situation at the moment,” he adds.

“Tax receipts are quite high and payments out through unemployment benefits are lower than they otherwise would be.”

Image credits: Wikimedia Commons.