The fight against inflation is nearly finished according to Treasurer Jim Chalmers, who on Tuesday night unveiled the 2025-26 federal budget claiming our economy is in for a “soft landing” after years of high inflation, increasing interest rates and cost of living stress.

Budget forecasts show inflation is stabilising within the Reserve Bank’s 2-3 per cent target range at a pace faster than anticipated.

However, Professor Tim Harcourt, an economist from the University of Technology Sydney sounded a note of caution.

“No forecast is safe,” he said. “If Trump blows it all up, then the projections will not come true.”

Underlying inflation, the figure which the Reserve Bank considers when setting interest rates, peaked at 6.8 per cent in the year to December 2022, according to the ABS.

The latest figures show underlying inflation halved to 3.2 per cent in the year to December 2024.

The figures are welcome news for the government, which is keen to win an election off the back of a budget which has been labelled an “election bribe” by the Opposition.

The budget included key spending measures such as energy bill rebates and record investment in healthcare and housing.

Economic theory suggests an increase in government spending has an inflationary effect on an economy, but economists say it will be “negligible”.

The amount payable is no more than getting a cup of coffee… it’s negligible in terms of its effects.

Professor Robert Brooks, an economist from Monash University said budget measures were designed to be cautious and are unlikely to drive inflation.

“The approach the government’s tried to take is to… do spending that helps household budgets without putting inflationary pressure in the system,” said Brooks.

Perhaps the biggest surprise of Tuesday night’s budget was $17 billion worth of tax cuts which will see the lowest tax rate decrease from 16 per cent to 14 per cent over the next two years.

Brooks said the tax cuts are “helpful”, but quickly dispelled any concern extra household cash will increase inflation as it is “not an amount that’s going to drive significant discretionary spending”.

Professor John Quiggin, an economist from the University of Queensland, agreed saying: “The amount payable is no more than getting a cup of coffee… it’s negligible in terms of its effects.”

Harcourt said the tax cuts will be largely absorbed by people paying down household debt and mortgages.

A key component of the government’s cost of living relief efforts has been energy rebates, with the budget confirming the government will pay $150 to households and eligible small businesses until the end of the year.

The treasury estimates that this rebate will reduce headline inflation by about half of a percentage point in 2025.

Harcourt said that the energy rebate is artificially reducing inflation.

“It’s a question of how long do we have it [the energy rebate] for and in the long run is it sustainable,” he added.

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