Economics update | 5 May 2023

05 May 2023

Budget night – What you can expect from ACCI
Treasurer Jim Chalmers will hand down the 2023-24 Budget next Tuesday night at 7.30pm.

ACCI will again attend the Budget lock-up to provide members with an assessment of the key outcomes relevant to business.

On Tuesday night, members can expect the following:

Soon after 7:30pm we will be releasing the ACCI media statement with our initial response to the Budget and what it means to business.
By 10:00pm, we will forward the Budget overview providing a summary and analysis of the state of the economy and major funding announcements in each of ACCI’s key policy area.

Note, we will no longer provide the Budget-in-Brief at 8:00pm, instead devoting our efforts to provide greater analysis of the Budget outcomes.

The Budget papers will be available on the Treasury website from 7:30pm.

In the current high inflation environment, we can expect this to be a very conservative Budget, but the government has already indicated that it will be providing some cost of living relief to low income earners through changes to the single parent payment, an increase in JobSeeker for over 55s, and rental and energy relief. The government has also recently announced a Budget surplus in 2022-23, which may make it harder to defend a low spending Budget in 2023-24.

Shock rate rise takes market and borrowers off guard
The Reserve Bank of Australia caught borrowers and financial markets off guard by resuming interest rate rises – the eleventh in a year. The April ‘wait and see’ pause proved to be temporary with Reserve Bank lifting the cash rate by a further 25 basis points from 3.6 per cent to 3.85 per cent.

The Board remains bent on managing inflation and inflationary expectations and bringing back to its target range of 2-3 per cent. With rates kept on hold the previous month, RBA waited out to evaluate the Q1 CPI data before taking further action. The Q1 CPI inflation at 7 per cent confirmed that Australia has passed its inflation peak, with goods price inflation slowing down. However, as the Reserve Bank’s statement notes, services inflation is still increasing, representing an upside risk.

RBA forecast that inflation will remain above their target until mid-2025. Considering this is a long period for inflation to exceed the target, it runs the risk that higher inflation becomes embedded in people’s expectations. This would ultimately lead to higher interest rates hikes and larger rise in unemployment.

However, the RBA has indicated that further rate hikes are likely, dependent on how the economy and inflation evolve. With wage growth rate yet to peak and the unemployment rate at 3.5 per cent, upward pressure on service inflation is expected to persist. The Board will continue to pay close attention to the developments in the economy, trends in household spending and the labour market.

Economics update | 5 May 2023

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Economics update | 5 May 2023

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