Australia’s budget situation has been quietly improving. Deloitte Access Economics director Chris Richardson says the remarkable strength of the Australian economy means it no longer needs the emergency support it has been getting from the government and the Reserve Bank. Government spending fell by a record 10% in the year to January.
He counsels against emergency measures to protect Australians from the soaring price of petrol, saying today’s international oil price implies that in less than a fortnight petrol prices will be between 15 and 20 cents lower a litre.
While there is no guarantee they won’t climb again, the relief that’s in store is half as big as the relief the government could deliver by cutting fuel excise, a measure he says would be like applying a Band-Aid that would be difficult to rip off.
Rather than pumping more money into the economy, the March 29 budget should be withdrawing support in a measured fashion. Although government debt has climbed, low interest rates mean the payments on government debt cost less than before COVID.
With Australia just a “handful of months” away from an unemployment rate of 3.5% – Thursday’s February rate was 4.0% - Australia should celebrate its success in getting its economic policies right during COVID. While the reopening of borders will slow Australia’s success in bringing down unemployment, it is unlikely to reverse it.
After petrol prices, the next challenge for Australians will be higher mortgage rates, but they will be going up for a reason, Richardson says, because inflation is climbing and wage growth is climbing, which will improve the budget position further.