Top economist lays out three tests for Labor in budget
The looming federal budget will focus on reducing inflation and intergenerational fairness, the treasurer says, as the fallout of the Iran war continues.
A surge in inflation driven by a spike in fuel prices from the Iran war is “confronting”, the treasurer concedes, with the upcoming budget set to focus on combating the issue.
Inflation figures for March released Wednesday showed the headline rate rise from 3.7 per cent to 4.6 per cent for the month, following the cost of fuel soaring by about a third after the closure of the Strait of Hormuz.
The data has increased the likelihood the Reserve Bank will hike interest rates for the third time in a row when it next meets on Monday and Tuesday.
Treasurer Jim Chalmers said May’s federal budget would be focused on bringing down inflation levels.
“Those inflation numbers were confronting yesterday. They show that Australians are paying a hefty price for this war in the Middle East,” he told ABC TV on Thursday.
“We expect the costs and consequences of that conflict on the other side of the world to persist for a while longer yet.
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“It’s also why the budget that we hand down in two Tuesdays time will be a very responsible budget which will be focused on this inflation challenge.”
While price pressures had been most visible for petrol and diesel, it had also flowed through to other sectors of the economy such as construction, Chalmers said.
Alongside inflation, the budget would seek to tackle generational inequality, the treasurer indicated.
“When we think about the intergenerational unfairness in the budget, in our economy and our society more broadly, a couple of the drivers of that are in housing, are in the tax system,” he said.
But shadow treasurer Tim Wilson said the government scrapping some of the discounts for the capital gains tax or tinkering with negative gearing in the name of generational fairness, as some have speculated, would not make things equal.
“I’ve yet to hear a single argument that increasing a tax increases the chance of giving economic opportunity,” he told ABC Radio.
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“What the prime minister isn’t doing is giving the next generation of Australians hope about building a better future for self-starters who want to get ahead and creating an economic environment of opportunity.”
It comes as the chief economist at Australia’s largest bank said reining in the NDIS and property-investor tax breaks could save the budget $30 billion over the next four years.
Luke Yeaman, who was a senior department official under Chalmers before switching to the Commonwealth Bank, said the upcoming budget was shaping as one of the most interesting in a long time.
Since Labor’s huge election win in May 2025, the 2026 budget has been framed as an opportunity to introduce reforms to fix Australia’s chronic productivity malaise and structural fiscal deficit.
The Iran war has made the task for Yeaman’s former boss even tougher, as Chalmers attempts to pull off major reform, big spending cuts, boost national resilience and support households in one budget.
Yeaman said pending cuts to the tune of tens of billions of dollars are needed to reduce the deficit and help cool inflation.
Already, the government has announced major changes to the NDIS, which it claims will save $35 billion over four years.
“This is a welcome and badly needed reform,” Yeaman said.
“The big question is whether such sharp cuts in spending can be delivered, especially so quickly.”
Demands from the states for more funding to help take on replacement services would test the government’s resolve, he said, predicting that cumulative savings would be closer to $20‑25 billion over the next four years.
Telegraphed changes to negative gearing and the capital gains tax discount would also boost revenue, even though Yeaman expects the impact on house prices to be relatively modest.
Together, with the NDIS savings, they could improve the budget bottom line by around $30 billion over four years and $200 billion over 10 years, Yeaman estimated.
-with AAP
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