Wages for Australian workers will rise at a faster rate than inflation from June next year and the worst cost of living crisis in three decades could start to ease by the end of 2023.
The good news comes as Treasurer Jim Chalmers announces a budget surplus – thanks to China’s insatiable demand for iron ore – making him the first federal Labor treasurer since 1989 to propose a spending program in the dark.
Headline inflation, also known as the consumer price index, hit a 32-year high of 7.8% in 2022, but in the last quarter it fell to 7%.
Treasury budget documents forecast the CPI to moderate to 6% by June this year, before plunging to 3.25% by June 2024, putting it slightly above the target of 2 to 3% of the Reserve Bank.
At that time, the wage price index was expected to reach 4%, reaching levels not seen since 2009 during the global financial crisis.
This means that Australian workers, who have suffered an effective reduction in real wages, will finally see their pay levels rise at a rate faster than inflation at that time.
Wages for Australian workers will rise at a faster rate than inflation from June next year and the worst cost of living crisis in three decades could start to ease by the end of 2023 ( pictured is a traffic controller in Sydney)
The Treasury now expects inflation to decline to 2.75% by June 2025, with wages rising a more moderate 3.25%. This means that workers will always have more purchasing power even if the bosses have granted less generous wage increases.
Unemployment was expected to remain at a 48-year low of 3.5% in June 2023, but rise to 4.25% by June 2024 as rising interest rates pushed economic growth down by 3. 25% to just 1.5%.
The RBA, which has raised rates 11 times since May, does not expect inflation to return to its target range until mid-2025 and Governor Philip Lowe has hinted at further rate hikes, the rate cash flow in May soaring to 11-year record of 3.85%.
Despite pandemic spending in 2020 and 2021, Dr Chalmers is set to become the first Labor treasurer since Paul Keating 1989 to run a budget surplus.
Dr. Chalmers announced a surplus of $4.2 billion for 2022-23, or 0.2% of gross domestic product.
Treasury budget documents forecast the CPI to moderate to 6% by June this year, before plunging to 3.25% by June 2024, putting it slightly above the target of 2 at 3% from the Reserve Bank (pictured is a Coles buyer)
It is a significant reversal from the March 2022 budget – the last of his Liberal predecessor Josh Frydenberg – which forecast a $78 billion deficit representing 3.4% of GDP.
It’s also a big improvement on the October 2022 budget – Dr Chalmers’ first – which projected a surplus of $36.9 billion for 2022-23, or 1.5% of GDP.
Dr. Chalmers trumpeted that it would be the first budget surplus since 2007-08, not mentioning former Liberal Treasurer Peter Costello’s last budget before the GFC.
“We now expect a slight surplus in 2022-23 – which would be the first in 15 years,” he told the House of Representatives.
But he warned the 2023-24 budget would likely run a $13.9 billion deficit as iron ore and coal prices fell.
The spot price of iron ore – the price of raw materials used to make steel – is expected to decline from US$117 per tonne in the March 2023 quarter to an average of US$60 per tonne in the quarter. from March 2024.
The good news comes as Treasurer Jim Chalmers announces a budget surplus – thanks to China’s insatiable demand for iron ore – making him the first Labor federal treasurer since 1989 to propose a spending program in the dark.
This is only slightly above the US$55 per tonne forecast for 2022-23 in the October budget.
The metallurgical coal spot price is expected to rise from US$342 per tonne to US$140 per tonne by mid-2024, similar to the US$130 per tonne level forecast in October for this fiscal year.
Thermal coal prices are expected to moderate from US$260 per tonne to US$70 per tonne, slightly above the US$60 per tonne forecast last year.
Gross public debt is now expected to exceed the $1 trillion mark in 2025-25 instead of 2023-24 as projected in the October budget.
The surplus promised by Dr. Chalmers is less than the $9.1 billion surplus announced by Mr. Keating for 1989-90, which was 2.5% of GDP.
Dr Chalmers did his thesis in 2004 on Mr Keating as Prime Minister when he was a doctoral student at the Australian National University.
Former Labor treasurer Wayne Swan – for whom Dr Chalmers worked as a senior policy adviser – announced in May 2008 a budget surplus of $21.7bn for the following financial year, or 1.8% of GDP .
This was trumpeted as the largest surplus in nine years and the second largest in 35 years, relative to the size of the economy.
However, that didn’t happen as the global financial crisis saw Kevin Rudd’s Labor government spend $52billion on two stimulus packages, including one where Australians received checks for $900.