Ahead of elections, Australia plans to invest on voters’ cost-of-living angst

The Australian government is planning to invest billions in budget giveaways to ease cost-of-living concerns for angry voters ahead of a May election, but consumer sentiment may already be too bleak for the scheme to succeed.

Treasurer Josh Frydenberg stunned experts by boosting a tax cut for 10 million low and middle income taxpayers that will affect bank accounts in July when he released his 2022/23 Budget on Tuesday.

One-time cash handouts to retirees, a temporary reduction in gasoline taxes, and the traditional pre-election infrastructure spending spree were also on the table.

“We’re giving temporary, targeted, and responsible cost-of-living assistance for Australians today in this budget,” Frydenberg said ahead of the budget’s delivery to reporters.

A tax windfall from shockingly high commodities export prices, paired with an unexpectedly healthy labour market, has helped support some of this generosity.

Despite this, the government will run a budget deficit of A$79.8 billion ($59.75 billion) in the fiscal year ending in June, with another A$78.0 billion in borrowing required in 2022/23.

With all of the previous rhetoric of surpluses jettisoned by the centre-right government, the red ink stretches out until 2025/26.

Forecasts for economic growth have been raised, and unemployment is expected to fall to 60-year lows of 3.75 percent this year. Wage growth was also expected to increase to a decade high, despite the fact that such forecasts are notoriously unreliable, having consistently overshot reality for years.

Prime Minister Scott Morrison‘s Liberal National coalition is hoping that all of this goodwill will help it regain ground in opinion surveys, where it is trailing the opposition Labor Party by a wide margin.

However, the bar is set high, since ANZ Bank’s recent consumer poll revealed that consumer sentiment on personal finances is at its lowest level since the pandemic’s peak in May 2020.

“Consumer confidence is very low given the strength of employment,” ANZ’s director of Australian economics David Plank said. “We believe this is clearly linked to concerns about cost-of-living pressures.”

“It will be fascinating to observe if the measures included in the Federal Budget enhance confidence.”

Consumers have been the engine of recovery, so keeping them satisfied is critical for the economy. Retail sales increased by 1.8 percent in February, according to data released on Tuesday, while bank card spending has kept up well in March.

A further problem is that growing inflation has prompted the Reserve Bank of Australia (RBA) to consider raising interest rates from their current record lows later this year, the first time since 2010.

Analysts warned that the Budget straddled a narrow line between offering too much near-term stimulus and increasing pressure on the RBA to act sooner.

A rise in borrowing costs would be unwelcomed by Australian homeowners, which are saddled with record levels of mortgage debt.

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