The one thing that could cost Anthony Albanese the top job if the Budget goes badly

Anthony Albanese risks losing the next election if inflation remains high next year and interest rates rise again during Labour’s re-election campaign.

Since 1931, at the height of the Great Depression, no government has been thrown out after just one term.

But the prime minister’s Liberal predecessors, John Howard, in 2007, and Scott Morrison, two years ago, were defeated after the Reserve Bank raised interest rates in the final weeks of their campaigns.

The independent RBA could strike again in early 2025 if inflation remains stubbornly high.

That means Labour’s re-election prospects could be in jeopardy if it hands out too many inflationary goodies to voters and angers the Reserve Bank in the upcoming 2024/25 budget.

Governor Michele Bullock’s seven-year term began in September 2023, and if her predecessors Philip Lowe and Glenn Stevens were any guide, she would not hesitate to punish the political side that gave her a job with a $1 million compensation per year. package.

Australia’s most powerful central banker has also said she would raise rates again if inflation does not moderate on schedule, even as the cash rate stands at a 12-year high of 4.35 percent after 13 increases in less than two years.

‘If we have to, we will. “If we really think inflation will be persistent and significantly above our expectations, we will tighten again,” she said this week.

Labour’s revised phase three tax cuts for low and middle incomes will provide more relief to full-time workers on a minimum wage of $45,906 and professionals on a salary of $120,000 – compared to the former coalition government’s plan that was legislated in 2019.

Much of the financial assistance will go toward paying bills, rent or mortgage, especially for low-income earners with an income of $45,000, who receive $805 a year instead of nothing, and for those with an income of $120,000 , who pocket $2,679 instead of $1,875.

But those who aren’t struggling will also have more money to spend on a night out, potentially adding to service sector inflation as prices for goods like vegetables, meat and shoes fall.

Headline inflation in the March quarter fell to 3.6 percent year-on-year, down from 4.1 percent in the December quarter.

The bad news, however, was in the underlying measures of inflation, which eliminated large price movements – up or down.

Governor Michele Bullock’s seven-year term began in September 2023, and if her Liberal-appointed predecessors Philip Lowe and Glenn Stevens were any guide, she wouldn’t hesitate to punish the political side that gave her the job with a sum of $1 million per year. -annual remuneration package

The weighted median, focusing on prices in the middle of the range, showed a price increase of 4.4 percent – ​​a level well above the Reserve Bank’s target of 2 to 3 percent.

The average measure used by the Reserve Bank showed underlying inflation rising by 4 percent, based on average price movements of goods and services.

A rate hike will become a bigger risk if the RBA thinks inflation will not fall below 3 percent by December 2025, according to the latest forecasts released this week.

The futures market has already ruled out a rate cut in 2024, but sees a rate cut in May 2025 as a possibility – provided the budget does not fuel inflationary pressures.

For now, Ms Bullock has accepted assurances from Treasurer Jim Chalmers that he is taking inflation seriously, suggesting Labor is likely to focus on electricity bill cuts and childcare rather than depositing lump sums into voters’ bank accounts.

“The point I’m making is that the federal treasurer, Jim Chalmers, says publicly, and he says to me privately, that he has inflation on his mind as he thinks about the budget,” she said.

‘Budgets are very difficult, they are major balancing acts for governments.

“They have a lot of things on their plate and I think they are all aware that they want to help us beat inflation, so they don’t want to try to increase inflationary pressures, but we will have to see what comes out of the Budget. look like.’

Dr. Chalmers has pledged to draw up a budget that will not be inflationary if the economy slows.

“It will fight inflation without destroying the economy,” he said on Friday.

“There will be a premium on responsibility and restraint.”

The last Labor Prime Minister to be re-elected during a serious cost-of-living crisis was Bob Hawke in March 1990.

He won a fourth term when headline inflation was 8.7 percent and Paul Keating was an ambitious treasurer plotting to become prime minister as Australia headed into recession.

The prime minister’s Liberal predecessors, John Howard, in 2007, and Scott Morrison, two years ago, were defeated after the Reserve Bank raised interest rates in the final weeks of the campaign.

The futures market has already ruled out a rate cut in 2024, but sees a rate cut in May 2025 as a possibility – provided the budget does not fuel inflationary pressures.

But Hawke also benefited from a rate cut a month before the election – when the RBA cash rate was at a very stiff range of 16.5 per cent to 17 per cent.

If Albanese is re-elected, he would be the first Labor prime minister in 35 years to win a second election.

However, a loss would make him the first single-term election loser since James Scullin 94 years earlier, when Labour’s primary vote was 31 percent – ​​only marginally below the 32.6 percent level it reached in 2022.