The ticking time bombs in the Budget Anthony Albanese doesn’t want to talk about

A $300 discount on electricity bills for everyone, regardless of their income, has created a ticking time bomb for Labor.

This cut only lasts for a year, and there are major concerns that inflation will rise again once it expires in June 2025 – or even fail to reduce inflation as promised.

Then there are also concerns about wider budget deficits starting in the next fiscal year, due to rising costs of the National Disability Insurance Scheme and falling commodity prices.

Prime Minister Anthony Albanese won the 2022 election after promising to cut the average annual electricity bill by $275 by 2025.

On Tuesday evening, Treasurer Jim Chalmers announced a new $300 rebate, which is not means-tested, for a total of $3.5 billion.

It expires in June 2025, by which time elections would have been held.

The finance ministry also promised in the budget that headline inflation, which now stands at 3.6 percent, would fall to 2.75 percent by December 2024 – creating a new potential trap for broken promises if inflation would not moderate as a result of this discount.

The Reserve Bank of Australia does not expect the consumer price index to fall to 2.8 percent until the end of 2025.

It also expects inflation to rise to 3.8 percent by June 2024 before improving.

So even if the Treasury predicts a half-percentage point decline in inflation by 2024/2025, as a result of this $300 power cut, there is a risk that inflation will still be above the RBA’s target by the end of this year can range from 2 to 3 percent. this year.

Despite the risks of a potentially broken promise, Dr. Chalmers continues to argue that the $300 rebate would reduce inflation.

“Our budget will put downward pressure on inflation, not upward pressure on inflation, and that is important because we have made good progress,” he told ABC Radio National on Wednesday morning.

Ahead of the last election, Australia’s energy market operator noted that annual wholesale prices had more than doubled to $87 in the March quarter – a 141 percent increase in a year.

Wholesale prices represent around a third of energy bills, giving Labor a platform in opposition to campaign on the cost of living.

Prime Minister Anthony Albanese won the 2022 election after promising to cut the average annual electricity bill by $275 by 2025

Once in government, the Ministry of Finance predicted at the end of 2022 that energy bills would rise by 56 percent in two years.

Labor panicked and removed its election pledge from its website at the end of 2022, but restored it after a story by Daily Mail Australia.

Dr. Chalmers responded in the May 2023 Budget by announcing a $500 Energy Bill Relief Fund, co-funded by the Commonwealth and the states.

This scheme, which expires in June 2025, was limited to pensioners, caregivers and health card holders – unlike the last $300 discount.

Despite the policy, electricity bills continued to rise at an annual rate of 15.7 percent in 2023.

Inflation is expected to moderate even as 13.6 million Australians, including 2.9 million part-time or minimum wage workers, are exempt from the revised phase three tax cut – which will cost $1.3 billion over five years .

Shortages in the coming years

On Budget Night, Dr Chalmers said he had become the first Treasurer since 2007 to post a second consecutive budget surplus – and the first on a federal scale for Labor since 1989.

The Ministry of Finance’s budget documents showed a record surplus of $12.1 billion for the period 2022-2023, followed by a surplus of $9.3 billion for the period 2023-2024.

But after that, a series of deficits are forecast, starting with a deficit of $28.3 billion in 2024-25, rising to $42.8 billion in 2025-26 – accounting for 1.5 percent of gross domestic product.

Over a four-year period – until 2027-2028 – projected budget deficits rise to $122 billion.

Economist Chris Richardson, a partner at Deloitte Access Economics, noted that Tuesday night’s budget included $9.5 billion in new spending for the coming year.

“The government said it wouldn’t put things front and center, that it would be careful not to poke the inflationary bear, but it would put it at the back – they’ve absolutely put it at the front,” he said.

The cost of National Disability Insurance would increase by an estimated $11.1 billion over four years, from 2023–24 to 2026–27.

The NDIS was forecast to cost $48.752 billion in 2024-25, rising to $60.746 billion in 2026-27, making it the third most expensive program after funding for the states and territories and seniors.

Then there are falling corporate tax revenues due to falling commodity prices, with iron ore prices expected to fall to just $60 per tonne by March 2025 – down from $117 now – while thermal coal prices fell from $140 dollars per ton to $70 per ton. tons at the beginning of 2024.

A fall in key commodity prices means the government will have less revenue from business taxes, with every $10 per tonne drop in iron ore prices reducing tax revenues by $500 million per year.

The Treasury Department warned that a slowdown in China’s property market would lead to a drop in demand for Australian iron ore, the raw material used to make steel.

“Demand for the real estate sector is expected to remain weak. Housing starts in China have fallen to their lowest level in more than fifteen years. Steel production is likely to have peaked and is expected to decline in 2024,” the report said.