From the moment Labor took power, it was obvious that it had a very particular inflation problem that it needed urgently to address.
It was the gouging of the energy markets by gas and coal robber barons who were using the Ukraine War as a pretext to profiteer.
Yet the new Treasurer, Jim “Chicken” Chalmers, defended the gouging for six months. He ploughed on through talkfests and drivel, plus a budget, without ever addressing the issue. It was only when the press finally noted post-budget that it contained forecasts for catastrophic energy bill shock that he did anything at all.
Chicken Chalmers ignored the 2022 energy shock for far too long. He embedded price rises for everybody in the process. Now he is making the same mistake again as his interventions require urgent tightening.
Electricity futures are still double what they should be given the fuel price caps:
This reflects the uncertainty in the failed gas market, which is allowing gentailers and retailers to mark up the price of gas feedstock.
This energy shock is directly adding 1% to the CPI and, in the current environment, very likely spilling over to nearly 2% as those costs are immediately passed on:
The RBA’s SoMp sees inflation at 4.8% for 2023. Chicken Chalmers’s energy cowardice explains 40% of it.
Moreover, this explains all of the RBA’s additional hawkishness this year. The 3-4 extra post-pause rate hikes that will likely drive Australia into recession and trigger immense distress for low-income households.
It all comes back to Chicken Chalmers’s energy cowardice.
So, what is he going to do now? Make it worse:
In the wake of RBA governor Philip Lowe’s “hawkish” statement accompanying the decision to deliver a ninth straight rate hike to 3.35 per cent, independent economist Chris Richardson said “if you are looking at the federal budget looming in May, you would say the RBA is sending up a distress signal saying: help me more”.
“There are several reasons for budget repair, but right now it can take the pressure off inflation,” Mr Richardson said.
…The centrepiece of the May budget, the Treasurer has said, will be the $1.5bn in federal funds for energy bill relief for poorer Australians, including those on welfare and pensioners, who are facing much higher electricity prices.
That amount will be matched by state and territory governments, bringing the total to $3bn.
“I don’t buy that you don’t have a big impact on inflation when you use subsidies to lower one price, given that the extra money in the hands of the punter gets spent,” Mr Richardson said.
Mr Richardson said a “rough rule of thumb” was that every $6bn in lower spending or higher taxes translated into the need for one less rate hike – highlighting how politically difficult it would be for any government to use fiscal policy as an inflation-fighting tool.
I don’t begrudge the bill relief. But it should be offset with something. An inflation levy for the rich, for instance, Ross Gittins:
And although economists have forgotten it, there are other, less round-about and less unfair ways to discourage or encourage consumer spending. In the olden days, governments added a temporary surcharge or discount to the income tax scale.
Fat chance of getting tough measures like that out of the Chicken.
What’s his other answer? Blame the messenger:
It is all but certain Reserve Bank of Australia governor Philip Lowe will not be reappointed for a second term given his disastrous management of official interest rates and the pain it has caused homeowners and businesses. That is the view of senior ministers in the Albanese government, although a final decision has not been made.
Jim Chalmers – who has a good relationship with Lowe and is respectful of the central bank’s independence – will not decide the governor’s future until mid-year. That decision will follow receipt of the independent review of the Reserve Bank. The Treasurer has asked that the report be received by March 31.
Back in the day, I had the misfortune of being recruited to a “young leaders” retreat. Against my better judgment, I attended.
It was full of well-meaning kids that spent all day talking and writing about doing stuff without ever doing anything.
Jim Chalmers reminds me very much of that.
