Last night’s Federal Budget – depending on how you saw it – was either a cynical cash splash designed to buy votes at an election or a carefully managed response to the soaring cost of living.

In the end, it was likely that both opinions were true: A one-off $250 payment for pensioners will fill fridges and fuel tanks for a week or two, and fuel prices will ease their way out of headlines due to a cut in the fuel excise.

But the fine print of the Budget reveals that the cost of living for ordinary Australians is not going to get any better.

Budget tax plan
The fine print in the Budget revealed that inflation – essentially the cost of living – is going to get worse. (Nine)

Currently the headline rate of inflation (or the rate at which the cost of goods and services grows) is sitting at 3.5 per cent.

Treasury forecasts released in the Budget predict inflation will rise to 4.25 per cent by the middle of this year, before declining slightly to 3 per cent by mid next year.

In real world terms that means the cost of living will spike through winter – and some economists even think that Treasury is being conservative in its estimates.

“I do think the risks are that inflation might be higher than what the Treasury is forecasting next financial year,” says Peter Munckton, Chief Economist at BOQ Group.

“They believe that the reduction in the fuel price levy will take some of the heat from inflation. It will.

“But there is plenty of inflation in the pipeline. And Government taxes is only one part of the oil price.”

The deficit for this year’s Budget is $78 million, better than forecast last year. (Orla Maher)

According to Munckton, the Treasury forecasts all but confirm that the Reserve Bank of Australia (RBA) needs to lift interest rates this year.

“The Budget has few immediate implications for monetary policy. An economy with an inflation rate that is likely to be above 4 per cent and an unemployment rate likely to be under 4 per cent does not need a cash rate of 0.1 per cent,” he forecasts.

“I now look for the first cash rate move in June, with a year-end cash rate target of 0.75-1 per cent.”

Many fear that Aussie households will cop a double whammy of greater inflation and higher interest rates. (Peter Rae)

As inflation rises, so too does interest rates – potentially hitting mortgage-stressed families with the double whammy of more expensive repayments and higher expenses.

“Talk from some economists of the spending initiatives in the budget driving up inflation and increasing mortgage payments are a concern,” said Peter White, Managing Director of the Finance Brokers Association of Australia.

“We know that interest rates will likely rise soon anyway, but we also know that after such a long period with no rate rises, many people are not prepared.

“Therefore the Government must ensure that post-budget they do what they can to keep rates as affordable as possible.”

The fuel excise has been cut in half – but a sharp change in the price of oil could easily undo the government’s goodwill. (Supplied)

As for the fuel excise cuts, well some experts are doubtful that the Government will be able to enforce that savings are passed on to motorists.

“It is questionable though whether these cuts will reduce petrol prices. In the short term, the impact of these cuts will depend on what happens with global oil prices,” says Hussein Dia, Professor of Future Urban Mobility at the Swinburne University of Technology.

“The fuel excise tax is a fixed amount per litre regardless of market price. So if the price of oil continues to go up, the 22 cents reduction may be eaten up quickly by the sharp increase in global petrol prices in the coming days or weeks.

“And if the war is prolonged or escalated, oil prices are expected to reach as high as $US150 a barrel, which would push petrol prices across the nation to nearly $2.50 a litre.

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“There is also no guarantee that any cost reduction in fuel excise will be passed by retailers to consumers.”

Source: 9News

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