Budget 2022: Chalmers forecasts inflation and economic growth

In his first Budget speech, Treasurer Jim Chalmers has warned inflation will peak at 7.75% by the end of the year.

Announcing the first Labor budget in almost a decade, Chalmers announced the macroeconomic conditions and forecasts of the Australian economy.

“The global economy teeters again, on the edge – with a war that isn’t ending, a global energy crisis that is escalating, inflationary pressures persisting, and economies slowing – some of them already in reverse,” he said.

“All of this is now reflected in the updated forecasts for global growth – downgraded since the March Budget for this year, next year, and the following year.

“But while we intend to avoid the worst of the turbulence from overseas, we cannot escape it completely. Global challenges, along with high inflation and higher interest rates, will have an impact.”

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In 2022/23, the underlying cash deficit was expected to be $36.9 billion, and gross debt as a share of the economy was expected to be 37.3% of GDP, 5.1 percentage points lower compared to estimates before the election.

Inflation was forecast to peak at 7.75% by the end of 2022, before easing to 3.5% in 2023/24. As wages grew more strongly and inflation moderated, the Government expected real wages to start growing again in 2023/24.

The economy was expected to grow by 3.25% over 2022/23, before slowing to 1.5% in 2023/24 as global challenges and cost-of-living pressures weighed on households and the economy.

In the short-term, Chalmers said the Government’s focus was to limit growth on spending while inflation was high, return as much of its revenue upgrades and focus spending on investments that would grow the capacity of the economy.