Back in Surplus and Inflation Reducing – The Budget Magic Trick

We’re back in surplus – but don’t be fooled, this is just monetised inflation via tax taken from your pocket. This is not fiscal constraint this ‘tax windfall’ is financed through record inflation passed on to households through record unconstrained, uncontrolled energy pricing and insurance costs and therefore higher company tax rates. Due to this lack of constraint the RBA – with their hands tied and their one blunt object of interest rate increases to moderate inflation, the budget may have dealt another financial blow meaning interest rates keep rising.

Inflation Magic Trick

Part of the budget forecasting now sees the Australian Government trim the projected inflation rate by around 0.5%, currently the RBA sees this sitting at 3.8% (higher for longer) before tempering over 2025. But the government in political slight-of-hand has given out subsidies for all households for energy and some for rent assistance, the 2 highest areas of inflation over the last 3 years (and the Labor government term). This is likely to make for inflation in the long term as the root cause was not dealt with, just a magic trick. The government solution to manipulate inflation rather than deal with the government led root causes does not deal with the 2 endemic problems the government created – monopolistic behaviours of our energy companies and unconstrained migration lifting house prices. Why would they not want to deal with these? Any reduction in profits garnered by companies means less tax and any drop on house prices means less stamp duty (yes, another tax).

Energy Prices in Graphs

Let’s start with energy – and one of my favourite topics. The Ukraine war lifted energy prices. Russia turned off the gas tap (and then someone ‘Its Russia’ – not Russia) blew up another tap Nordstream 2. This lifted gas prices and in turn energy prices as the overexcited, overextended and over projected green energy revolution proved it wasn’t a revolution but rather a poorly executed science hypothesis (I thought about using the word experiment but that involves a more thought-out outcome). As Germany turned off nuclear, gas became scarce in Europe and prices rocketed. So much so that Australia – the land of energy (green and ground) suddenly started facing energy shortages. In 2004 – we had some of the cheapest energy in the world, now we have some of the most expensive – what happened between now and then? We privatised a monopoly for greater ‘efficiency’ but learnt the hard way businesses like to make money, government like them to make money as they get to tax them, and the consumer is left with another ‘covert tax’.

The U.S. now pays under $2USD/GJ from a peak Ukraine war of around $10USD/GJ.