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For all of the Morrison government’s self-praise for providing a cost-of-living package in its March and final budget, one key element is proving a dud.
Many motorists around the country are again forking out more than $2 for a litre of petrol, despite the halving of the excise for six months as part of a $8.6 billion assistance package.
Jim Chalmers, who was sworn in as treasurer following Labor’s election win at the weekend, said households are already feeling cost of living pressures, real wages going backwards and further interest rate rises lie ahead.
“So that will make life harder for people. They are also getting punished at the petrol pump of course at the moment with petrol prices going back up again,” he told the Nine Network.
However, Dr Chalmers wouldn’t promise extending the life of the excise cut beyond September.
“Obviously we’ll have a look at the conditions at the time when it comes off,” he said.
“We’ll have a budget not long after that and if there’s more that we can do to ease the cost of living pressure on people we’ll do that.”
The Australian Institute of Petroleum in its weekly report said the national average price for petrol jumped by a further 14.1 cents to 199.1 cents a litre, the fifth consecutive weekly rise.
This was after the price fell to an average of 166.3 cents per litre in mid-April following the excise reduction.
Victoria, Queensland and the Northern Territory are all paying over $2 per litre, while the likes of NSW, the ACT and Tasmania are just a fraction below it.
AMP chief economist Shane Oliver says it highlights how the fuel tax cut can easily be overwhelmed by swings in the oil and petrol markets.
“Now we have little to show for it; the ATO has lost the revenue it would have raised and it’s going to be really hard to raise it in September,” he said.
One initiative that proved more successful was the Reserve Bank of Australia’s bond buying program during the pandemic, which complemented its then record low cash rate.
RBA assistant governor for financial markets Christopher Kent told a conference in Sydney the program helped to lower financing costs for borrowers at a time of uncertainty.
The RBA estimates the yield, or interest rate, on governments bonds to which loans are priced against, was around 30 basis points lower than they would have otherwise been.
He told the KangaNews DCM Summit the program – otherwise known as quantitative easing or QE – was introduced in November 2020 at a time when the unemployment rate was close to seven per cent and inflation was very low.
By February 2022, the RBA board decided to end the program.
“Most importantly, there had been significant progress towards our goals, with the unemployment rate declining to 4.2 per cent and inflation rising in underlying terms to be close to the centre of the two to three per cent target range for the first time in seven years,” Dr Kent said.
At the May board meeting, where the cash rate was increased to 0.35 per cent 0.1 per cent, it also decided that rather than selling the bonds back on to the open market, it would hold them until maturity.
“We have now entered the phase known as quantitative tightening, or QT,” Dr Kent said.
“By allowing our bond holdings to gradually diminish over time as they mature, the initial stimulatory effects of those holdings – namely, downward pressure on government bond yields and the Australian dollar exchange rate – will gradually unwind.”
In total the RBA bought $224 billion of government bonds and $57 billion of state bonds in five to 10-year maturities.
Colin Brinsden, AAP Economics and Business Correspondent
(Australian Associated Press)