The economy is facing its worst non-pandemic year since the 1990-91 recession as high interest rates, inflation and taxes hit the nation’s consumers
The Reserve Bank has conceded there is a chance the economy could shrink this year under the weight of inflation and its string of interest rate rises, as households struggle to pay their mortgages and increasingly large tax bills.
The bank is hearing from community and charity organisations that many people, particularly low-income earners, are already struggling.“Households, particularly those on lower incomes, [are] trading down to cheaper products and reducing basket sizes,” it said. The bank has been concerned there could be an outbreak in wages growth, which would add to inflation in a so-called “wage-price” spiral. But the RBA, which said real wages had fallen 3 per cent over the past year, revealed it was yet to see such a development.
The bank now believes risks are “evenly balanced” between inflation being higher or lower than its core forecast. Previously, it believed the risks were more likely for higher inflation. Consumers are also being hurt by a surge in tax, partly due to higher wages growth, the end of the federal low- and middle-income tax offset and the effect of inflation on goods and services.
They said the 2023-24 budget, rather than showing a deficit of $13.9 billion, was on track to be in the black to the tune of $11 billion.
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