Dodgy TurnBULL budget revealed

The official inflation forecasts in the Turnbull government’s first budget have been thrown into doubt just three days into their life.

The Reserve Bank of Australia has cut its inflation forecast for the end of this year by a whole percentage point, from a range of 2-3% to just 1-2%.

It has also revised downwards its inflation forecasts for 2017 and 2018 – from a range of 2-3% to just 1.5-2.5%.

It has raised the spectre of ultra-low inflation plaguing Australia’s economy for the next three years and raises serious doubts about the government’s ability to shrink the deficit. Its job is to keep inflation within a range of 2-3%.

“This is significant, because the budget is funded by income taxes and since inflation adds to incomes the less inflation means fewer taxes,” Deloitte Access Economics director Chris Richardson said.

That means the government’s struggle to shrink the deficit will become even more difficult, he said.

The RBA’s downward revisions to inflation explain why it cut the official interest rate to a record low of 1.75% on Tuesday.

On Thursday, the ratings agency Moody’s warned the Turnbull government that its budget projections for nominal gross domestic product growth – the key to shrinking the deficit – were too optimistic.

“We estimate that constraints on the ability of the government to reduce spending amid moderate nominal GDP growth will lead to somewhat wider deficits for longer than currently budgeted,” Moody’s said.

Treasury assumes in the budget that inflation will be 2% until mid-2017 and 2.25% until mid-2018, and 2.5% for the following two years.