Australians are getting a $300 sweetener in the form of a rebate for energy bills in this year’s federal budget to help deal with cost of living pressures.
But economists are concerned that the short-term gain will mean longer-term pain — if the savings are spent by households, that could further fuel inflation and potentially cause the Reserve Bank to further increase interest rates.
Tuesday's budget including tax cuts, energy bill relief, housing and rental assistance, among other policies.
From 1 July, more than ten million households , while around one million small businesses will receive $325.
Treasurer Jim Chalmers described this third budget as a "responsible" one that would help people under pressure today while "investing" in the future.
"I want Australians to know that despite everything coming at us, we are among the best placed economies to manage these uncertainties and maximise our opportunities."
"Treasury is now forecasting inflation could return to target earlier, perhaps even by the end of this year," he told federal parliament.
But Deloitte Access Economics partner Stephen Smith said the increased spending in the budget may stoke inflation, making the job of the central bank more difficult.
He described this as a "big spending budget" that had the potential to fuel inflation.
"Saving more on energy is good for Australians, but those savings are likely to be spent elsewhere in the economy. It's not necessarily a budget that will reduce inflation," he told SBS News.
Chalmers told SBS News the combination of the government's "responsible economic management" and the way cost of living measures were designed in the budget would put downward pressure on inflation.
"We’ve designed it in a way to be part of the solution rather than part of the problem," he said.
"The clear advice that we received, is that a combination of our cost of living policies, particularly our energy relief and rent assistance will put downward pressure on inflation without adding to inflationary pressures elsewhere in the economy.
Rating agency S&P said the budget could be "mildly inflationary".
"Today's budget slightly loosens the purse strings," the rating agency said in a statement.
"There will be a range of views about that but we are pretty confident we got it right."
The federal Opposition said Labor had added $315 billion of new spending, at a time when restraint was needed.
"The government is no closer to dealing with its homegrown inflation crisis – which means more pressure on cost of living and interest rates higher for longer," shadow treasurer Angus Taylor said.
The Coalition is expected to outline its budget in reply on Thursday.
