At the core of the budget Treasurer Jim Chalmers delivered last night is a really simple proposition: the best way to lower inflation is to lower prices, especially rent and energy bills.

He’s more than happy to spend money to do it – particularly given the pitifully weak condition of the economy.

As former Finance Department Deputy Secretary Stephen Bartos writes, after two budgets in which Chalmers banked nearly all the extra revenue that flowed from strong employment growth and high iron ore prices, this year he has reversed course.

Over the next four financial years Chalmers expects to take in $2 billion more than was forecast in the December budget update.

He plans to spend it all, and then some: an extra $24.2 billion. Even with that, former Reserve Bank and Treasury economist John Hawkins says Australia’s economy and the global economic situation are looking weak.

We will need that boost from the revamped Stage 3 tax cuts due to hit our pay packets in June, and also the energy price relief and increased rent assistance that will arrive at about the same time, bringing down prices and taking half a percentage point off inflation.

Michelle Grattan points out much will depend on the reaction of the Reserve Bank. If the Treasurer’s forecasts come to pass and his measures do bring inflation back to within the Reserve Bank’s target band, it should feel compelled to grant the government a pre-election rate cut.

This means that what the bank thinks of the budget will be almost as important as what the average voter thinks of it.

For more on the main cuts and spends, check out our interactive guide to the budget. And stay tuned during the week for more in-depth coverage and reaction from our expert authors.

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