Treasury secretary Steven Kennedy on Wednesday quelled fears the Albanese government’s $45 billion in off budget spending would add to aggregate demand, saying he does not think the funds are “adding significantly to the near-term risk of inflation”.
The senior public servant’s endorsement of the spending comes as the Coalition opposes the funds, including the $15 billion National Reconstruction Fund (NRF), partly on the grounds the government needs to get inflation and energy prices under control before investing billions into the economy.
But Mr Kennedy said the staged roll out of the funds and the expected productivity they would generate means the investments pose little risk to inflation.
The International Monetary Fund this month said the off budget measures – which also includes the $10 billion Housing Australia Future Fund, and a $20 billion Rewiring the Nation Fund – need to be “phased appropriately” and a proliferation of the investment vehicles should be “avoided”.
Liberal senator Andrew Bragg characterised the IMF report in Senate Estimates as warning off budget funds as being “a risk to the country”.
Mr Kennedy disagreed with the interpretation of the IMF report and said the flow of funds is included in the Australian government’s current budget position, which he regards as being “broadly neutral” on inflation.
“My own view is that the important focus for those funds, is on their aims and whether they are contributing to productivity,” Mr Kennedy said.
“I’ve observed those [off budget] funds arising now over quite a few years. And in all cases, our advice is related to ‘what’s the fund for, will it be effective, is it value for money?’, given that the government will have to, in general, in its current circumstances, borrow that money to invest.”
The Treasury secretary said it is right to focus on the policy integrity of funds so they can deliver the productivity gains and not fuel inflation, but he did not expect the Albanese government’s three funds will be “adding significantly to the near term risks of inflation”.
The $15 billion NRF the Coalition is opposing includes an initial allocation of $5 billion to an independent corporation that would disperse the loans, equity investments and guarantees.
The investment increase would not necessarily add to inflation, according to Mr Kennedy, who said timing of the funding is more important.
“We expect growth to slow significantly over the next year or a year or two. I’d be quite surprised if the establishment of those funds shifted demand in any significant way across that period… My point is I’m not expecting [the entire $45 billion] to be expended in the next two years.”
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