‘Confronting’ inflation jump sets tone for budget on prices and fairness as RBA weighs another hike

A sharp rise in inflation to 4.6% in March — which Treasurer Jim Chalmers called “confronting” — has set the stage for a federal budget focused on tamping down price pressures and tackling intergenerational fairness, as the Reserve Bank weighs a third consecutive rate rise next week.

Official figures released Wednesday showed the headline rate lifting from 3.7% to 4.6% for March, after fuel costs jumped by about a third following the closure of the Strait of Hormuz amid the Iran war. The data has increased the likelihood the Reserve Bank will raise interest rates for the third time in a row when it meets on Monday and Tuesday.

Chalmers said the government’s budget, to be handed down “in two Tuesdays time,” would be “very responsible” and aimed squarely at the inflation challenge. “Those inflation numbers were confronting,” he told ABC TV, adding that Australians were “paying a hefty price for this war in the Middle East” and warning the costs and consequences were likely to persist.

He noted the surge in fuel and diesel prices had spilled into other parts of the economy, including construction. The treasurer also signalled measures aimed at generational inequality, pointing to housing and the tax system as key drivers. But shadow treasurer Tim Wilson argued that scrapping some capital gains tax discounts or adjusting negative gearing — ideas that have been speculated about — would not improve fairness.

“I’ve yet to hear a single argument that increasing a tax increases the chance of giving economic opportunity,” he told ABC Radio, adding that the government was not giving younger Australians hope about building a better future.

Luke Yeaman, chief economist at Australia’s largest bank and formerly a senior department official under Chalmers, said reining in the National Disability Insurance Scheme and property‑investor tax breaks could save the budget $30 billion over four years. He said the looming budget was shaping as one of the most interesting in a long time.

Since Labor’s large election win in May 2025, the 2026 budget has been cast as a chance to address chronic productivity weakness and a structural fiscal deficit. Yeaman said the Iran war had made the task tougher as the treasurer attempts to combine major reform, substantial spending cuts, stronger national resilience and household support in a single blueprint.

Pending cuts worth tens of billions of dollars are needed to reduce the deficit and help cool inflation, he said. The government has already announced major NDIS changes it says will save $35 billion over four years. Yeaman called the overhaul “welcome and badly needed” but questioned whether such sharp reductions could be delivered so quickly.

Efforts to improve housing affordability are also set to feature in the budget.