Mark Riley: Cost of living catch-22 has Anthony Albanese in a bind

Coalition MPs were easy to spot around Parliament House this week.

They were the ones wandering the corridors with their chins dragging along the carpet.

After nine years in government, coming back to Canberra and settling into the obscurity of Opposition is about as much fun as sticking pins into your eyeballs.

However, more than one was heard to observe that with inflation soaring, interest rates heading skyward and official warnings of a global recession, perhaps this last election wasn’t a bad one to lose.

That, of course, is complete piffle.

The worst day in government is still always leagues ahead of your best in opposition.

The forlorn, though, will find solace in the most dubious of places.

Jim Chalmers says he has inherited the biggest economic challenges of any incoming treasurer in the modern era.

That’s hard to argue with. But he’ll still prefer that to another three years in opposition.

Chalmers warned on Wednesday that the economic update he’d deliver to Parliament this week would be “confronting”.

He was right.

Inflation is now predicted to head above the Reserve Bank’s worst-case level of 7 per cent and drag interest rates even higher.

Economic growth is now expected to head the other way. It’s been downgraded by half a per cent, wiping $30 billion from revenues over the next three years.

It is a very different outlook from the one delivered by Josh Frydenberg in his pre-election Budget in March.

That is not unusual.

Governments facing elections tend to produce optimistic projections to convince voters that all is rosy.

New governments tend to do the opposite. By setting the bar lower they fortify themselves against future bad news and make it easier for themselves to exceed the more pessimistic targets and claim economic success.

There is a fair amount of smoke and mirrors in both approaches. What really matters is how the prevailing economic conditions affect what political analysts call the “lived experience” of real Australians.

Chalmers insists we are not heading for a recession. But that lived experience over the next three years is still going to be pretty rough.

The Government will inevitably face pressure to deliver additional cash support for welfare recipients and the low-paid.

That is understandable.

Advocates quite rightly argue that those at the lower end of the income scale are hit hardest in the inflationary cycle, because they spend a higher proportion of their disposable income on food, clothing and other essentials.

This is where the cost of living crisis is at its worst.

It is also the toughest challenge the new Government faces.

It is one where the political and economic exigencies collide in spectacular fashion.

The Albanese Government has come to power with a central promise not to leave anyone behind.

That would propel them to provide additional support to pensioners and the low-paid.

However, the prevailing economic theory dictates against doing that.

Why? Because the tens of billions of dollars in necessary support during the height of the pandemic through JobKeeper, COVID supplements and business payments has partly fuelled the current inflationary cycle.

How? All that money was pumped directly into the economy, stimulating much of the activity that central banks around the world are now trying to douse with higher interest rates.

Economic theory dictates that providing more support now would inject more stimulus and add to inflationary pressures.

Chalmers indicated yesterday that the Government was not inclined to provide additional payments.

He said pensioners would naturally get relief through the six-monthly increases, which would take higher inflation into account.

But, he said: “We don’t have the sort of Budget to spray money around.”

Persuading pensioners and struggling families of that will be a difficult task. And it’s one that could soon have government MPs wandering the corridors with their chins dragging along the carpet.