Business groups warn spending could fuel inflation rise

Australian Chamber of Commerce and Industry chief executive Andrew McKellar said while the budget's short-term vision was good, uncertainty lay ahead.

"The projection of a surplus for the current financial year is a positive. However, over the next four years there appears to be little prospect towards further budget repair," he said.

"While the impact of the budget on inflation is hard to assess, it would be difficult to accept the assertion that it materially reduces underlying cost of price pressures."

The Business Council of Australia said the budget had taken good steps to making Australia more globally competitive, calling on the government to use it as a stepping stone for productivity growth.

But the group's chief executive Bran Black said not enough restraint had been put in place on spending, with the budget set to sink into the red.

While measures providing cost-of-living relief such as energy rebates and tax cuts were positive, there was concern broad strokes could lead to higher inflation in the long run.

"We remain concerned about the potential inflationary impact of a catch-all approach," he said.

"If fiscal policy is too expansive and wage increases are not linked to productivity gains, there is a risk inflation will stay higher for longer and potentially impact the Reserve Bank's ability to lower interest rates."

Cassandra Winzar, chief economist at the Committee for Economic Development, said spending measures risked stoking inflation.

"The Albanese government's second surplus, while welcome, has again been driven by higher income tax takes and strong commodity prices," she said."These are all temporary windfalls and are unlikely to persist as the economy slows."

Australian Council of Trade Unions president Michele O'Neil praised the budget for boosting wages.

"The commitment to supporting pay rises in aged care and early childhood education will support the workers in these critical industries, who are primarily women," she said.

"This announcement puts Australia back on the path to a stronger, more resilient, and more diverse economic base, and turbocharging the investment necessary to build the jobs of the future in a clean economy."