The treasurer says spending the unexpected commodities windfall on cost-of-living handouts for households would have added an extra 0.5 percentage points to inflation each year.

Jim Chalmers said it would have been easier and “no doubt more popular” to have borrowed more money to spend on cost-of-living support.

“But in the long run, that would have delivered a deeply damaging outcome for Australians and for their economy,” he said, referring to the inflationary impact of such spending.

In the October budget, the Albanese government opted to keep almost all of the upgrades to tax receipts from strong employment as well as sky-high commodities prices in a bid to shrink the budget deficit.

Speaking at a conference in Melbourne, Dr Chalmers said the decision to bank the tax windfall would save the budget $47 billion in interest payments over the medium term.

Prime Minister Anthony Albanese said cash splashes would have been counterproductive.

“It would have been easy politics to put in more cash handouts,” he told Adelaide radio station 5AA.

“But that would have hurt people in the medium term pretty quickly because it would have encouraged the Reserve Bank to put up interest rates more than it would have.”

The central bank foreshadowed further hikes after increasing the interest rate to a nine-year high on Tuesday and revised peak inflation up to almost eight per cent by the end of the year.

Mr Albanese said irresponsible spending could have pushed inflation into the double digits, following Europe and North America.

Shadow treasurer Angus Taylor said the government had put up the white flag on curbing inflation and interest rates.

He pointed to more than $115 billion in additional spending in the budget.

“That’s not a budget to take pressure off inflation,” he told reporters on Wednesday.

Mr Taylor said the government needed to offer more incentives for pensioners to join the workforce and help ease staffing shortages.

“The budget was a missed opportunity. We need to see this government taking the bull by the horns,” he said.

“What we should have seen is a plan for shorter-term pressures on inflation and interest rates and a plan for longer-term growth with less tax.”

Dr Chalmers said energy prices would start adding more to the consumer price index read.

“Currently, energy prices are adding 0.8 percentage points to Australia’s headline inflation, compared to 4.2 in the Euro area and 3.1 in the UK,” he said.

“But energy’s contribution to domestic inflation will grow as retailers begin to renew wholesale contracts at a time when prices remain more than double their pre-war average.”

– AAP