While the Australian government insists the federal budget will not add to inflationary pressures, economists are divided with some warning it may trigger another interest rate rise.

Treasurer Jim Chalmers has rejected concerns the budget's $14.6 billion in cost-of-living relief could fuel inflation and lead to more rate hikes by the Reserve Bank of Australia.

"We are supremely confident that the budget that we handed down last night will take some of these cost-of-living pressures off without adding to inflation," Chalmers says, speaking at the National Press Club on Wednesday.

Chalmers notes many economists, particularly at the major banks, believe the impact on the economy is neutral at worst.

"We're really confident that we got the balance right. We're giving people a bit of help without making the cost-of-living challenge worse."

The government has forecast a $4.2 billion surplus this financial year—the first in 15 years—on the back of a revenue windfall driven by soaring commodity prices and a strong jobs market.

Debate over budget's impact on inflation and rates

Goldman Sachs chief economist Andrew Boak is among those warning the budget's $20.6 billion net increase in policy-related spending over four years may add to the case for further rate hikes.

"At a time when the RBA is lifting rates to contain elevated inflation and accelerating labour costs, we assess the budget's near-term boost to household incomes to have an incrementally hawkish read-through for monetary policy," Boak says.

"Especially given surging migration-led population growth and the recent strong rebound in house prices, we see a firming case for further policy tightening by the RBA over coming months."

Goldman Sachs expects a 12th and final rate hike by the RBA in July, taking the cash rate from 3.85% to 4.1%.

"However, the risks are skewed to more tightening being required and potentially as soon as next month's board meeting," Boak says.

UBS chief economist George Tharenou views the budget as stimulatory.

The budget papers note the government's gas market reforms and energy bill relief are expected to reduce inflation by three-quarters of a percentage point in 2023-24.

"However, we highlight this still frees up additional cash flow, especially for lower-income households, who are more likely to spend this money and increase demand," Tharenou says.

Tharenou says there is an increasing risk of another RBA hike of 25 basis points, likely in July or potentially August.

UBS has pushed back its expectation of the first rate cut to February, instead of November.

Morgan Stanley equity strategist Chris Nicol believes further tightening from monetary policy is required, and a longer stay in restrictive territory is likely.

"The bottom line is that there is little sustained inflation relief contained in this budget," Nicol says.

However, AMP chief economist Shane Oliver and deputy chief economist Diana Mousina argue the implications for inflation and hence the RBA are minimal.

"With the budget overall taking more out of the economy than it's putting back in compared to what was projected last October, it's hard to see significant implications for the RBA but it will be wary of the boost to households from the cost of living measures which could boost spending."

Commonwealth Bank chief economist Stephen Halmarick also believes the budget has no implications for the RBA's monetary policy outlook, with CBA tipping the May rate hike marks the peak.

"The energy price support should lower measured inflation through the CPI, but the increased welfare payments are likely to put some upward pressure on inflation although this will come at a time when the economy is undergoing a meaningful slowdown," Halmarick says.

Stocks impacted by cost-of-living relief

UBS and CommSec have highlighted several stocks that may benefit from the budget's cost-of-living measures and support for low-income households.

"Stocks that could be positively impacted via their customer skew to low-income households include Domino's Pizza (DMP), Coles (COL), Wesfarmers (WES) (through its Kmart business) and Super Retail Group (SUL)," UBS strategist Richard Schellbach says.

The measures include $1.5 billion for energy bill discounts for five million households, a $1.3 billion Household Energy Upgrades Fund, and a $40-per-fortnight rise in JobSeeker, Austudy and Youth Allowance payments.

CommSec chief economist Craig James and senior economist Ryan Felsman say the cost-of-living package could boost consumer spending on electronics, clothing and groceries.

While gas reforms and energy bill relief are expected to reduce inflation, they note any savings generated for consumers may be spent elsewhere.

"Depending on where the dollars are directed, that may have the effect of pushing prices higher," James and Felsman say.

"Cost of living relief may see more dollars being spent on discretionary items at department and electrical and housing-dependent retailers," they add.

In the consumer discretionary and consumer staples sectors, CommSec highlights stocks including Myer (MYR), Harvey Norman (HVN), Premier Investments (PMV), Super Retail, JB Hi-Fi (JBH), Coles, Metcash (MTS) and Woolworths (WOW).

AMP sees little overall impact from the budget on the stock market.

"The budget is a small positive for household spending but not enough to offset the negatives impacting the sector and overall there is not really a lot in it for the share market," Oliver and Mousina say.

Hydrogen industry a big winner

ASX-listed mining giant Fortescue Metals Group (FMG) is a major winner from the budget's $2 billion program to scale up development of Australia's renewable hydrogen industry.

Fortescue, through its green energy subsidiary Fortescue Future Industries, says the announcement is a great first step.

"Fortescue has the green hydrogen projects in the pipeline ready to go to help drive the Australian industry forward," it says.

Morningstar mining analyst Jon Mills says the announcement is a positive for Fortescue, given hydrogen projects are not economically viable without government assistance.

"But iron ore is still likely to dominate the company's earnings for the foreseeable future," Mills says.

The Hydrogen Headstart program will provide revenue support for large-scale renewable hydrogen projects to "help bridge the commercial gap for early projects".

In addition to Fortescue, CommSec says producers that could benefit from the transition to green hydrogen include Origin Energy (ORG), Global Energy Ventures, Lion Energy (LIO), Montem Resources, Province Resources (PRL) and QEM (QEM).

The hydrogen program is part of a $4 billion budget investment in Australia's plan to become "a renewable energy superpower", which includes $57.1 million to develop overseas partnerships with Australia's critical minerals industries.

But Minerals Council of Australia CEO Tania Constable says policy settings to support business growth and investment in the minerals industry are largely absent from the budget.

"Going forward, Australia's vulnerability to competition from resource-rich economies will only grow as they seek to seize the opportunity to supply the minerals and metals needed to achieve global net zero emissions," she says.

Boost to build-to-rent sector

Australia's emerging build-to-rent (BTR) sector has received a budget boost through tax breaks, amid housing supply shortages.

The managed investment trust withholding tax for BTR projects will drop from 30% to 15%, in line with other property asset classes. The capital works tax deduction depreciation rate for eligible new BTR projects will rise from 2.5% to 4%.

Property Council of Australia chief executive Mike Zorbas says levelling the tax playing field for BTR projects could unlock up to 150,000 new homes to relieve pressure in the rental market.

Morgan Stanley strategists say the tax reform should spark more investment, and working with the states should see greater release of land and increased activity.

"This will, however, do little in the coming 12 months which will see the stretch that immigration brings collide with a significant downturn in activity," Nicol says.

"Yes, there is likely underbuild occurring, but the combination of rising rents and lower activity is a difficult match for both policy and politics."

Schellbach says the tax changes, which come at a cost of $30 million to the government, are a marginal net positive development for both Lendlease and Mirvac.

He says the expanded Home Guarantee Scheme has positive read-throughs for stocks such as CSR (CSR), Boral (BLD), Domain (DHG), REA Group (REA), Stockland (SGP) and Mirvac (MGR).