Chalmers warns of intensifying budget pressure, insists he is not planning for recession

Treasurer points to private demand, not public spending, on prices

The federal treasurer, Jim Chalmers, has warned that Australia’s federal budget faces “very substantial and intensifying pressure” from global economic turmoil, as he prepares to identify further savings ahead of the government’s mid-year update.

Speaking on ABC’s Insiders on Sunday, Chalmers pointed to the protracted US-led war against Iran — now in its eighth month — as having been “disastrous” for cost-of-living pressures through its impact on global oil supplies from the region. He said the longer the war continued, the bigger the impact on the Australian economy, whether on inflation or downward pressure on growth.

“The longer this thing drags out, the bigger the impact on the global economy and on the Australian economy, whether it’s … on inflation or downward pressure on growth,” Chalmers told the program. “We’re not anticipating [a recession] here in Australia, but certainly it is weighing on global growth, and we’re not immune from that.”

Despite his warnings, Chalmers rejected the framing that the government was preparing for an economic contraction. He called on critics of government spending to identify which services should be cut instead, defending existing commitments to strengthen Medicare, cut income taxes and provide cost-of-living relief.

“If people don’t want us to strengthen Medicare, for example, or cut income taxes, or provide cost-of-living relief in other ways, then they should nominate where that should be cut,” he said.

Chalmers also pushed back on the view that budget settings were the primary cause of rising prices. He argued that for every $5 of demand in the economy, $4 was private and only $1 was public. “Budget settings are not the primary driver of prices in our economy,” he said. “There’s a whole bunch of other things going on.”

Inflation has jumped to 4% in the year to August, up from 3.5%, while the Reserve Bank of Australia lifted its key interest rate to 4.6% — the highest level since 2011.

The treasurer said the government was working on identifying additional savings for the mid-year economic and fiscal outlook, scheduled for December. The May budget had identified $44.9bn in cuts over four years.

The opposition’s shadow treasurer, Tim Wilson, said Chalmers should be sacked, claiming his decisions had stoked inflation to generate tax windfalls and undermined the country’s success.

“He’s actively stoked inflation, and he’s fundamentally undermined the success of this country, and now he’s announced today he’s on a sort of Argo-style salvation trip for investment, because he’s created a problem of sovereign risk,” Wilson told News24.

Andrew Charlton, the assistant science and digital technology minister, said the consequences of having a recession, which would ease inflation, would be devastating. “If you have a recession, you throw hundreds of thousands of people on to the unemployment queues, and that pulls a huge amount of demand out of the economy,” Charlton told News24. “It’s pretty easy to have low interest rates and low inflation if your economy goes through a recession.”

Charlton said avoiding a recession was “a big priority” for the Labor government because of the employment consequences.

Chalmers will travel to Japan for meetings with business leaders and the country’s finance minister, in an effort to boost investment and improve fuel security.