Treasurer Jim Chalmers has pushed back against criticism of Labor’s economic record, arguing that government spending is not the main force driving inflation in Australia.
During a tense interview on ABC’s Insiders on Sunday, Chalmers pointed to several other sources of economic pressure, including the war in the Middle East, Australia’s housing shortage and persistently weak productivity growth.
“Budget settings are not the primary driver of prices in our economy. There’s a whole bunch of other things going on,” Chalmers told presenter David Speers.
The Treasurer accepted that public spending contributes to aggregate demand, but maintained that activity in the private sector was exerting considerably greater pressure on prices.
“Nobody’s ever contested that,” he said when asked whether government demand was contributing to inflation.
“It means it’s part of the aggregate demand calculation. Nobody’s ever contested that, but the important point here—”
Chalmers said the figures showed public demand had fallen sharply over the past year, while private demand had accelerated. “If you compare the last year of demand in our economy compared to the year before, what you’ll see is that public demand has halved over the last year, while private demand has tripled,” he said.
He also conceded that Australia was facing a serious productivity problem, an issue Reserve Bank Governor Michele Bullock has repeatedly identified as important to the nation’s inflation outlook.
Jim Chalmers (pictured) argued that government spending was not the main driver of inflation
“We have a productivity challenge in our economy,” Chalmers said.
He said the government’s response included “the biggest and broadest productivity package in any budget in recent decades”, describing the reforms as a central reason behind its economic strategy.
The Treasurer further argued that international developments were intensifying inflationary pressures, with the continuing conflict in the Middle East adding to the economic strain.
“I think it’s clear whatever the reasons were for going in, from an economic point of view, the war in the Middle East has been a disaster,” Chalmers said.
He said the conflict had made the cost-of-living crisis worse for Australians and people around the world.
According to Chalmers, the war is placing “very substantial upward pressure on inflation” worldwide, with the economic consequences likely to deepen if the fighting continues.
His defence of Labor’s policies came after economists, former Treasury secretaries and former Reserve Bank governor Philip Lowe urged governments to adopt tighter fiscal settings. Chalmers instead highlighted the savings delivered since Labor came to power.
“The last budget of our predecessors had no savings. We found almost $180 billion in savings,” he said.
Michele Bullock (pictured) has identified weak productivity as a factor contributing to inflation
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Chalmers was also pressed on whether he should target another budget surplus, but stopped short of making such a commitment. He argued that recording a surplus would not, by itself, remove the broader forces pushing inflation higher.
“When I handed down two surpluses at the start of this government, we saw inflation coming up at the same time, which shows there are other factors at play,” he said.
The Treasurer confirmed Labor was preparing another round of savings ahead of the mid-year economic and fiscal outlook.
‘There will be more savings in the mid-year update,’ he said.
However, he warned that rising global bond yields were putting fresh pressure on the budget.
‘We’ve got almost $1trillion of debt in the budget. When some of that cheaper debt rolls off, it needs to be replaced with more expensive debt.’
Chalmers said higher borrowing costs would add ‘some billions of dollars’ in additional pressure to government finances.
Shadow Treasurer Tim Wilson accused Chalmers of contributing to the inflation Labor had pledged to tackle.
Tim Wilson (pictured) said that the Albanese government’s spending was stoking inflation
‘We all know that my view on that is no, Andrew,’ Wilson told News24 when asked whether Chalmers should remain Treasurer.
‘This is a man who’s actively stoked inflation because it gives him a windfall tax revenue because he can’t manage his budget, and Australian households are poorer because he has been a disaster as Treasurer.’
Wilson accused Chalmers of exaggerating the government’s fiscal restraint.
‘He’s saving $2 then goes on and spends $3. He’s actively stoked inflation and he’s fundamentally undermined the success of this country,’ he said.
The Coalition frontbencher also turned to productivity, claiming Labor’s spending policies were making the economy less efficient and driving up prices.
‘We have a government that’s at a 40-year high of expenditure outside of a pandemic or crisis,’ Wilson said.
‘The government continues to spend with abandon. They have little concern for the impact that they’re spending on the Australian taxpayer and, more importantly, how it’s actively stoking inflation.’
‘When we have these problems, they ultimately go through and feed inflation as well as being an abuse of taxpayers’ money.’