Treasurer Jim Chalmers has rejected claims that Labor’s spending is the main force driving inflation, mounting a firm defence of the government’s economic record.
During a tense interview on ABC’s Insiders on Sunday, Chalmers pointed to several other sources of price pressure, including the conflict 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 government expenditure contributes to overall demand, but argued private-sector activity was generating considerably greater upward pressure on prices.
“Nobody’s ever contested that,” he said when asked whether public spending was still contributing to inflation.
Chalmers said government demand was undeniably part of the broader inflation calculation, but insisted the latest figures showed it was not the dominant influence.
“If you compare the last year of demand in our economy with 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 dealing with a serious productivity problem, an issue Reserve Bank Governor Michele Bullock has repeatedly identified as an important factor in the inflation outlook.
Jim Chalmers (pictured) said government spending was not “the primary driver” of inflation
“We have a productivity challenge in our economy,” Chalmers said.
He said the government’s response was reflected in what he described as the largest and most wide-ranging productivity package included in an Australian budget in decades.
Chalmers also linked Australia’s cost-of-living pressures to international developments, particularly the continuing conflict in the Middle East.
“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,” he said.
The Treasurer said the conflict had made life more expensive for Australians and people across the globe.
He warned that the war was placing “very substantial upward pressure on inflation” worldwide and said the economic consequences could become even more severe if the conflict continued.
His comments came after economists, former Treasury secretaries and former Reserve Bank governor Philip Lowe urged governments to adopt tighter fiscal settings. Chalmers responded by highlighting the savings Labor had delivered since coming to power.
“The last budget of our predecessors had no savings. We found almost $180 billion in savings,” he said.
Michele Bullock (pictured) has warned that low productivity is a driver of inflation
Asked whether the government should target another budget surplus, Chalmers stopped short of making a commitment. He argued that achieving a surplus by itself would not remove the broader pressures keeping inflation elevated.
“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.’
