Chalmers prepares December savings and is not planning a recession
Treasurer Jim Chalmers said further savings are being prepared for Australia’s December budget update, after 44.9 billion dollars of cuts identified in the May budget, and that he is not planning a recession. Inflation in the year to August rose to 4 percent from 3.5 percent, and the Reserve Bank’s policy rate is 4.6 percent, the highest since 2011. He tempered hopes of fresh household relief and warned that refinancing maturing debt at higher borrowing costs would add debt-service pressure.
Economics & Markets··Midday
Further savings are prepared for the December outlook
Jim Chalmers said on Sunday that further savings are being prepared for Australia’s mid-year economic and fiscal outlook, due in December. He told ABC’s Insiders programme that a new savings package would form part of the mid-year budget update expected in mid-December, and that finding additional savings is a principal influence on that update. He did not announce the package’s size or which spending items would change. The May budget had already identified 44.9 billion dollars of cuts over four years.[1], [2]
Prime Minister Anthony Albanese had indicated during the week that further household assistance could be forthcoming. Chalmers tempered that expectation and said sustained budget pressure required tight fiscal management. He said cuts to government spending are not the only force lifting prices, and that larger cuts would hit essential services. He asked critics of public spending to name the services that should be cut. The remarks do not establish that a particular new benefit payment, or a particular spending reduction, has taken effect.[1], [2]
August inflation is 4 percent and the policy rate is 4.6 percent
Inflation rose to 4 percent in the year to August, from 3.5 percent. The Reserve Bank raised its key interest rate to 4.6 percent, the highest figure since 2011. Chalmers said the private sector is contributing to inflation in Australia during the long conflict in the Middle East. He described the US-led war against Iran, in its eighth month and a severe constraint on oil supplies from the region, as disastrous for the cost of living. For every 5 dollars of demand in the economy, he said, 1 dollar is public and 4 dollars are private, and budget settings are not the primary driver of prices. He said that the longer the conflict continues, the larger the effect on the global economy and on Australia, through inflation and through downward pressure on growth.[1]
Chalmers said the savings would take account of the inflation challenge and of the role the government intended to play in easing price pressure. He named renewed real-wage growth and lighter pressure on households as objectives. He defended additional government spending as concentrated in healthcare and in other areas that ease family budgets. He also said the government was not actively considering a further discount on the fuel excise. An earlier assessment from Reserve Bank governor Michele Bullock, recalled separately from his own remarks, was that inflation was not entirely down to the Middle East conflict.[2]
Debt refinancing and the political replies accompany the savings work
Chalmers warned that higher borrowing costs internationally would add billions of dollars of debt-servicing pressure to Australia’s budget. He pointed to cheaper debt being refinanced, as it matures, with more expensive borrowing. He presented that pressure as a cost he expects, rather than an expenditure total that has already been realised. He argued that the war in the Middle East was placing substantial pressure on Australia’s economy and called the strain on the federal budget very substantial and intensifying.[1], [2]
Shadow treasurer Tim Wilson said Chalmers should be removed. He accused him of stoking inflation to generate tax windfalls and of creating sovereign risk while seeking an investment recovery. Andrew Charlton, assistant minister for science and digital technology, said a recession that eased inflation would put hundreds of thousands of people onto unemployment queues and pull demand out of the economy. Avoiding that outcome, he said, is a priority for the Labor government. Chalmers is due in Japan for meetings with business leaders and the Japanese finance minister, seeking investment and stronger fuel security. He said a recession is not anticipated in Australia, even as global growth is weighed down and Australia is not immune.[1]
