Treasurer Jim Chalmers has defended his upcoming federal budget on Sunrise amid mounting pressure to deliver cost-of-living relief without worsening inflation and interest rates.
Reserve Bank Governor Michele Bullock raised interest rates for the third consecutive time this year on Tuesday, lifting the cash rate to 4.35 per cent. She warned that further spending could complicate efforts to bring inflation under control.
“It doesn’t take much additional spending to make the job of returning inflation to target more challenging,” Bullock said. “The extent to which government makes up the shortfalls for households by giving them more money, it makes it harder to dampen demand … we are poorer, and there is no way out of that.”
Her comments came amid growing speculation that the government could unveil a one-off “earned income offset” in next week’s budget worth between $200 and $300 for salaried workers. The reported measure would add to billions already committed in cost-of-living support, including the temporary halving of the fuel excise and $1 billion in interest-free loans for businesses struggling with rising fuel costs.
Chalmers refused to confirm or deny the reports but insisted the budget would be “really responsible” and focused on managing inflation pressures.
“We know that people are under pressure,” he said. “The Governor was asked yesterday about a hypothetical scenario where a heap more stimulus was pumped into the economy. That hypothetical doesn’t reflect the reality of the budget, which is all about winding back spending where we can responsibly do that. Governor Bullock was asked about what would happen if the government pumped a heap of extra money into the economy. We don’t intend to do that.”
Chalmers argued that inflationary pressures were being driven by global instability, including the conflict in the Middle East, rather than government expenditure. “Interest rates didn’t go up yesterday because of government spending,” he said. “We understand what this inflationary environment means for a lot of people who are doing it tough. In this budget, what people will see is a very, very responsible budget that takes the inflation challenge seriously.”
In a heated Sunrise debate on Wednesday, Nationals senator Bridget McKenzie firmly disagreed, arguing that Australians are paying the price for government spending through higher mortgage repayments and rising living costs.
“The Reserve Bank could not have been clearer to Jim Chalmers: you must cut government spending,” she said. “It is a problem of Jim Chalmers’ making. The Treasurer needs to use this budget to not just spruik his spending programs but show that he actually understands economics 101, and when government spending is too high in an economy, it does drive up inflation, and that is hurting everyone.”
McKenzie claimed Australia had entered the current Middle East crisis in a weaker economic position than other comparable nations, arguing that the government had failed to get spending under control earlier. “We’re expecting the teenagers of today to be paying for his trillion-dollar debt in the decades to follow because he refuses to cut spending,” she said.
But Jon Raven, the Labor mayor of Logan in southeast Queensland, defended the Treasurer, arguing that households expected support from the government while struggling through rising costs. “Jim works harder than anybody I know to make sure this budget will be responsible and will be focused on what the Australian people need rather than focused on what a spreadsheet is trying to achieve,” he told Sunrise. “The Australian people aren’t mugs; they know that this isn’t caused by government spending, this inflation is caused by Donald Trump’s war.”
The budget will be handed down on Tuesday night.
