Jim Chalmers budget cuts are being prepared as the treasurer warns of intensifying global headwinds but says he is not planning for a recession ahead of December’s mid-year update.
On Sunday, the treasurer urged critics of government outlays to identify specific services they would remove, while arguing private demand is playing a larger role in domestic price pressures amid prolonged conflict in the Middle East.
Chalmers said the US-led eight-month war against Iran has badly disrupted oil flows and is worsening cost-of-living pressures in Australia. He added there is very substantial and growing pressure on the federal budget.
“No serious observer” would doubt the magnitude of the challenge, he told ABC’s Insiders, noting that the longer the conflict continues the greater the hit to the global and Australian economies through higher inflation and weaker growth. He said a recession is not anticipated in Australia, although global growth is slowing and Australia is not immune.
Jim Chalmers budget cuts tied to mid-year outlook
Inflation rose to 4% in the year to August, up from 3.5%, while the Reserve Bank lifted the cash rate to 4.6%, the highest since 2011. Chalmers said further savings will be sought in the Mid-Year Economic and Fiscal Outlook due in December, following $44.9bn in savings over four years identified in May.
He cautioned that deeper cuts risk undermining essential services. “If people do not want us to strengthen Medicare, cut income taxes, or provide other cost-of-living relief, then they should nominate where that should be cut,” he said.
Chalmers argued that budget settings are not the primary driver of inflation, pointing instead to broader forces and private demand. “For every $5 of demand in our economy, $1 is public, $4 is private,” he said, adding there are many other factors influencing prices.
Opposition attack and recession debate
Shadow treasurer Tim Wilson called for Chalmers to be sacked, alleging the treasurer’s decisions have pushed up inflation to deliver tax windfalls. He told News24 that Chalmers had stoked inflation and created concerns about sovereign risk.
Assistant science and digital technology minister Andrew Charlton argued that engineering a recession to tame inflation would have severe social costs. He said a downturn would throw hundreds of thousands of people out of work and sharply reduce demand, noting it is easy to achieve low rates and low inflation if the economy goes into recession, which the government aims to avoid.
Investment and energy security push
Chalmers plans to travel to Japan for meetings with business leaders and the finance minister to encourage investment and bolster Australia’s fuel security. The trip comes as global markets remain sensitive to energy disruptions linked to regional conflicts, including in Yemen where general mobilization has been urged by the presidential council chief.
The treasurer is expected to discuss energy cooperation with Japanese counterparts, building on existing ties between Canberra and Japan’s Ministry of Economy, Trade and Industry. The government has also highlighted the need to coordinate closely with the Reserve Bank of Australia as it navigates the twin challenges of inflation and energy security.