AARON PATRICK: Chalmers sees light on government cash splash ahead of Budget amid out of control inflation

Jim Chalmers struggles to take criticism, but criticism appears to be making him a better treasurer.

Reacting to the news on Tuesday of yet another interest rate rise, Dr Chalmers offered promising news to critics who blame him in part for the uncontrolled inflation driving up interest rates: a government that has spent four years splashing cash is turning economically conservative.

“The Budget will save more than we spend,” he said in Canberra. “We will bank upward revisions to revenue.”

That’s a two-fold promise for the next financial year. Taxes will increase more than spending, sucking up some of the cash that has driven inflation to a world-leading 4.6 per cent.

Any extra tax coming from higher iron ore, coal and gas prices will be used to reduce the deficit rather than spent on favoured voters.

Both promises, if enacted, will be important steps towards a Budget designed to reduce the government’s pernicious contribution to inflation.

Inflation is terrible for almost everyone. It reduces the value of savings, encourages wasteful investments such as gold and can drag workers and employers into a vicious cycle of wage and price rises.

‘Done and dusted’

On Tuesday, the normally assured Dr Chalmers looked like he had been hit by the gravity of the threat facing the nation — and his reputation.

Dr Chalmers even cut from his press release one of his most-used and dishonest boasts: that the Albanese government has cut $114 billion from spending. In truth, much of the money was switched to new areas.

Spending has gone up about $100 billion, a sum independent economists say contributed to the inflation spiral that has forced the Reserve Bank of Australia to raise interest rates three times in three months.

Higher prices are coming, and the Reserve Bank governor, Michele Bullock, admitted that nothing the central bank is doing will stop that in the medium term.

But she is desperately trying to prevent Australians becoming resigned to inflation forever, and therefore demand wage rises of 5 per cent or more just to prevent their income shrinking.

“Rate rises will not affect inflation in next six months,” she said. “That’s done and dusted.”

Right to be angry

As for Dr Chalmers, he did not pursue the fiction that the inflation problem began with Tehran’s bombing on February 28.

“We take these inflation pressures really seriously,” he said. “The war in the Middle East is making that harder.”

Dr Chalmers argues, correctly, the government is not solely responsible for inflation. Still, Australians have a right to be angry when their representatives make the problem worse.

Belatedly, Dr Chalmers is promising action. He looks likely to concentrate on tax increases, the consequence of four years of spending on favoured interest groups, including university students, doctors, nursery staff, public servants and factory workers.

The government could have reduced the pressure on prices by running a surplus. The starting point makes that too politically difficult now.

This year’s federal Budget deficit will be around $29 billion, according to Luke Yeaman and Harry Ottley, economists at the Commonwealth Bank of Australia. Next financial year, even with the tax increases, they predict Dr Chalmers will spend $22 billion more than he raises.

The consequences will be felt by the millions made poorer by Tuesday’s interest rate increase. Businesses will close. Thousands will lose their jobs. Families will have to give up homes. Children will miss out on holidays. Many of those rich enough to live debt free will become richer.

It did not have to be this way. Instead of spending four years congratulating himself for his skilled economic management, Dr Chalmers could have helped turn Australia into a lower-taxing, ambitious and dynamic economy.

Instead, his government chose political opportunism, big government and debt. The bill is coming due.