Helpful or hypothetical: Jim Chalmers defends his budget strategy from high-spending accusations

Jim Chalmers has come out swinging in the stoush over government spending’s role in rising inflation, a week out from the budget he has labelled his most ambitious yet.

The Treasurer used a spate of media interviews on Wednesday to defend his strategy against accusations public spending is making the Reserve Bank’s job harder.

The central bank lifted interest rates again on Tuesday, wiping out all the cuts that were made last year.

The move adds to the pain households are feeling after fuel prices soared because of the Iran war.

It prompted the Opposition to brand Prime Minister Anthony Albanese a liar for having promised Australians would be better off under Labor.

“He lied to the Australian people when he said that they would feel it in their hip pockets when Labor came to government. Well, actually they do feel it in their hip pockets, but not in the way they anticipated,” deputy Liberal leader Jane Hume said.

The conflict and ongoing blockages in the vital shipping routh through the Strait of Hormuz are driving up the costs of everything from food to building materials and sent inflation jumping almost a whole percentage point in March to 4.6 per cent.

It was 3.7 per cent in February, already above the RBA’s target band before the war started.

Against this backdrop of price pressures and immense uncertainty about how and when the war will be resolved, the Federal and State treasurers are being urged to tread carefully when handing down their budgets.

Reserve Bank governor Michele Bullock has warned that both public and private sectors were contributing to the growth in demand for goods and services and the economy wasn’t growing strongly enough to keep up supply.

“All I’m saying is that the extent to which government make up the shortfalls for households by giving them more money, it makes it harder to dampen demand,” she said, when asked by The Australian about a report it ran on Tuesday morning that there would be an “earned income offset” for taxpayers in next week’s budget.

She returned to the theme when asked where the pendulum had swung too far towards making central banks, not governments, responsible for controlling inflation.

“When governments are spending a lot of money and we’re running up against capacity constraints, then they do need to think about whether or not there’s ways they can help the inflation problem by looking for ways to constrain demand,” Ms Bullock replied.

“That’s one thing that they can do and I personally think that the Treasurer, privately and publicly, he is focusing on that. But it’s not just the federal government. It’s the state governments as well.”

Dr Chalmers used the word “hypothetical” 16 times across six media appearances on Wednesday morning when asked about the RBA boss’s comments.

“The Governor was asked, based on all of this budget speculation, a hypothetical question about how would the bank consider if there was a whole heap of extra stimulus pumped into the economy by the Government, and she gave a hypothetical answer to that question,” he told ABC TV.

“So that hypothetical question based on that budget speculation, the Governor did her best to give an in-principle, hypothetical answer to that question – but nobody should assume that the question that was put to Governor Bullock by that journalist is the reality of the budget.”

And he told Seven’s Sunrise he was focused on managing the economy as responsibly as he could.

“Like most Australians, I’ve got more important things to worry about than what the front pages of the papers say.”

The commitment to play a “helpful role” in fighting the inflation dragon got almost as much of a workout as “hypothetical”.

“We intend to play a helpful role in the fight against inflation in this budget, we’ll do that by saving more than we spend overall. We’ll do that by making sure that there are very, very substantial savings in this budget as well,” Dr Chalmers told reporters in the corridors of Parliament House.

Earlier in the week, he promised the budget would show more savings than spending and even – at least on this week’s forecasts – more savings than dollars in tax changes.

University of Sydney economist Luke Hartigan said governments were essentially being pulled in two different directions: combating inflation while also dealing with “an angry electorate, or an electorate that wants some support” to cope with that same inflation.

“They’re trying to solve two issues and they’re not going to be able to do both well,” he said

Rising government spending had been driven by bringing more work in-house – paying public servants instead of consultants – and the huge growth over the past decade of in-kind services like the NDIS, aged care and childcare.

“People wanted more childcare, want the NDIS, they want aged care. So in some sense, the government’s just responding to demand from households,” Dr Hartigan said.

He wants to see that cut back either through curbing the growth in spending, as has been promised with the $35 billion NDIS cut, or making sure measures are either narrowly targeted or means-tested.

This latter point was also raised by the IMF in its global economic outlook last month.

Mr Albanese said people would see “a range of savings” in next week’s budget.

“It will be a responsible budget that will be consistent with Labor values,” he said.

Independent economist Chris Richardson estimated Australians would be $12 billion worse off in 2026-27 because prices were up but wages weren’t following.

The big question then became how much of that $12 billion the federal and state governments between them sought to fill.

Dr Chalmers was “certainly talking more sensibly” about savings rather than cash splashes for households, although everyone would have to wait to see where the numbers fall next Tuesday, “but the states are not, and that’s a problem,” Mr Richardson said.

“The feds will be a small problem, unlike last time, when they were a big problem. Last time, the States were a big problem, and they’re showing every sign of being a big problem again.

That went for both “the states that are rolling in money” and those that were strapped for cash.

The Victorian budget delivered on Tuesday contained $13.8 billion in new spending, including about $2.5 billion in cost of living support.

Rita Saffioti will deliver WA’s budget on Thursday and has already said she’ll have a big focus on supporting households because the current inflation crisis wasn’t driven by demand pressures.