Treasurer Jim Chalmers has suggested that the Labor government is facing “probably the trickiest set of economic conditions” that a new government and a new Treasurer have ever inherited, as a result of rising inflation, falling real wages and the current level of government debt.
Mr Chalmers was among the four Labor ministers sworn into office on Monday (23 May) alongside Prime Minister Anthony Albanese. The new Treasurer undertook a range of media interviews on Monday (23 May) setting out the current state of affairs and the task ahead of him – noting that “interest rates are on a trajectory upwards already”.
He told the ABC that “the big challenges that [Labor is] inheriting are largely skyrocketing costs of living”.
“We’re going to have more interest rate rises, unfortunately. We’ve got real wages going backwards. And we’ve got a trillion dollars of debt in the Budget. So that’s the kind of inheritance. And so the priority in those early briefings, as we get ready for a Budget in October, is how do we responsibly begin to deal with those big challenges?”
When asked whether the Labor Party would be able to “fix the housing crisis”, Mr Chalmers responded: “We do have some big substantial plans when it comes to housing.
“We’ve got the Housing Australia Future Fund, which will build tens of thousands of new social housing properties. We’ve also got a Help to Buy program so that people can get a smaller, more manageable mortgage. So, we do have some detailed housing policies.”
The federal member for Rankin flagged that Mr Albanese had himself grown up in social housing, adding: “The reason we celebrate Anthony’s background is not because we want to celebrate its uniqueness. It’s because we want this to be the type of country where that kind of success is common. For most of us, that’s why we got into politics – [and] certainly Anthony and I are in that boat. We want people to have more opportunities, in more parts of Australia, and that’s what our Government will be all about.”
He later told Sky News that the government’s top priority is implementing its election campaign commitments to address major economic challenges.
“We’ve got inflation, which is going through the roof. Real wages which are the worst in more than 20 years. We do have that trillion dollars in debt and not enough to show for it. So the work that we’ve begun already, is to go through the budget line by line,” he said.
“We will be having an audit of the former government’s rorts, waste and economic mismanagement. We will start the work this week towards the budget that I want to hand down towards the end of October.”
In terms of how Labor will seek to tackle debt, Mr Chalmers noted that the party has already vowed to keep stage three of the Coalition’s tax cuts and will instead prioritise a crackdown on multinational tax avoidance, while rolling out a “substantial program of savings”.
“We’ve done a lot of work already when it comes to savings. But there will be much more work to be done,” said Mr Chalmers.
He added that tackling the alleged “rorts, waste and mismanagement” in the Coalition’s budget would allow Labor to focus on priority areas as outlined in its election campaign.
“We want to start to address that so that we can invest that money more wisely in places that will actually grow the economy – like child care, cleaner and cheaper energy, skills and training and TAFE so that we can address the skill shortages which are holding our economy back,” Mr Chalmers said.
In a separate interview with the Today Show, Mr Chalmers predicted inflation to pick up.
“This economy was on a trajectory already of inflation that will get worse before it gets better. It’s already higher, but it will rise further,” he said.
“There will be a number of interest rate rises that were already locked in before the government changed hands. So that will make life harder for people.”
He reiterated Labor’s support for a minimum wage increase in order to keep up with the rising cost of living.
“We want to get real wages moving again by making the economy more productive and growing it the right way. That’s why our investments in skills and training, cleaner and cheaper energy, cheaper childcare, advanced manufacturing, a future made in Australia – all of these key planks of our economic policy are going to be really important,” Mr Chalmers said.
“So I’ll be spending some time between now and the October budget making sure that we can implement those commitments in the most responsible way, to get the biggest bang for buck in terms of the economic dividend that we can.”
Discussing the economic implications of Labor’s election win, AMP’s Shane Oliver said on Monday (23 May) that the absence of significant macro policy differences between the new Labor government and the Coalition suggests minimal impact on the sharemarket and the Australian dollar.
“Like the Coalition, the ALP is largely looking to repair the budget by growing the economy rather than austerity,” Dr Oliver said.
The new government’s pre-election costings suggest extra spending of $18.9 billion over the next four years offset by $11.5 billion in savings to be from taxes on multinationals, a crackdown on tax avoidance and a cut in public sector spending.
In regard to policy changes, according to Dr Oliver, key economic policy changes under the Labor government are expected to include the following:
- Faster climate action with a 43 per cent cut to emissions below 2005 levels by 2030 versus the Coalition’s 26-28 per cent cut
- An extra $2.5 billion per annum in aged care funding
- An extra $750 million on Medicare
- A lift in the childcare subsidy to 90 per cent for the first child in care
- A $15 billion National Reconstruction Fund and federal procurement programs to support manufacturing
- Housing support policies with a Help to Buy scheme with the government to take up to 40 per cent equity in up to 10,000 first home buyer home purchases a year, including support for the Coalition’s 50,000 low deposit purchase scheme with an additional 10,000 places in regions and support for the Coalition’s super concessions for downsizers over the age of 55
- Encourage the Fair Work Commission to raise the minimum wage by 5.1 per cent
- Make gender pay equity an objective in the Fair Work Act
- The ALP proposed no tax hikes apart from measures to tax multinationals more
Labor’s proposed policies will add an estimated $1.9 billion to the budget deficit in 2022-23 for a total projected deficit of $79.7 billion.
“The addition to the deficit is only 0.1 per cent of GDP p.a. though and it should also be noted that if the improvement in the budget numbers since March due to higher commodity prices and lower unemployment continues then the deficit numbers could be much lower,” said Dr Oliver.
The days of low inflation and low bond yields that allow for big budget deficits and high debt are now in the past according to Dr Oliver, and government borrowing needs to be reduced faster to take pressure off inflation and interest rates with more policies needed to boost productivity.
“While new Treasurer Jim Chalmers has indicated a preparedness to undertake ‘budget repair’ via a spending audit, this may not be enough if the fast-growing health and social services areas are protected,” he said.
[Related: Mortgage industry on the election outcome]