Chalmers prepares further budget cuts but says Australia should avoid recession

Australian Treasurer Jim Chalmers said the government is preparing further spending cuts but is not planning for a recession. He said the prolonged conflict in the Middle East was adding to pressure on global growth and Australian prices.

Annual inflation rose to 4% in August from 3.5%. The Reserve Bank of Australia raised its key interest rate to 4.6%, the highest level since 2011.

Further savings before December update

The government is looking for additional savings ahead of the December Mid-Year Economic and Fiscal Outlook. The May budget had already identified A$44.9bn in cuts over four years.

Chalmers challenged critics of government spending to name the services they would cut. He said larger reductions could affect essential services, including Medicare, income-tax relief and other cost-of-living measures.

War and private-sector demand

Chalmers described the eight-month US-led war against Iran, which has sharply reduced regional oil supplies, as “disastrous” for cost-of-living pressures. He also said budget settings were not the main driver of prices and placed part of the responsibility on the private sector.

The treasurer said that for every A$5 of demand in the economy, A$1 came from the public sector and A$4 from the private sector.

Government rejects recession scenario

Chalmers said Australia was not anticipating a recession, although it was not immune to weaker global growth. Assistant science and digital technology minister Andrew Charlton said a recession would bring mass unemployment, even if it reduced inflation and interest rates.

Shadow treasurer Tim Wilson called for Chalmers to be sacked. He accused the government of fuelling inflation and said the treasurer’s decisions had undermined Australia’s economic performance.

Chalmers will travel to Japan for meetings with business leaders and the country’s finance minister. The visit is intended to support investment and improve fuel security.