Federal election 2022
Incoming treasurer Jim Chalmers says the new government will start going “line by line” through government spending, declaring budget repair has to begin now given growing economic threats from overseas.
Chalmers, who was formally briefed in his Brisbane home by Treasury secretary Steven Kennedy on Sunday, said he aimed to deliver a new federal budget in October with the process “starting now”.
Incoming treasurer Jim Chalmers says working through the budget “line by line” starts today.Credit:Alex Ellinghausen
When he is sworn in as the nation’s 41st treasurer on Monday he will take over a budget facing a combined $224.5 billion in deficits over the next four years, record debt approaching $1 trillion and inflationary pressures that have started putting upward pressures on interest rates.
The Reserve Bank, which increased the cash rate this month for the first time since 2010, is expected to use its meeting in a fortnight to further lift interest rates, which markets believe could reach 3.5 per cent by the middle of 2023.
Chalmers, who worked for former treasurer Wayne Swan as he and the Rudd government dealt with the fallout from the global financial crisis, said the focus from now on was improving the quality of spending within the budget and making sure it was fit for purpose.
He told The Sydney Morning Herald and The Age he was aware of the financial pressure facing the budget, noting no new treasurer had ever inherited $1 trillion in debt.
“All roads lead to better spending. The magnitude of spending matters, but the quality of the spending matters even more,” he said. “We will be seeking to find ways we can improve the quality of spending through the budget.”
In its late election campaign costings release, Labor said it would push back a commitment to fund the $5.4 billion Hell’s Gate dam in north Queensland by a year.
Chalmers said infrastructure projects promised by the previous government might be axed as Labor sought to bring some “scrutiny” to the budget.
“We want Treasury and Finance to go through the budget line by line. We want to separate the commitments that might be worthwhile and useful from those that might not and we may, like we have with Hell’s Gate, have to push back the timing of some projects,” he said.
Kennedy’s briefing to Chalmers was expected to cover the budget and economic issues that would face the incoming government.
A growing issue within Treasury is Australia’s ongoing poor productivity performance, which has fallen short of department forecasts almost as long as its predictions for wages growth.
Another problem is that several key economic forecasts underpinning the March 29 budget have proven to be overly optimistic.
In the budget, Treasury forecast inflation at 4.25 per cent in 2021-22 and then 3 per cent next financial year. Wages were expected to grow by 2.75 per cent this financial year and step up to 3.25 per cent in 2022-23.
But inflation, currently at 5.1 per cent and tipped by the RBA to reach 6 per cent by year’s end, is running much faster than expected.
Household consumption, which underpins 60 per cent of the economy, is now forecast by the RBA to run slower than Treasury had predicted in the budget.
The budget bottom line is being buoyed by the high prices for key Australian commodities including iron ore, coal and some agricultural goods. In the budget, Treasury estimated if high iron ore and coal prices remain elevated for just another six months, they would deliver an additional $29.5 billion in revenue to the budget over the next three years.
On the other side of the ledger, however, the budget’s interest costs are climbing much more rapidly than even expected in March.
Chalmers said cost-of-living pressures had been a key part of Labor’s election victory as they were the largest domestic issue facing the new government.
“I think the combination of inflation and wages growth is really the defining challenge that we are inheriting,” he said. “I think the international outlook will obviously be a major issue.”
Australian Chamber of Commerce and Industry chief executive Andrew McKellar said the new government would have to work quickly to address issues such as the nation’s “acute” labour and skills shortages.
He also backed Labor’s proposed employment summit.
“Bringing unions and employer groups together in a collaborative manner will be an important opportunity to reform our ailing enterprise bargaining system, bolstering productivity and driving higher wages growth,” he said.
Chalmers said he would work closely with incoming prime minister Anthony Albanese and Labor’s employment minister on the outline of the summit, adding it would be more than just a discussion about the labour market.
He said issues such as wage stagnation and gender roles within the jobs market would be part of the agenda.
“The focus of the summit will be broader than just the labour market. It has to be,” he said.
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