Australia’s July economic update will contain “confronting” news about lower growth projections and higher inflation cutting real wages, Jim Chalmers has said.
The treasurer said the update to be delivered on Thursday 28 July comes as the global economy is in a “difficult if not dangerous place” due to high debt and rising interest rises to combat inflation.
On Monday Chalmers told reporters in Canberra that the Albanese government had inherited “the trickiest set of economic conditions that a new government has inherited in living memory” due to $1tn of public debt and inflation, which the Reserve Bank has warned is headed towards 7%.
Chalmers credited Australia with having achieved full employment, with unemployment down to 3.5%. He said supply-side problems including food and energy costs were driving inflation, not wages.
The RBA began hiking rates in May, with a series of rises lifting rates from emergency levels of 0.1% set in November 2020 to 1.35% in July, with further rises expected throughout 2022.
With interest rates rising, Chalmers said, the cost of government debt was increasing. The “really substantial” interest bill will rise from more than $1bn this year to more than $5bn in four years’ time, a total of $13bn over four years.
The treasurer said the updated forecasts provided on 28 July “will be in many ways confronting – when it comes to our expectations of inflation, when it comes to the impact of interest rate rises on growth … [and] what this spike in inflation means for real wages”.
There was “no credible economic forecaster in Australia who thinks wages growth will keep up with inflation, and we will be revising up our expectations for inflation, and that will make the real wages situation worse before it gets better”, he said.
“Rising interest rates will have an impact on growth in the economy.”
Chalmers said Labor had the “right plan”, including to provide “responsible” cost-of-living support, and to make productive investments to “lift the speed limit on growth of the Australian economy”.
But the treasurer declined to elaborate on possible new measures for cost-of-living relief, explaining that existing pledges to cut the cost of medicine and childcare would be priorities.
Australians “will be better off” after those measures are introduced, he said, with $5bn invested in childcare encouraging increased participation in the workforce.
“We will always try to do the right thing by people and where we responsibly can and affordably can do the right thing by people to help them through a difficult period, of course we would consider that.”
Chalmers said his expectation was it would be “too expensive to continue” the six-month halving of petrol tax, which expires at the end of September.
The government “will be finding further savings in the budget”, which is scheduled for October.
“The first stop … is starting to deal with this legacy of rorts and waste, big buckets of taxpayer money doled out at ministerial discretion, there’s been too much of that for much of the last decade.”
Labor would also make “responsible changes on multinational tax and tax compliance” but he ruled out a windfall profits tax.