For Treasurer Jim Chalmers, a man who wrote his PhD thesis on how Paul Keating held power having risen from treasurer to prime minister, the recent dismal news on the economy and the blowout in budget deficits revealed in the federal government’s mid-year update surely represent a Rubicon of sorts.
Treasurer Jim Chalmers at a press conference on the MYEFO data this week in Canberra.Credit: Alex Ellinghausen
The figures from the Australian Bureau of Statistics showing that growth in the September quarter was an anaemic 0.3 per cent, that annual growth was the worst – with one exception – since Keating’s “recession we had to have” in 1990-91, and that GDP per person had fallen by 2.2 per cent, or $1660, over the past year, were an unmistakable call to action.
The exception on annual growth is an important one: the recession that hit Australia during the COVID-19 pandemic. That once-in-a-century event led to two decisions – one fiscal, one monetary – that haunt our politicians now.
The first was the decision to throw government money at people to combat the feared impact of lockdowns. As our economics editor, Ross Gittins, wrote, “the medicos had no idea how bad [the pandemic] would be or how long it would take to develop a vaccine, and like all governments everywhere, our government and its econocrats decided it would be safer to do too much than too little”.
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The second was then-Reserve Bank governor Philip Lowe’s decision in February 2021 to state publicly that interest rates were unlikely to rise until 2024 in a bid to encourage spending at a time of continued uncertainty.
Each of these decisions plays into the difficulties facing the Albanese government. In August, Chalmers rejected the idea of increasing government spending before the election, telling our Inside Politics podcast: “What we’ve shown is a willingness to make the right economic decisions for the right economic reasons, and the politics, I believe, will take care of themselves if you get those big calls right.”
Yet, this week’s mid-year economic and fiscal outlook numbers show billions of dollars in extra spending, while the tax burden is still being carried mainly by wage-earning individuals, and the money government collects from tobacco, petrol and diesel excise is set to dwindle even further. Much of this spending is needed to address long-term failures to properly fund care for the elderly and children, as well as the promises made by successive federal governments over the GST.
In his interview with The Age this week, Chalmers insisted that progress was being made. “We’ve been able to keep unemployment very low,” he said. “We’ve been able to create a million jobs. We’ve been able to get real wages growing again. We’ve been able to see inflation moderate.”
