Tom Connell:
So with inflation stubbornly high today, above market expectations, there is still a strong chance of more rate rises on the agenda. It could be good timing for Angus Taylor.
Earlier I spoke to the Treasurer Jim Chalmers. I started by asking him if he has confidence that inflation can actually come down without more action from the Reserve Bank.
Jim Chalmers:
Well annual inflation was steady in January but it’s still higher than we’d like, and these are the sorts of numbers that we were anticipating, largely because of, or partly because of the withdrawal of the Commonwealth’s energy rebates.
If you look at the Reserve Bank’s forecast, they expect inflation to be persistent until around, peaking around the middle of the year and then they expect it to trail away a bit after that. I’m obviously not going to make predictions or pre‑empt decisions taken independently by the Reserve Bank.
My job is to focus on dealing with this inflation challenge, handing down a responsible budget in May and that’s what I’m focussed on.
Connell:
It’s a very important budget. I know you were part of handing down budgets on team Swan back in the day and there was a lot of pressure then. Does this feel like the most important budget you’ve been involved with in your lifetime?
Chalmers:
Well they’re all important budgets. You know, this will be the government’s fifth budget. I’m working on making it the most ambitious of the government’s 5 budgets, but there’ll be some common elements as well, and one of the common elements has been in every single one of the budgets that Katy Gallagher and I have handed down on behalf of the government there’s been spending restraint, there’s been savings.
We have delivered 2 surplus budgets. We’ve delivered that $235 billion aggregate improvement in the budget position. We’ve got the Liberal debt down by $176 billion. We’ve banked most of the upward revisions to revenue.
And that’s because responsible economic management is a defining feature of this government and it will be a defining feature of the Budget in May as well.
Connell:
And what about specifically taking heat out of the economy, will there be more new savings measures than new spending measures, meaning heat out of the economy? Will that specifically be a mandate you’ll be sticking to in this Budget?
Chalmers:
Well we obviously haven’t finished the budget in February. We finalise all the decisions for the Budget towards the end of April and the beginning of May, and so there are still a lot of decisions to be taken. And that calculation that you’re putting to me is not the only determinant of pressures in the economy.
If you look at the last year, in 2025 what we saw in the economy was public demand was playing a smaller and smaller role in growth in the economy, and private demand was playing a bigger and bigger role as the year wore on. And that’s really the story of the economy in 2025. The fact that we had this big recovery in the private sector in the first half of 2025, public demand actually retreated. And that’s important as well.
So what we saw in 2025 was the private sector came back faster than we were anticipating. That’s a big reason why inflation is coming in higher than we would like for longer than we’d like, and a key reason why inflation will continue to be a big focus of the government, as well as productivity and global economic uncertainty.
Connell:
You can control the public lever though largely, so again that question, would you look to a guardrail along taking heat out of the economy, more savings than spendings, or are you saying it’s too early to say that will be the case?
Chalmers:
Well the reason I answered that the way I did, Tom, is because what we showed in 2025 is that public demand, which is partly a function of public spending, took a back seat to the private economy. That’s a good thing. That’s the soft landing that we wanted to see in the economy in 2025, and the OECD and others have pointed to that as one of the things that we have going for us.
I don’t have all of the decisions taken for the Budget in May. Obviously there’s a lot of work to happen between now and then before Katy and I release that Budget. But I can assure you, Tom, that we are looking for additional savings beyond the $114 billion that we’ve saved already. And one of the motivations for that is to make sure that we’re playing a helpful role in the fight against inflation.
Connell:
Taking a slightly longer‑term view then, spending, government spending as a per cent of GDP is up significantly since pre‑COVID levels. That’s a benchmark often mentioned. Do you think that’s a useful one, and by that I mean do we need to get spending back towards and much closer to that level, which would be a lot of saving? Or do you think there’s a new reality with Defence, NDIS and health care whereby pre‑COVID is not as relevant as people are saying?
Chalmers:
Well obviously I think that measure is relevant, but also relevant is the fact that, you know, before we came to office spending as a share of the economy was up near a third of the economy. We got it down below a quarter of the economy. It went from 31.3 I think from memory to 24.4 per cent of the economy. And it has settled a bit higher than that in the 26s, and partly because of the pressures that you’re right to identify in your question.
We are investing much more in Defence. We do have an ageing population. We do have to make sure that we’re funding the states and their hospitals, as we did in the big agreement that we have just struck.
There are important reasons to provide cost‑of‑living relief via the bulk billing system because more bulk billing means less pressure on families.
And so there are some of those pressures, including in the care economy but also Defence, putting upward pressure on spending as a share of the economy.
But what we’ve demonstrated with those savings that we’ve made, with those surpluses that we’ve delivered, with the fact that we’ve got the debt trajectory down $176 billion and saving debt interest on that, what we’ve shown is that we can continue to manage the budget in the most responsible way. Spending as a share of the economy is one of the measures that we look at but not the only one.
We’ve also got real spending growth down from something like 4.1 under our predecessors to 1.7 under us. So there are a range of numbers that we look at and that we care about. We want to get – we want to make sure that our spending is responsible and sustainable, and that’s what drives our discussions and our decision‑making between now and the May Budget.
Connell:
So spending as a percentage of GDP where it’s at now, the 26s, high 26s, are you comfortable where that’s at, is that sustainable?
Chalmers:
Oh, we’re always looking to make more savings. You know, this is something that I was talking with my Treasury colleagues about on Monday evening, accurately reported in The Financial Review today by Phil Coorey. We’re always on the search for more savings and more ways to make the budget more sustainable.
If you think about that high 26s per cent of GDP number that you just accurately cited, it also comes down, from memory, in the life of our budget a little bit, but we’re always looking for ways to make the budget more sustainable. That’s what’s driven our approach in the first 4 budgets. It will drive our approach in the fifth as well. Because we recognise that at a time when we’re making more investments in Medicare, Urgent Care Clinics, more bulk billing, when we’ve got pressures coming from Defence or the aging of the population, then we take our responsibilities seriously to make room for those pressures and to repair the budget as much as we can.
That’s why we’ve helped engineer the biggest positive turn around in a budget in a single Parliamentary term, north of a $200 billion improvement in the budget since we came to office. Much less debt than was expected under our predecessors.
So all of that comes together as responsible economic management that has been a defining feature of the way that we’ve gone about managing the economy in the 3 and a half or so years that we’ve been in office.
Connell:
Do you think that you’ll ever deliver another surplus?
Chalmers:
Well if you look at the MYEFO forecasts it doesn’t get back to balance until the end of the 10 year, the medium‑term projection period. That’s on the public record in the most recent update. But in that update we found another $20 billion in savings, we improved the budget bottom line in every year of the forward estimates, and I think that reflects the ongoing progress and the ongoing effort that the government puts into these very substantial and serious issues around fiscal restraint and spending restraint.
Any government of either political persuasion would have to make room for some of these pressures, Defence, the care economy, ageing and the like. We’ve been doing that, but we’ve made much more progress cleaning up the mess that our predecessors left us than is normally acknowledged.
But we also acknowledge that even with all the progress that we’ve made in the budget, we know that there’s much more work to do, and that’s my focus, Katy’s focus, the PM, the whole Cabinet.
Connell:
In 2019 Labor took some big changes on investment taxes and it was very keen to say, to make them fair they would be grandfathered. Does that remain a Labor principle, that any major changes of that nature would be grandfathered?
Chalmers:
Well respectfully, Tom, I mean I understand what you’re getting at. Obviously there is a pretty substantial and willing public debate at the moment about tax reform. That is from my point of view a good thing. We want these issues discussed but I’m reluctant to get into design details or merits or otherwise of policies that we don’t have.
We’ve got a tax policy; it’s primarily about cutting income taxes a second and third time for all 14 million tax paying workers. We do acknowledge that there is unfairness in the tax system, and some of that unfairness plays out in intergenerational terms.
We’ve got policies on that already: in the tax system, boosting low income super, cutting income taxes; in the housing system, building more homes, making it easier to save for a deposit to get a first home. And so those intergenerational issues are a big focus for us and our government, they have been to here, and they will be from here as well.
Obviously, like any government this far out from the budget we are working through options and considerations when it comes to tax reform, and the budget more broadly, and any future changes would be a matter for the Cabinet in the usual way.
But I’m not going to get into details on design or principles or merits or otherwise of tax policies that haven’t been decided.
Connell:
Not too long till we find out and we can ask about the actual Budget itself. Treasurer Jim Chalmers, I know it’s a busy day, appreciate your time today. Thank you.
Chalmers:
Thanks very much, Tom.