Spending to avoid a recession is a good thing, says Chalmers

Treasurer Jim Chalmers has delivered a full-throated defence of government spending to unionists, claiming his political opponents would prefer a recession and mass unemployment.

As Chalmers’ former boss, Wayne Swan, said the Reserve Bank was “punching itself in the face” with poor decisions, this masthead can reveal that without government spending on Medicare bulk-billing, pharmaceuticals and the National Disability Insurance Scheme, the country would already be in a recession.

Treasurer Jim Chalmers says the government’s political opponents want to drive the economy into the recession. Credit: Alex Ellinghausen

Chalmers, who this week complained that high interest rates were smashing the economy, used a closed-door address to the Transport Workers’ Union in Queensland to argue that government spending to avoid a recession was once seen as a positive development.

“I believe that government has a role to play to soften the blow in difficult economic times, helping people with the cost of living and avoiding recession, and that’s what we are doing,” he said.

“And the alternative is dangerous, the alternative is divisive, the alternative is diabolical, because they [the opposition] will cut savagely, and working people have the most to lose from that.”

This week’s national accounts showed the economy grew by 0.2 per cent through the June quarter after expanding by 0.2 per cent through the March quarter.

In the two quarters, public final demand added 0.24 percentage points and 0.23 percentage points respectively to overall growth. Without that lift in government spending, the economy would have contracted in both quarters.

Some economists define a recession as two consecutive quarters of negative growth. Australia’s last recession was in the first half of 2020, when the economy contracted by almost 7 per cent due to COVID-related restrictions.

Before that, the last recession was in 1991.

The extra government spending was due to higher Medicare bulk-billing rates, the introduction of the second stage of its cheaper medicines policy and a further lift in expenditure through the NDIS.

Chalmers accused the government’s opponents of wanting to slash public spending and drive the economy into a recession that would put tens of thousands of people into unemployment.

“Our political opponents really want to see a hard landing in our economy. And they want interest rates to kind of clean up the mess afterwards,” he said.

“And you would understand this in your line of work – they basically want to see a crash, and then to sweep up afterwards. We want to avoid the crash in the first place. If Australia went into recession, more jobs are lost, and families would be doing it even tougher than they are right now.”

Swan, who was treasurer in the global financial crisis, during which the Reserve Bank slashed official interest rates from 7.25 per cent to a then record-low of 3 per cent, said he was extremely disappointed with the bank’s handling of the economy at present.

He said while financial markets were forecasting cuts in interest rates, the Reserve Bank was talking up the threat of rate rises, which would fail to reduce inflation but inflict financial pain on many Australian households.

“I think the Reserve Bank is putting economic dogma over rational economic decision making, hammering households, hammering mums and dads with higher rates, causing a collapse in spending and driving the economy backwards [that] doesn’t necessarily deal with the principal pushes when it comes to higher inflation,” he told the Nine Network.

“The government is doing a lot to bring down inflation, but the Reserve Bank is simply punching itself in the face. It’s counterproductive and it’s not good economic policy.”

Shadow treasurer Angus Taylor labelled Swan’s comments “disgraceful”, arguing they showed disregard for basic economics.

“The reason households are facing higher interest rates for longer is because of this Labor government’s complete failure to tackle its homegrown inflation,” he told this masthead.

“The responsibility for Australians’ pain lies with Jim Chalmers and [Prime Minister] Anthony Albanese, not the RBA. The only people putting economic dogma over rational policies is the Labor government.”

Greens economic justice spokesperson Nick McKim said while Chalmers and Swan were “making noise” about high interest rates, they had both given the Reserve Bank the ability to “crash the economy”.

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