‘We’ve been vindicated’: Chalmers says government spending has saved the nation from recession

Federal spending has spared Australians from a recession and will help ensure a “soft landing” for the economy in the new year, Treasurer Jim Chalmers has declared in a pledge to unveil major new policies before the next election.

Chalmers said the government had been proven right in rejecting calls for a “slash and burn” approach to the budget, saying the spending had helped the economy keep growing while generating 1 million jobs over the past year.

Jim Chalmers says without government spending, the economy would be in recession.Credit: Alex Ellinghausen

He has also signalled the government will offer new measures to help households in the run-up to next year’s federal election, with savings and tax measures to help fund the policies.

“It’s pretty clear that if we had taken a lot of the free advice we’ve been getting over the last 12 to 18 months, Australia would be in recession,” he said in an exclusive interview with this masthead.

“We’ve rejected this free advice that says slash and burn in the budget for good reason, and we’ve been vindicated because there wouldn’t be growth in the economy were it not for our efforts.”

Chalmers said while private-led growth was more sustainable, it was clear that without government spending – which added 0.6 percentage points to growth in the September quarter – the economy would be contracting.

He said he knew households were still under pressure and the economy remained soft, but he took aim at the Coalition for calling for lower spending.

“Our opponents would have Australia in recession,” he said.

The treasurer revealed that he and Finance Minister Katy Gallagher had been working on both the mid-year update and the next budget – due on March 25 – over recent months, signalling the government was ahead with its policy offerings for voters.

“There will be more savings, there will be more restraint, and there will be more announcements, but it remains to be seen whether they all net out,” he said.

“We will do what we’ve always done, which is to try and make room for any new promises and priorities in a budget which is already tight and under substantial pressure.”

Opposition Leader Peter Dutton this week called for lower spending and blamed the government’s outlays for adding to pressure on inflation.

Asked if he would cut spending if he becomes prime minister, Dutton said he would make announcements closer to the election, although the Coalition has already signalled deep cuts in the federal public service.

Shadow treasurer Angus Taylor said spending should not grow faster than the economy.

“It’s not austerity, but it is restraint in the growth of spending that matters so much,” he said, without naming targets for Coalition cuts in recurrent outlays.

Auckland and the rest of New Zealand are in their deepest recession, outside the pandemic and the global financial crisis, in more than 30 years.Credit: Bloomberg

Chalmers and Gallagher on Wednesday unveiled the mid-year fiscal update, which revealed a $22.1 billion increase in cumulative deficits over the next four years.

This year’s deficit is expected to be slightly smaller than forecast in May, but at $26.9 billion still a big reversal from the $15.8 billion surplus last year. The deficit for 2025-26 is expected to reach $46.9 billion.

While inflation is tipped to remain around 2.75 per cent, the economy is forecast to expand by 1.75 per cent this year. Over the past 12 months, the economy grew by just 0.8 per cent, with GDP per capita falling for a record seventh consecutive quarter.

Figures released on Thursday showed New Zealand in a deep recession, contracting by 1 per cent in the September quarter after a 1.1 per cent fall in the June quarter. Government spending cuts proved a major factor in the downturn.

Chalmers said Australia had out-performed almost every nation in the OECD with the economy continuing to grow while other countries had experienced at least one negative quarter of growth this year.

“We’ve been able to keep unemployment very low. 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,” Chalmers said.

“The textbook definition of a soft landing is the combination of indicators that we have in our economy.”

Credit: Matt Golding

The nation has created 393,000 jobs this year, with a large majority in the so-called “non-market sector”, including much of the health, public safety and teaching workforces.

Chalmers pointed to a similar employment pattern in the early stages of Tony Abbott’s time as prime minister and argued the lift in non-market jobs was driven by the ageing population and the need for more people to work in the care economy.

“Let’s not be snobby about care economy jobs. Care economy jobs are real jobs and the people that do them deserve to be paid well for them,” he said.

“I find it offensive to care economy workers when they get dismissed as if their jobs are not real. Of course they are.”

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