Election 2025: Labor spending leaves nation without buffer for Trump tariff fallout

Anthony Albanese is confronting a global recession from a dramatically weaker fiscal position than before the global financial crisis and the Covid pandemic, as superannuation savings are smashed 26 days before the election.

Anthony Albanese in Melbourne, left, Donald Trump on Air Force One. Picture: Jason Edwards / NewsWire, AFP

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Anthony Albanese is confronting a global recession from a dramatically weaker fiscal position than before the global financial crisis and the Covid pandemic, as millions of Australian workers and self-funded retirees have their superannuation savings smashed 26 days before the election.

After a $190bn three-day wipeout on the S&P/ASX 200 since Donald Trump announced his Liberation Day tariffs last Thursday, Jim Chalmers rushed out new Treasury modelling claiming “modest” impacts on Australia ­despite higher inflation and lower growth forecasts this year.

Ahead of Wall Street resuming trading following a $10.8 trillion post-tariffs bloodbath last week – and as Asian stockmarkets tanked – Australian self-funded retirees, workers and investors watched in horror as $112bn was erased from the ASX on Monday, marking the worst losses in five years.

The Australian dollar also plunged under US60c for the first time since April 2020.

Prominent investors are pleading for a 90-day pause on Mr Trump’s tariffs, with US hedge fund billionaire Bill Ackman warning of an “economic nuclear winter”.

As China retaliates against the US after being slapped with a 54 per cent tariff, pressure is mounting on Mr Trump to make deals fast and avoid a recession in the world’s largest economy.

Dr Chalmers, who said Treasury was not predicting economic growth “to go backwards” but ­failed to explicitly rule out a recession in Australia, urged voters to stick with Labor at the May 3 election despite warnings that the Albanese government had eroded fiscal buffers through higher spending and baking in a decade of deficits and debt.

The third iteration of Treasury modelling presented a best-case scenario suggesting that Australia’s real GDP would decline by 0.1 per cent and inflation would ­increase by 0.2 percentage points in 2025.

 

Treasury’s latest modelling showed the impact of 10 per cent US tariffs, as well as 25 per cent tariffs on steel, aluminium and automotive products, would be largely neutral for inflation in Australia and give the Reserve Bank room to cut rates four times this year.

Most economists have ruled out the need for the RBA board to convene for an emergency intra-meeting rate cut, saying the bank should remain cautious about just how deflationary the US tariffs will be for the local economy.

Speaking in the outer-suburban Labor-held Melbourne seat of McEwen, which is under threat from the Liberals, the Prime ­Minister said: “We’re seeing a ­considerable impact, negative ­impact on the stockmarket … that impacts Australians, because superannuation funds had their shares there.”

Peter Dutton, who on Monday campaigned in the Labor-held marginal Adelaide seat of ­Boothby, said that “in uncertain times, our country needs strong economic management … the ­Coalition has the proven track record for handling global shocks – from September 11 to Covid”.

The Opposition Leader said that, ahead of the GFC, the ­Coalition had “delivered 10 surpluses and paid off all commonwealth debt … before Covid, the Coalition tackled Labor’s reckless spending to balance the budget”.

NSW Treasury Corporation chief economist Brian Redican said tighter fiscal management by the federal government would have given the nation a bigger buffer against any global ­recession. TCorp is the central borrowing authority for the NSW government and manages the state’s debt.

“If the feds had not spent as much they would have had a larger buffer there to defend against a deterioration,” Mr Redican said. “However a recession (in Australia) is not our base case, in fact we might be relatively advantaged compared to other countries.”

AMP chief economist Shane Oliver said Australia’s fiscal position was “far better” than most comparable countries “but nowhere near as good as it could be”. “We should have been slowing spending from the post-Covid ­recovery in 2022 and running even bigger budget surpluses to pay down debt which would have meant we would have put money aside for a rainy day – just like this may turn out to be,” he said.

Dr Chalmers, who spoke to RBA governor Michele Bullock on Monday morning to “compare notes” before the ASX crashed to its worst losses since the early months of the Covid pandemic, maintained pressure on the central bank ahead of its first post-election meeting on May 20 by invoking market predictions of four rate cuts this year.

Opposition Treasury spokesman Angus Taylor said the pre-election fiscal outlook released by Treasury and the Finance Department on Monday confirmed Coalition fears about Australia’s weak fiscal buffers. The PEFO, released before every election, forecast four years of deficits totalling $179.5bn and debt rising to $1.2tn.

Mr Taylor, who wrote to Treasury secretary Steven Kennedy on Monday demanding the Coalition be granted daily briefings given the severity of global economic shocks, attacked the government’s modelling for failing to factor in the risk of further retaliatory tariffs and impacts on the wealth of Australians.

“The Coalition successfully managed the economy through Covid and are ready to manage the economy through the current turmoil,” Mr Taylor said. “The ­impact of tariffs on global sharemarkets is impacting Australians’ retirement savings, it is impacting young Australians investing to save for a home deposit.”

Dr Chalmers, who will clash with Mr Taylor in their first election campaign debate on Wednesday night, said: “We take seriously the warnings from economists around the world of the risk of a global recession.

“You can see in the forecasts in the pre-election outlook, that our Treasury is not expecting the Australian economy to go backwards. In fact, what we are forecasting, or what they are forecasting in our economy, is for growth to continue to gather pace. But it acknowledges that there are now much more substantial risks to that output.”

Mr Redican warned that the cost of debt around the world would rise, especially for governments. “In the US investors will get a higher yield on bonds and they will demand that in Australia too, so the cost of debt will start to increase. If we can improve our fiscal position then we can manage the debt,” he said.

As Dr Chalmers seeks to convince voters he is delivering the soft landing Labor promised, he talked up more rate cuts from the RBA. Economists expect the next RBA move will be a 0.25 percentage point cut, lowering the 4.1 per cent cash rate to 3.85 per cent. “There’s … more than 50 per cent expectation in the markets that the next Reserve Bank interest rate cut in May might be as big as 50 basis points. I don’t predict or pre-empt those decisions, but the market is certainly now expecting multiple interest rate cuts over the course of the year, beginning in May,” he said.

RBC chief economist Su-Lin Ong talked down the chances of a half percentage point rate cut “unless circumstances and shocks are substantial with transmission through to the real economy”.