Jim Chalmers confirms ‘significant manufacturing investment’ in budget, despite $9b revenue shortfall

Jim Chalmers concedes the government will need an exit strategy should it not see a return on investment in its Future Made Australia policy.

Treasurer Jim Chalmers greets the Bannerman family with ACCC Chair Gina Cass-Gottlieb last week before delivering the annual Bannerman Competition Lecture. Picture: NCA NewsWire / Nikki Short

Labor is looking at handing manufacturing businesses tax breaks as part of its Future Made in Australia plan, with Jim Chalmers backing Productivity Commission warning that the government will need some kind of exit strategy should it not see a return on investment.

While flagging “significant investment” in the project in next month’s budget, the Treasurer ­revealed the government expected revenue to be down about $9bn thanks to the recent fall in iron ore prices, which was being driven by a slowdown in China’s economy.

“The degree of difficulty for this budget is a bit higher, even perhaps than the first two … We’ve seen the iron ore price come off quite substantially,” he told the ABC on Sunday.

“It is not the only influence. The labour market is important here as well. But the iron ore was more than $130 a tonne at the start of the year … and now has been bouncing around in the low 90s.

“To give you a sense of what that means for the budget, the difference … is like $9bn in revenue in the budget and is like $35b in nominal economic activity.”

But economists rebuffed the Treasurer’s warnings, arguing Dr Chalmers was “crying poor” in order to manage expectations and prevent ministers seeking more funding for their portfolios.

Rich Insight founder Chris Richardson said the budget was in a “magnificent” position.

“The iron ore price assumed in the (last) budget … was less than $80 a tonne. Yes it’s less than when it peaked out a few months ago, but it’s still bloody beautiful in terms of looking at budget impact,” he told The Australian.

“(Dr Chalmers) wants to beat expectations and be able to say ‘oh look it was even better than we thought’. He’s calming down ­expectations of not just Mr and Mrs suburbs, but of the rest of the ministry.”

CommBank head of Australian Economics Gareth Aird also said that “in terms of trade, things are still very positive”, while NAB chief economist Alan Oster said a budget surplus was “in the bag”.

In terms of the budget’s position in 2025, economists agreed a softening of the labour market and changes in demand from China would see a hit to the bottom line, but that it was difficult to predict how extreme this would be.

Despite pointing to significant economic headwinds, Dr Chalmers said “the goal” was still to hand down a surplus while also delivering a major funding package to support the Future Made in Australia plan.

“(Tax breaks are) one of the deals that we are considering, but not the only one. What you will see on budget night is a broad and comprehensive strategy,” he said.

“The heavy lifting will still be overwhelmingly done by the private sector but there is an important role to play by governments and by public investment.”

He said it would take “hundreds of billions of dollars” in the long term to achieve the energy transformation.

In a break from his mentor, Wayne Swan, Dr Chalmers disagreed that Productivity Commission chair Danielle Wood was “out of touch” in raising her concerns with the Future Made in Australia Act.

“Danielle made some important points but obvious points about making sure we get value for money,” he said.

“We’ve got strict frameworks, we’ve got exit strategies and off-ramps and we are taking into consideration the impact of these plans on the economy more broadly.”

The Coalition launched a scathing attack against the Future Made in Australia plan last week, pointing to the fact similar initiatives in the US had led to an ­increase in inflation.

But Dr Chalmers said the inflation challenge encountered by not only the US, but much of the world in recent years, was due to a range of influences including foreign conflicts.

“Inflation in the US is going up there are recessions in some countries, we’ve got a substantial slowing in the Chinese economy (and) of the costs and consequences of these conflicts that we are seeing in two important parts of the world as well,” he said.

“We’ve seen inflation come down in Australia in welcoming and encouraging ways. We’re seeing it go up in the US and that reminds us that even though inflation has come off substantially from the peaks from a couple of years ago, it’s not always in a straight line. It can zig and that’s why a primary consideration in the budget will be continuing to fight against inflation as we deal with slowing growth.”