Jim Chalmers flags new budget strategy as global threats grow

Jim Chalmers says the May budget will include an updated fiscal and economic strategy aimed at underwriting future growth and boosting national resilience against a hostile global backdrop.

Treasurer Jim Chalmers shakes hands with Britain's Chancellor of the Exchequer, Jeremy Hunt, as US Treasury Secretary Janet Yellen looks on. Picture: AFP

Jim Chalmers says the May budget will include an updated fiscal and economic strategy aimed at underwriting future growth and boosting national resilience against an increasingly hostile global backdrop.

As Israel launched attacks on sites inside Iranian territory, the Treasurer – who is in Washington for a summit – said “the global­ outlook will weigh pretty heavily on our considerations as we put the finishing touches on our third budget”.

The escalating Middle East conflict, the ongoing Ukraine war, and the potential threat of a Chinese property meltdown presented “profound challenges” for policymakers around the world, Dr Chalmers told assembled G20 finance ministers, central bank governors and World Bank officials in the US capital.

“These sorts of considerations are a big feature of the discussions here in Washington DC, and they’ll be big factors as well as we put the budget together and hand it down next month,” he said.

News of the Israeli strike at around midday on Friday rattled global commodity and financial markets. Brent crude oil prices briefly jumped above $US90 a barrel, while the Australian dollar sank below US64c for the first time in five months.

Traders dumped stocks, with the benchmark ASX 200 sharemarket index sinking 1 per cent on Friday as traders sought refuge in traditional safe havens, such as gold.

At the World Bank’s northern spring meetings on Friday night, Australian time, Dr Chalmers told foreign officials the focus of Labor’s third budget would shift away from the pressing issue of ­regaining control of inflation, and towards supporting growth.

“In Australia, this means moving to an economic and fiscal strategy that is carefully recalibrated to the complex conditions we face, now and down the track,” he said.

“Our economy is slowing, and this will see our labour market soften. Paired with lower bulk commodity prices, this will have material implications for our revenue outlook and our budget,” he said. “At the same time, we can’t afford to fall behind, or fail to make the investments that will work to secure our future.

“Our economic strategy will be focused on the fight against inflation but our budget will see a stronger emphasis on economic growth, to help us meet the challenge of the defining decade ahead.”

The International Monetary Fund earlier this week said some of the gloom that had shrouded the global outlook late last year had since cleared, although the world economy still remained fragile and growth was weak by historical standards.

The IMF also warned that the past year’s rapid progress on reducing inflation appeared to have stalled in early 2024.

Federal Reserve Bank chairman Jerome Powell. Picture: AFP

This was confirmed by US Federal Reserve chairman Jerome Powell, who flagged Americans would have to wait longer for rate cuts after consumer prices rose for a third straight month.

Economists blamed persistent price pressures in large part on America’s huge budget deficit and massive spending through the ­Inflation Reduction Act.

In an interview with Bloomberg early Friday morning, Australian time, Dr Chalmers said Labor’s recently announced Made in Australia policy would not make it harder for the Reserve Bank to bring inflation back under control.

“Our investments are all about trying to make sure our economy can be more competitive and more productive, so that we can grow with low inflation into the future,” he said.

“And also, it’s important to recognise that the sorts of investments that we are contemplating, they will be big, they will be substantial, but they won’t all hit the economy at once in the first year.

“The plan we present in our budget will be a medium-term plan and a longer-term plan. There’ll be some investments upfront, but not all the ­investments.”

Overseas evidence that inflation, particularly in the services sector, has proved harder to shift has pushed back bets on when the RBA will deliver its first rate cut.

While a number of economists predict a move lower in November, financial markets are now pricing in a possibility that rate relief will only arrive in early 2025.