Jim Chalmers is caught in a moment not of his making and not of his choosing.
But he is now the Treasurer responsible for shaping it.
The numbers revealed in his ministerial statement on Thursday suggest the nation is heading for a soft economic landing out of the current inflation crisis but not before a very hard 12 months for households.
The challenge for the government is how to prepare people for what is to come without inflicting political damage on itself.
The Treasurer on Thursday sent mixed messages of pessimism and hope.
It’s fine to tell people about the economic challenges ahead but it’s another thing to terrify them.
He is asking people to look beyond the year ahead to a return to normality.
Yet there is a subterranean message being sent from Treasury to the Reserve Bank of Australia through Chalmers; wages aren’t going to grow by as much as the RBA is assuming, so do not go crazy with interest rates.
The political problem for Chalmers, and more profoundly Anthony Albanese considering it was his pledge, is that this message also undermines the government’s key election commitment: to keep wages in line with prices.
Chalmers has handed the opposition a gift in that his economic update is an admission that at least two key election commitments must now be broken: wages and bringing down electricity bills.
Economist Chris Richardson says the key issue in all of this is confidence.
While retail numbers released on Thursday suggest people are spending up a storm, confidence is trending towards the gutter.
Chalmers is right to talk about the challenges but he has to be careful in trying to frame a political narrative ahead of his first budget that he doesn’t become the reason that spending falls off the cliff.
The last thing a treasurer wants to do is kick confidence further down the drain.
The other dilemma is one opposition Treasury spokesman Angus Taylor was quick to jump. The RBA, which has only one blunt instrument at its disposal, will be getting nervous about Chalmers’ framing of the budget position and increased deficits over the forward estimates.
If they don’t see a government committed to a budget improvement – in other words putting a brake on spending – it will see it has no choice other than to keep pressure up with further interest rate rises.
The reality is that the numbers Chalmers released on Thursday show Treasury’s forecasts have deteriorated dramatically since its last projections four months ago.
Higher inflation, lower wage growth and a huge hit to the ability of the household budget to keep on spending.
It is also looking towards weaker-than-forecast economic growth.
But as the Treasurer was at pains to point out, it is not as weak as other economies.
Australians may be facing tough times, but not as tough as others.
Chalmers is now forced to deflect to the argument it dismissed in opposition, that while things may look grim for Australia over the next 12 months, it’s nowhere near as grim as the rest of the world.
This will be cold comfort to those whom Chalmers has identified as having to choose between buying vegetables and paying rent.
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