Author
- Michelle Grattan
Professorial Fellow, University of Canberra
Australia’s next budget update, being delivered just before Christmas, is set to be hit by what’s “likely to be billions of dollars extra” in higher interest bills on government borrowing, federal Treasurer Jim Chalmers has warned.
The federal government now has more than A$1 trillion in debt .
Looking ahead to the December Mid-Year Economic and Fiscal Outlook (MYEFO), which will update the May budget’s forecasts, Chalmers said “it won’t be anything like a mini budget” with major new measures.
Speaking to The Conversation’s Politics podcast, the treasurer instead predicted the most “problematic” impact on the mid-year update would be the rising global costs of servicing debt.
The big influence on the mid-year budget update, unfortunately, is going to be an increase in borrowing costs. Because if you read the international economic commentary, the biggest thing that’s going on right now is the way that bond yields – which are essentially a reflection of borrowing costs – are going up around the world and quite substantially. And here in Australia as well.
And so the big, problematic influence on the mid-year update is, at this stage, likely to be billions of dollars extra to service our borrowing costs.
However, Chalmers argued Australia is:
better placed than other countries in this regard when it comes to borrowing costs, because our debt is a sliver of what other countries are carrying. And we’ve got it down further since we’ve been in office from the trajectory that we inherited.
But the mid-year update, I think one of the things that people can expect to see, is the damaging impact of higher bond yields on everyone’s budget, including ours.
On mixed long-term forecasts
At the start of this week, the federal Treasury released Australia’s seventh Intergenerational Report . First launched in 2002, the report projects what the nation’s demographics, economy and budget might look like over the next four decades.
The results were mixed. An ageing population – with more deaths than births forecast in the 2060s – along with sluggish economic growth will all put pressure on a budget stuck in deficit. But the report also highlighted Australia’s relative strengths, and stressed its resilience.
Chalmers argued there are still good reasons to be “overwhelmingly” optimistic about Australia’s future.
Yes, we’ve got serious risks. Yes, we’ve got serious challenges in our economy and in our budget. But we’ve also got substantial advantages too, and I’m confident that we can make the most of them.
[…] I think [the Coalition and One Nation] see that as their path to power because […] their whole policy agenda would make people worse off, rather than better off. Superannuation, wages, migration, really across the board. They would all make people worse off, rather than be better off.
And at every turn, the political players in our system – our political opponents and their fellow travellers – their endless negativity is a deliberate strategy. They want to talk the place down. And it’s not that long ago […] that talking the economy down was something that people took a dim view of.
On new immigration cuts
After the federal government last week announced measures to tighten migration , Chalmers stressed he still sees immigration as “a force for good”, as long as it’s “robustly” managed.
[I’ve] worked with cabinet colleagues on getting Net Overseas Migration very substantially down. I mean, it’s down almost 50% from its peak a few years ago. That’s the first point. We’ve actually been managing Net Overseas Migration down […] We’ve taken a more active role in normalising net overseas migration.
I do see migration as a force for good in our economy and in our community and in our country more broadly, so long as it’s robustly, responsibly, appropriately managed. And that’s what the big reform agenda that [Immigration Minister] Tony [Burke] outlined at the Press Club’s all about: making sure that migration is in our national interest, including in our economic interest.
And that is important in the context of fertility rates falling further and faster than we anticipated, and an ageing population […] We will hit that situation [where deaths overtake births in the 2060s] much, much later than other countries.
But we have the opportunity here to manage Net Overseas Migration down further to more normal levels, at the same time as we recognise what an important role it plays in our economy.
The ‘disastrous’ economic impacts of war
Given the worsening global outlook on a number of fronts, does Chalmers think the economy will get better from here?
I do, but I think […] the disastrous impact on our economy and on inflation from the war in the Middle East has a little longer to run yet. This war has been dragging out for more than six months now. From an economic point of view, the end of it can’t come soon enough.
And so there are a whole bunch of things happening in our economy, but the primary influence on our economy right now is the impact of the war in Iran, on global oil prices flowing through to everyone’s economy, including ours. And pushing up inflation higher than we’d like for longer than we like and weighing on growth. And so who knows when that will end?
If it were up to me, it would end today, because that’s the primary pressure that people are feeling, and there are other pressures as well. So I’m confident that we will get real wages growing again. I’m confident that living standards, as the [Intergenerational Report] says, will rise over time. But I’m also realistic about what the next few months look like in the context of interest rates going up all around the world, inflation going up around the world, and how those things are playing out in our own economy.
Chalmers also said Australia’s oil supply remains secure for the moment, though he’s watching global oil prices closely.
On the supply front, we’re going pretty well. But there’s a lot of stuff going on in the Middle East which is troubling in that regard. But so far so good.
Price is a huge concern. We’ve spent this whole week [with oil] above US$100 a barrel so far, the past week or so […] so that is obviously elevated. So price is a bigger concern right now for us than supply. But we can’t be complacent on either front.
