Treasurer Blames Global Instability for Australia’s Inflation Troubles

Chalmers ruled out changes to negative gearing. The review so far showed they wouldn’t address the housing supply crisis.

Federal Labor Treasurer Jim Chalmers speaks to the media during a press conference at the Commonwealth Parliamentary Offices in Brisbane, Australia on Sept. 25, 2024. AAP Image/Darren England

Treasurer Jim Chalmers has cited global economic instability as a major contributor to Australia’s inflation struggles.

These struggles continue to challenge the nation while other advanced economies show signs of improvement.

Chalmers, who is currently in the United States, spoke to ABC on Oct. 25. He said international pressures are impacting Australia’s economy, pointing to conflicts in the Middle East and Ukraine, alongside economic slowdowns in China and political uncertainty in the United States.

Australia’s inflation forecast remains a cause for concern, with the International Monetary Fund (IMF) predicting a 3.6 percent inflation rate by the end of 2025.

This leaves Australia with one of the highest inflation rates in the developed world, with only Slovakia expected to experience worse.

Other advanced economies—including the United States, UK, and European Union—have seen their inflation levels returning to pre-pandemic norms.

“Our inflation peaked much later and lower than most other countries,” said Chalmers.

He also said other developed nations fighting inflation had higher unemployment and slower growth.

“In fact, most OECD countries went backwards in the last year, and we haven’t.”

Even the IMF noted that Australia’s approach has been more measured. To preserve employment levels, Australia opted for less aggressive monetary tightening than nations like the United States.

Chalmers emphasised Australia’s stronger-than-expected job growth as a silver lining. “We’ve got unemployment in the low fours.”

Budget Surpluses and Responsible Economic Management

In response to criticism about whether his government’s budget contributed to inflation, Chalmers defended his team’s fiscal management, highlighting the two consecutive budget surpluses delivered for the first time in two decades.

He argued that the budget played a crucial role in reducing inflation, even as critics pointed to its potential inflationary impact.

“We found almost $80 billion in savings, and we’ve shown spending restraint unrecognisable to our predecessors,” he said.

He pointed out that the IMF had praised Australia for banking the surplus, which helped the government address inflation while maintaining a solid labour market.

While jobs growth has been steady, it has also been driven largely by government spending in the aged care sector and National Disability Insurance Scheme (NDIS).

Meanwhile, Shadow Treasurer Angus Taylor took aim at the government’s handling of inflation.

“The treasurer has made all the wrong moves, and our inflation situation is at the wrong end of where we want it to be,” Taylor said.

Taylor pointed out that other countries, such as the United States and UK, are seeing interest rates fall while Australia’s remain high.

“Interest rates are coming down in the U.S., UK, Canada, and New Zealand, but not in Australia. That’s because our homegrown inflation is raging,” he said.

Negative Gearing Review: No Changes Expected

On proposals to alter negative gearing tax deductions, Chalmers confirmed that a recent review had not convinced him that touching the issue would resolve the housing crisis.

“We haven’t been convinced that changes to negative gearing would have positive consequences for supply,” Chalmers said. He clarified that the government is now almost entirely focused on increasing housing supply rather than tackling demand through tax reforms.

“There aren’t enough homes for Australians to live in, and the housing pipeline is nowhere near where it needs to be,” Chalmers stated.

He rejected the idea that abolishing negative gearing or the capital gains tax discount would significantly address housing affordability or availability, arguing that the government has found better ways to invest in building homes.

“Our efforts and focus are on supply, and we’ve found other, better ways to invest in building the homes Australia desperately needs,” Chalmers added.

Opposition Leader Peter Dutton has said the Liberal-National Coalition will not alter negative gearing if they win the upcoming election.

Debate over negative gearing and capital gains tax reforms resurfaced following the government’s decision to review them.

Last week, Dutton announced a $5 billion housing plan to speed up the construction of 500,000 new homes by funding critical infrastructure like sewerage, water, and power—normally a state government responsibility.

The plan promises to address supply issues by focusing on greenfield developments. Funding will be available on a “use-it-or-lose-it” basis to encourage swift developer action.