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Australia could still avoid a recession despite fresh forecasts providing a grim backdrop for the upcoming budget, the Treasurer says.
The International Monetary Fund slashed the outlook for the Australian economy overnight and warned the chances of a global hard landing and inflation remaining higher for longer, have risen.
Jim Chalmers said while Australia was not immune from the global economy’s perils it is still the expectation a domestic downturn could still be avoided.
“A slowing global economy matters to us a great deal, and we do expect their own economy to slow considerably. The Treasury and the Reserve Bank are not currently expecting a recession here at home,” he told ABC’s Radio National.
The IMF downgraded its forecasts overnight, revealing it expects the Australian economy to expand by just 1.6 per cent this year, down from 1.9 per cent, and grow just 1.7 per cent in 2024.
It expects inflation to fall to 5.3 per cent this year before dropping to 3.2 per cent in 2024, just above the RBA’s target band.
The federal government will update its own forecasts in the upcoming budget, to be handed down on May 9.
Dr Chalmers will on Wednesday head to Washington alongside RBA boss Philip Lowe and Treasury Secretary Steven Kennedy for the G20 finance ministers and central bank governors’ meeting.
Speaking ahead of his departure, the Treasurer again downplayed expectations Australians struggling with the cost of living would be given a handout in the budget.
He stressed any relief would be doled out in a “responsible and methodical way”.
“We need to do that in a way that doesn’t make inflation worse. We can’t just throw endless amounts of cash at problems in our economy but we can make a meaningful difference in areas, like for example, giving people a little bit of help with their energy bills,” Dr Chalmers added.
“We‘ve got structural challenges that come from the cost of servicing that trillion dollars in Liberal debt combined with the NDIS and aged care and health care and national security.
“All of these costs are putting pressure on the budget, there is a structural problem and we need to deal with it.”
The structural deficit is expected to cost nearly $50bn every year, or 2 per cent of GDP, by the end of the decade, according to a fresh report from the Grattan Institute.
The think tank recommended a swath of spending cuts and tax hikes, such as undoing WA’s GST deal and redesigning the stage three tax cuts, to help get the nation off the path of 25 years of deficits.
“None of these options are easy, but if the government is serious about budget repair it will need to embrace at least some of them,” said lead author and Grattan Institute chief Danielle Wood.
Dr Chalmers said while there was some “common ground” in the report’s findings, the government did not agree on all of the recommendations.
“We agree that there‘s a structural problem in the budget. We agree that there’s an opportunity to superannuation. We said we were receiving some advice on petroleum resource rent tax,” he said.
