Chalmers dismisses Bullock’s inflation warning as ‘hypothetical’

Jim Chalmers has dismissed a warning from the Reserve Bank governor as hypothetical after she warned giving money to households pushed up inflation and put pressure on the bank to keep hiking rates.

The treasurer has been downplaying speculation that a tax offset of between $200 and $300 for wage earners would be included in the budget – a prospect that was made more controversial on Tuesday when the Reserve Bank raised interest rates for the third time this year.

“The governor was asked about that budget speculation in a hypothetical way, and gave a hypothetical answer,” Chalmers told Nine’s Today show during a Wednesday morning media blitz.

“The governor was asked what would happen if the government ploughed in a whole bunch of extra stimulus spending into the economy … but there won’t be a heap of extra stimulus. In fact, the budget will wind back spending overall, and that’s because we recognise that even though the budget’s not the primary driver of these price spikes that we’re seeing in our economy right now, we can play a helpful role in the fight against inflation.”

Michele Bullock, who has been reluctant to weigh into the debate on whether government spending is fuelling inflation, said on Tuesday the bank was trying to reduce demand in the economy because supply side constraints meant it did not take much additional demand to set off inflation.

Chalmers on Wednesday refused to rule out the tax offset, and argued what mattered was the balance struck between spending and savings in the budget.

Asked on Sky News whether the prospective handouts would feed inflation, Chalmers said: “We’ve made it really clear already that we’ve got very substantial savings in this budget. In fact, this will be one of the most responsible budgets that people have seen, certainly in the last quarter-century or so.”

This masthead reported on Tuesday that households could score modest tax relief to soften the blow of revenue-raising tweaks to negative gearing, the capital gains tax discount and family trusts, whose distributions are likely to be taxed at a minimum rate of 30 per cent.

Opposition Leader Angus Taylor on Wednesday left the door open to supporting modest income tax relief. But he warned underlying economic challenges would need to be addressed, and any stimulus was “just a Band-Aid on the bullet wound”.

“If you take a typical family with a mortgage, they’re paying $29,000 more a year in after-tax income to pay their interest compared to when Labor came to power. That’s a huge number. And a couple hundred bucks a year is not going to make the difference,” he told ABC News Breakfast.

“We’ll see what sort of relief proposal they put forward, what the budget aggregates look like, because that’s what affects inflation. But what we need to see is containment of government spending.”

Chalmers also defended the government breaking a promise not to pursue negative gearing reform.

Asked why Labor did not give Australians the chance to vote on tax reform at the last election, Chalmers said the party’s focus had been on building more homes.

“The first year was very focused on being a year of delivery, and what the budget will signal is a year of, or begin a year of, more ambitious reform,” Chalmers told Radio National.

“I don’t think any responsible government can ignore the very real intergenerational pressures that are in our budget, in our tax system, in our housing market, in our economy and our society more broadly.”

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