Treasurer on war footing over tax reform, rates pain
Finance Minister Jim Chalmers will argue that conflicts in the Middle East and their impact on the Australian economy justify rapid tax reform as households brace for higher interest rates.
It was widely predicted that the Federal Reserve would keep interest rates steady at its meeting on Tuesday, but skyrocketing fuel prices caused by the US war against Iran changed the forecast.
The four major banks expect an interest rate increase this week and in May; This will bring the cash interest rate back to the level it was before the Central Bank started its first rate cut in February 2025.
Dr Chalmers said rising fuel prices put the treasury’s inflation forecast in the “mid to high tertile” range.
But while growth may have been hit, there was no expectation that Australia would fall into recession.
“I see developments around the world and the pressures on Australians here not as a reason to go slower, but as a reason to go further, and that’s the approach I’ll be taking in my discussions with my cabinet colleagues,” the treasurer told Sky News on Sunday.
“I will be working on a number of reform packages for this budget and they will focus on savings and productivity.
“I will give my colleagues a lot of options when it comes to tax reform.”
AMP chief economist Shane Oliver said the Reserve Bank should keep the cash rate at 3.85 per cent.
“There’s a strong argument for waiting for some of the dust to settle by May,” he said.
Dr Oliver said if petrol prices continued at their current average level of $2.26 per litre, inflation could reach around 5 per cent, which would be well outside the Reserve Bank’s target range.
He said any tax reform had to be implemented as part of a wider package or Australians would face higher taxes.
National leader Matt Canavan said Labor’s spending left Australia in a much weaker position.
“That’s why it’s so important for a government to be able to make sometimes difficult decisions that will deliver better outcomes for the Australian people,” he told Sky News on Sunday.
“The government doesn’t save for a rainy day, and the rainy day has arrived and we really don’t have a roof over our heads.”
Greens leader Larissa Waters said Australia should use every diplomatic tool available to pressure the US to end its war against Iran.
“When this latest inflation push is a supply-side mess caused by a senseless war where interest rate rises cannot be stopped, the RBA should not be raising rates,” he said.
“The RBA should not punish people for inflation caused by an illegal war supported by Labour.”
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