Appearing on this masthead's Inside Politics podcast, Chalmers said he was "not prepared to put a specific number on the optimal spending as a share of GDP" despite calls from leading policy thinkers such as Ken Henry and Saul Eslake for rules to impose fiscal discipline.
In the just-completed financial year, spending as a share of the economy reached 26.9 per cent. Outside the pandemic, it was the highest share since 1986-87. The budget recorded a deficit of $22.2 billion, which is expected to grow to $31.5 billion this financial year.
Chalmers argued that those advocating more cuts should nominate what they would slash, saying pressures on the government were growing rather than receding. "People will have different views about what the optimal level is. From our point of view, it needs to recognise some of these pressures in the care economy and elsewhere ... defence spending and the like," he said.
Financial markets put the chance of a fifth interest rate rise this year, at the Reserve Bank's early November meeting, at 60 per cent. The chief economists of Commonwealth Bank and BetaShares have warned the country could tip into a recession. At the weekend, Brent crude hit $US117 a barrel, its highest level since the war against Iran started.
Chalmers would not be drawn on the RBA's next move but said the government and the Reserve had to balance the financial fallout from the war on the jobs market and the entire economy. "Whether it's the independent Reserve Bank weighing up all of those things or the government weighing up all of those things ... we've all got balances to strike," he said.
The Coalition has declared the next election to be a referendum on the economy. A growing group of Labor-aligned figures, including backbencher Ed Husic, have joined conservatives in making urgent warnings on the need for pro-growth reforms.
Several leading policy voices say Labor's budget should be in surplus at a time when tax receipts are strong and welfare payments low due to strong employment. Many are driving for deep personal income tax cuts on top of those already put in place this year and scheduled for mid-2027.
Chalmers said the pressures on the economy and budget were complicating the timing of a round of larger tax cuts, expected to be promised in next year's budget or before the election due in 2028. "We will look to cut taxes again, but it's not clear yet what the best way to go about that would be, or the most appropriate time to do that would be given the really substantial fiscal pressures," he said.
Chalmers admitted the suite of tax changes in the May budget "makes life tougher" for Labor MPs who have spoken out about the government's handling of inflation and productivity. He argued Labor had "lost some paint over the course of not just the last six months or so but over a longer period" and said it was "only right and only fair that I put my hand up and take responsibility for my share of that."
The relationship between Chalmers and Prime Minister Anthony Albanese has come under scrutiny given the strong political reaction to key budget measures. Chalmers said they "actually work really closely together," adding that "treasurers are lightning rods when the government is under pressure."
Shadow Treasurer Tim Wilson said inflation had been a problem since July last year when it moved above the RBA's target band. "Inflation won't be tamed until the government kicks its spending addiction," Wilson said.