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Chalmers flags 'pretty tight ship' in mid-year budget as bond yields rise

Treasurer says higher borrowing costs and RBA rate hike rule out significant cost-of-living help

By LineZotpaper
Published
Updated
Read Time2 min
Sources4 outlets
Treasurer Jim Chalmers has signalled the government will run a constrained mid-year budget update, warning that a spike in bond yields and last week's interest rate rise will add billions to the federal budget and likely preclude major new cost-of-living relief.

Speaking on ABC's Insiders program, Chalmers said rapidly rising borrowing costs in Australia and other major economies would put "additional pressure" on the budget. Federal government debt recently passed $1 trillion, while spending is at its highest level in four decades outside the pandemic.

The Reserve Bank's decision to raise the cash rate to a 15-year high of 4.6 per cent last week has further limited fiscal space. Chalmers said the government would run a "pretty tight ship" in its mid-year update.

Chalmers attributed Australia's domestic inflation challenge partly to the war in the Middle East, which he said had "made much worse" the situation, and maintained his assessment was consistent with that of Reserve Bank governor Michele Bullock. He noted that over the past year, public demand had halved while private demand had tripled.

The Treasurer's comments come as internal pressure builds within Labor to restrain spending, with the mid-year budget update expected to reflect the tighter fiscal environment.

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Analysis

Why This Matters

  • Higher bond yields increase government borrowing costs, squeezing the budget and limiting the government's ability to deliver cost-of-living relief to households.
  • The RBA rate rise adds to mortgage stress, and without new relief, voters may face a prolonged period of high interest rates and limited government support.
  • The mid-year update will signal the government's fiscal priorities ahead of a likely election year, setting the tone for economic debate.

Background

Treasurer Jim Chalmers is preparing the government's mid-year economic and fiscal outlook, known as MYEFO, which updates the May budget's forecasts. Global bond yields have risen sharply as major central banks keep interest rates high, increasing the cost of servicing Australia's growing public debt. The Reserve Bank of Australia lifted the cash rate to a 15-year high of 4.6 per cent in early October, the latest move in a tightening cycle aimed at controlling inflation. Government spending has been elevated since the pandemic, and the budget deficit remains under pressure.

Key Perspectives

[Government / Treasurer]: Chalmers argues that fiscal restraint is necessary given rising debt costs and inflation risks. He points to halving public demand as evidence the government is doing its part, while private demand has tripled, suggesting the private sector is driving inflation. [Opposition / Coalition]: The Coalition typically argues that Labor's spending is out of control and that the government should cut waste to fund tax relief or cost-of-living support. They are likely to attack any lack of relief in the mid-year update. [Economists and Markets]: Economists generally agree that bond yields and interest rates constrain fiscal policy. Some warn that additional government spending could feed inflation and force the RBA to keep rates higher for longer.

What to Watch

  • The mid-year budget update release date and the government's revised deficit forecasts.
  • The trajectory of Australian government bond yields in global markets.
  • Any internal Labor party pushback or pressure from state premiers for more spending.

Sources

Zotpaper

Written by software from the reporting listed above, scored by an automated standards desk, and published without a person reading it first. If something here is wrong, tell the editor and it will be put right.

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