Jim Chalmers says Australia is well placed to avoid a local recession as he promises to heed new warnings from the International Monetary Fund.
The IMF has cut its global growth forecast by 0.3 percentage point to 2.6% for 2023 and warns of the risk that “many economies” slide into recession.
The Treasurer said he believed it was possible for Australia to avoid the same fate even though there was “no easy way out” for public spending.
“We don’t expect the Australian economy to shrink,” Dr Chalmers said.
“But the global economy is a dangerous place right now. And so obviously, as our understanding evolves, we’ll make sure our forecast evolves with it.
The IMF has lowered its forecast for Australia’s economy, tipping it 3.8% this year and 1.9% through 2023, from 4.2% and 2.5% as forecast in April .
Dr Chalmers has sought to downplay expectations about the budget he will present on October 25.
He stressed that Australia is not immune to deteriorating global conditions, including soaring inflation and the corresponding tightening of monetary policy.
“We’re in a much better place than most countries we compare ourselves to, but we won’t be immune to a global slowdown,” he said on Tuesday.
“The worrying aspect of what we know about the global economy, what we have learned over the past two weeks, is that it will have implications for us.”
Dr Chalmers will meet finance ministers and central bank governors in the United States this week before returning to Australia to present the Albanian government’s first budget.
The government’s final budget position showed the deficit for 2021-22 had fallen from a forecast of $79 billion to $32 billion.
And a new report from Deloitte Access Economics predicts that an additional $114.4 billion in incremental revenue over the next four years will be revealed in the budget.
Spending is also expected to be higher, even considering only political announcements through September 30 this year, according to the report released on Tuesday.
Stephen Smith, partner at Deloitte Access Economics, said the budget had “made a remarkable comeback” since the pandemic, supported by high commodity prices and low unemployment.
But Mr Smith said the October budget would likely be the last to reveal an unanticipated rise in revenue like this, at least for the foreseeable future.
He said further fiscal repairs should come from “active” changes in government policy.
“It means making tough decisions. These decisions will involve navigating the impasse between ‘good politics’ and ‘good politics’ that keeps most treasurers awake at night,” he said.
Deloitte Access Economics director Cathryn Lee said the government would likely make those tough decisions in 2023 or 2024, with its first budget expected to be “more boring”.
Ms Lee said Australians might have to be prepared to pay higher taxes if they wanted the government to fund existing services and cover emerging priorities, including elderly care, childcare and defence.
“Alternatively, Australians might decide that in fact they don’t want or need some of this spending as much as they initially thought,” she said.
“Or they can choose a combination of the two.”
The publication of the IMF and Deloitte reports comes after a week in which the Albanian government has given free rein to speculation over “Phase 3” tax cuts.
Labor is split on whether or not to cut the already legislated policy, which is set to be the biggest spender in the budget at $20bn a year when it takes effect in 2024.
The cuts mean anyone earning between $45,000 and $200,000 will pay no more than 30 cents on every dollar earned in tax.
Peter Dutton has warned that the Albanian government will drive Australia into recession if it continues to “kill the confidence” of consumers and small business owners with negative rhetoric.
Speaking in Queensland, the Leader of the Opposition argued Australia was unlikely to go into recession unless Labor made “really bad decisions” in the next budget.
Mr Dutton said Labor had inherited an economy with strong fundamentals from the Coalition.
Opposition Treasury spokesman Angus Taylor agreed, saying the post-pandemic budget recovery had been “amazing”.
“But all we’re hearing right now from Labor is how terrible the situation is,” Mr Taylor said.
“We have to see a clear plan, we have to see a clear path forward.”