Australia’s Treasurer, Opponent Dodge Fiscal Fix in Poll Debate

(Bloomberg) -- Australian Treasurer Josh Frydenberg and his opponent Jim Chalmers avoided laying out a path to fiscal repair in a pre-election debate, suggesting central bank interest-rate hikes alone will have to rein in inflation. 

Frydenberg, 50, and Chalmers, 44, were repeatedly asked about spending cuts and tax rises at Wednesday's event, questions both successfully dodged. The treasurer said taxes will always be lower under the ruling coalition, while Chalmers said the Labor Party will focus on the “cost of living crisis.”

Chalmers acknowledged a large budget deficit and high national debt at a time of escalating inflation were a serious fiscal issue. “That is a key challenge that either of us will face, no matter who wakes up as the treasurer on May 22.” 

Australia's budget is forecast to remain in deficit through at least 2026, with debt expected to breach A$1 trillion ($711 billion) in that period, according to Treasury papers. 

With fiscal settings expected to remain expansionary for some time yet, the Reserve Bank will likely be on its own in tackling surging prices. The RBA raised its cash rate by a larger-than-expected 25 basis points to 0.35% on Tuesday as it moves to counter the fastest inflation in more than two decades.

Money markets are pricing in an RBA hike each month from June through to the end of the year, and see the cash rate above 3% by December.

Yet Frydenberg extolled the center-right government's track record as superior economic managers to the Labor opposition, a claim that Chalmers rejected.

The treasurer highlighted how Australia's A$2.2 trillion economy is today larger than pre-pandemic levels, unemployment is at a 13-1/2 year low, job vacancies are at a record high and consumer spending is strong. 

“What we want is the economy to normalize and that means ensuring that we focus on the things that will boost the productivity of the nation and will create more jobs,” Frydenberg said. 

Chalmers pointed out that the “defining issue” of the election was dealing with surging consumer prices that are rising much faster than wages growth. 

“Our economic plan is all about growing the economy without adding unnecessarily to the inflationary pressures,” he said. “It's about getting real wages moving again and it's about having something to show in economic terms for the trillion dollars of debt that we would inherit.”

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