Chalmers vows to pilot economy to a ‘soft landing’ but there’s turbulence ahead


Treasurer Jim Chalmers will prime the government to deliver an “economic soft landing” that will include low unemployment, a recovery in household spending, growth in wages and inflation back within the Reserve Bank’s 2-3 per cent target band.

Amid warnings from financial regulators that the number of people falling behind on mortgage repayments and businesses becoming insolvent are on the rise, Chalmers will use a speech on Wednesday to in effect set a series of government targets including keeping unemployment below 5 per cent and ensuring the economy continues to grow.

Treasurer Jim Chalmers has set targets for the country to achieve a “soft landing”.Credit: Alex Ellinghausen

Economic growth almost came to a standstill through the first three months of the year, with last week’s national accounts showing GDP up by just 0.1 per cent in the March quarter. Annual growth slumped to 1.1 per cent, its slowest rate outside of the pandemic since the early 1990s.

Job figures this week are expected to show unemployment inching up from 4.1 per cent while inflation, at 3.6 per cent, is well down from its late-2022 peak but still above the RBA’s 2-3 per cent target range.

Chalmers will tell the Morgan Stanley Australia conference in Sydney that the country faces a “narrow runway” to reach a soft economic landing.


Such a soft landing, he will say, will include: “An economy still growing, inflation coming back to band, unemployment with a four in front of it, tax cuts and rising wages supporting a gradual recovery in consumption, and a sensible approach to budget repair to buffer us against uncertainty.

“This is the soft landing we are cautiously confident of, but not complacent about, just as a soft landing in the global economy is assumed but not yet assured.”

Chalmers has come under attack from some economists for last month’s budget, which forecast a $9.3 billion surplus this financial year, turning into a deficit of $28.3 billion in 2024-25. Government spending is expected to increase by 3.6 per cent while tax as a share of GDP is tipped to fall due to the start of the stage 3 tax cuts.

But the treasurer will use the speech to push back at calls for spending cuts, saying they would hurt the economy, jobs and wages.

“In this environment, it would be irresponsible to slash and burn and cut too much. Our more balanced approach is tackling inflation without crunching the economy,” he will argue.

Shadow treasurer Angus Taylor said the national accounts should have been a wake-up call for the government.

He accused the government of wasting money, including its yet-to-be-legislated $13.7 billion in production tax credits for the critical minerals sector.

“While the RBA has its foot firmly on the brake, the Albanese Labor government continues to slam the accelerator,” he said.


“We are facing a deadly combination of high inflation and household recession.”

Taylor said the government needed to put in place a cap on tax as a proportion of GDP, ensuring the economy grew faster than public spending, and have a plan for a structural budget surplus while “ending the waste” and “inflation-fuelling spending”.

The pain from previous interest rate increases and higher inflation is now widening across the economy.

The Council of Financial Regulators, which includes the Reserve Bank, the federal Treasury, the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission, on Tuesday revealed more people were falling behind on their home loans or going into insolvency.

It said it appeared risks to the financial system from lending to businesses and households remained contained. But there were growing signs of pressure across the economy.

“Members observed that the share of borrowers falling behind on mortgage payments has continued to rise, as have financial hardship applications, but from a low level,” it said.

“While personal insolvencies remained near historically low levels, the council noted that there had been an increase in insolvencies for both individuals and companies, particularly small and medium-sized enterprises, over the previous 12 months.”


The closely watched NAB monthly business survey, released on Tuesday, revealed growing pessimism among companies as they faced a slip in activity.

Business conditions are now below their long-run average while trading conditions and profitability measures both fell. Forward orders are still in negative territory, led by the retail, wholesale and construction sectors, although the survey did show a lift in employment intentions.

NAB chief economist Alan Oster said economic activity had probably remained subdued into the June quarter, with consumer-dependent sectors bearing the brunt of a reduction in household spending.

“There are warning signs on the outlook for growth but at the same time reasons to be very wary about the inflation outlook, and we expect the RBA to keep rates on hold for some time yet as they navigate through these contrasting risks,” Oster said.

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