Chalmers Warns Higher Yields Will Kill Off Cost-of-Living Help

Australia's Treasurer Jim Chalmers has warned that higher yields are likely to kill off cost-of-living help due to their impact on the federal budget. In a recent statement, Chalmers signaled that Labor would run a 'pretty tight ship' in its mid-year budget update, with rising borrowing costs adding billions of dollars to the budget.

According to Chalmers, rapidly rising borrowing costs in Australia and other major economies have put 'additional pressure' on the budget. He pointed out that federal government debt has recently passed $1 trillion, while the RBA's decision to raise the cash rate to a 15-year high of 4.6% last week has further pressured Chalmers to curtail federal government spending.

Chalmers maintained that his assessment is consistent with that of Reserve Bank governor Michele Bullock and emphasized that other factors are at play in driving inflation, including a halving of public demand over the past year while private demand tripled. He also highlighted that the current 26.9% share of government spending in the economy is at its highest level in four decades outside the pandemic.

The Treasurer announced that the government is working on a new savings package for the mid-year update, due in about 10 weeks. However, he cautioned that the uncertainty over government borrowing costs driven by fluctuations in bond yields makes it difficult to predict whether these savings will improve the budget bottom line.