Jim Chalmers' bad week: an economic dumpster fire and Labor squabbling
Jim Chalmers travelled to Bangkok on Thursday for a 13-hour visit with finance ministers and central bank governors, arriving amid warnings from the International Monetary Fund that global economic resilience is under severe strain. The IMF's latest World Economic Outlook, released during the October meetings, projected global growth at 3.1% for 2026 while cautioning that "the global economy has been resilient, but that resilience is under strain with risks tilted to the downside."
For Australia's Treasurer, the trip offered a brief respite from intensifying domestic pressures. Back home, Chalmers faces criticism from across parliament as the Reserve Bank of Australia raised the official cash rate to 4.60% on 29 September—the fourth increase this year and the highest level since 2011. Australia's inflation rate reached 4.0% in August, well above the central bank's 2-3% target range, with housing inflation at 5.7% and transport costs climbing 5.6%.
The week brought particular scrutiny over a quickly reversed decision by the Australian Taxation Office to stop accepting credit card payments. The controversy forced Chalmers to deny being undermined by Prime Minister Anthony Albanese, who intervened after lobbying from business groups.
"The feeling of warmth that has existed for the government since the election is turning to heat," a senior Labor figure said.
Mounting pressure on the government
That heat has been building steadily. Labor delivered its May budget—projecting a deficit of $31.5 billion with program spending of $833.3 billion—just a week after the Reserve Bank's third rate hike of the year. The government's proposals on capital gains tax and negative gearing faced substantial resistance before reaching agreement with the Greens. Drafting errors, including an unintended "widow's tax" and broader application beyond housing, complicated the government's messaging around intergenerational fairness.
Nervous Labor MPs say momentum shifted decisively in late September when the RBA lifted rates to their 15-year peak. Chalmers and Albanese were forced to defend government spending, currently at a four-decade high outside the pandemic after increasing 4.3% in real terms last financial year. Reserve Bank Governor Michele Bullock attributed inflation to "domestic capacity pressures," describing price increases from the Middle East conflict as compounding homegrown challenges. Inflation had peaked at 4.6% in March, driven by the expiry of electricity rebates and a surge in fuel prices linked to the regional crisis.
The government continues pressing for a new minimum tax on trusts and changes to the private health insurance rebate for older Australians. Halfway through the parliamentary term, some in the Labor caucus quietly question the government's political strategy, with comparisons drawn to Labor's difficulties following the voice referendum defeat three years ago.
The ATO credit card controversy
The ATO credit card controversy proved particularly damaging. On 1 October, the tax office announced it would stop accepting credit card payments from 30 November, citing the Reserve Bank's ban on card surcharges that took effect the same day. The RBA reform, designed to save customers approximately $1.6 billion annually, prohibited surcharges on EFTPOS, Mastercard, and Visa transactions. The ATO argued that absorbing merchant fees would cost taxpayers about $200 million yearly, though credit cards accounted for just 2.3% of tax payments in 2024-25.
After intense backlash from small businesses, the federal government reversed course, agreeing to temporarily cover surcharge costs until 30 June 2027. Albanese told an Australian Chamber of Commerce and Industry dinner on Tuesday that he moved to stop the ban after lobbying from the chamber's chief, prompting suggestions he had undermined his Treasurer.
"They should have seen this coming," said a Labor MP who has heard from angry small business owners across their outer suburban electorate. "The PM was happy to record videos about the surcharge ban but didn't stop to think through all of the implications."
Another was more pointed: "It seems like there is a mentality in the government of: announce things first and think through the details later. That comes with a cost."
Internal Labor tensions
The difficult fortnight for Chalmers—considered among the government's most effective communicators and a potential successor to Albanese—coincided with rare public dissent within Labor ranks. Cohesion has been a hallmark of the Albanese government's first four years, making even isolated moments of ill-discipline politically significant.
Members of Labor's NSW right faction reportedly discussed risks of alienating small business during a regular meeting at Parliament House. Attorney General Michelle Rowland, a senior cabinet member, was among those expressing concern, alongside other frontbenchers including Kristy McBain and Andrew Charlton.
Opposition Leader Angus Taylor and Coalition colleagues targeted Chalmers in question time, calling him "hapless" and suggesting Charlton has become "the de facto treasurer."
"The treasurer is doing a great job," Albanese responded on Thursday, telling parliament he was "very proud" of Chalmers, who remained absent for the G20 discussions.
Assessing Chalmers' performance
Last month, Taylor derided Chalmers as "just a media adviser," referencing his time working for former Treasurer Wayne Swan. But the global financial crisis remains formative in Chalmers' career, and Labor regards its management with pride. Chalmers, who has served as Treasurer since May 2022 following Labor's election victory and previously held the Shadow Treasurer role from 2019 to 2022, frequently discusses how stable periods punctuated by occasional crises have given way to constant "churn and change."
Economist Saul Eslake assesses treasurers on three criteria: making sound decisions, persuading the public about those decisions, and occasionally earning the prime minister's displeasure by advocating politically costly but important ideas.
"Chalmers has got some things right and some things wrong," Eslake said. "I think he has, until this year's budget, been pretty good at the second test, that is persuading the public that he's made good decisions. I think he has been fairly hesitant to push things that the prime minister might not like."
Eslake noted that some government problems stem from broken promises in the budget, particularly on negative gearing and capital gains tax, as well as unwillingness to claim credit for falling house prices.
"I haven't really heard Chalmers arguing, other than in the budget speech itself, that the point of the tax changes is to answer the question: why should two people who earn the same amount of money pay different amounts of tax because they've earned it in different ways?"
One senior Labor source dismissed media reports of a split, suggesting left faction members were attempting to weaken possible leadership contenders from the right, including Chalmers and Home Affairs Minister Tony Burke, to benefit the left's preferred successor, Health Minister Mark Butler. But they criticized Albanese's command-and-control style and insufficient consultation on policy.
"No way this cabinet is like the Hawke or Keating years," the source said. "There is no thrashing out issues or debating the way forward. It's a rubber stamp and not thinking through the consequences."
Many colleagues praise Chalmers' energy and political acumen. One minister suggested reports of a slump were exaggerated, noting recent polls show limited damage to Labor, though a Redbridge poll last week found both Albanese's and Chalmers' favourability ratings had declined.
On Wednesday, following a major speech encouraging progressives not to lose ground against One Nation, Chalmers acknowledged the criticism.
"When you do a senior job in a government which is governing in difficult times, there will always be a range of views," he told ABC radio. "I try and take all of the feedback that I get—good, bad or indifferent—on board."
Challenges ahead
The challenging economic conditions show no signs of easing. December's mid-year budget update will include spending cuts to offset higher debt repayments caused by international bond market conditions, and another interest rate rise remains possible in early November. High petrol prices serve as daily reminders of economic strain.
In his Tuesday speech, the Treasurer pointed to improved forecasts from the RBA and Treasury towards the end of 2027.
"These difficult times test our people and they test their governments," Chalmers said.
To pass that test, Labor must overcome its midterm difficulties and remain competitive for the next election.
