New Government advice has revealed that Treasurer Jim Chalmers is continuing to blame the Middle East oil crisis for Australia’s inflation problem as public sector wages continue to soar under Labor.
The advice, released under freedom of information laws and obtained by The Nightly, argued 72 per cent of businesses were “negatively impacted” by fuel prices or availability issues in submissions to the Treasurer during the week of the May 12 Budget.
More than a third or 36 per cent reported revenue had dropped during the previous four weeks while just over a quarter or 27 per cent expected their revenue to fall over coming weeks.
About two-thirds of businesses — 60 per cent — reported “making changes to business operations due to fuel prices or availability in May”.
The ministerial submission — titled Middle East Update — was dated May 8-15, during the week of the May 12 Budget with credit given to Tim Baird, the assistant secretary of Treasury’s financial system division, and Penny Sirault, the assistant secretary of Treasury’s labour markets, industry and infrastructure division.
The advice was given five weeks after fuel excise was temporarily halved by 32 cents a litre, before it was extended beyond July 1 for another month at a tapered rate of 16 cents a litre.
Despite talking up the Middle East crisis, Dr Chalmers is resisting any call to revive fuel tax relief.
“The four month cut to fuel excise helped take the sting out of the big peaks in fuel prices caused by the start of the war in the Middle East – but it was never intended to be permanent,” he told The Nightly.
“We recognise people are under pressure and that’s why we have more, permanent relief rolling out with tax cuts, higher wages, extra paid parental leave and more that is also helping with the cost of living.”
Crude oil prices have this month fallen back below $US100 a barrel, down to $US87 a barrel, and could fall further after US President Donald Trump’s Republican Party was decimated in Senate and House races.
Robert Monterosso, a research fellow with the United States Studies Centre’s economic security program, argued Democrat control of the US Congress could result in cheaper diesel prices for Australian motorists as these lawmakers used their numbers to restrict financing for the Iran war.
“They might approve funding but attach different bargaining chips involved so hypothetically they could fund the war in Iran but with concessions made elsewhere from tariffs or on healthcare for example,” he said.
“The Democrats, they’re focused on getting costs of living down, diesel prices are a big part of that and a big part of that is the war in Iran so there’s potential for there to be a slowdown in the war in Iran.
“Any de-escalation in the Strait of Hormuz would likely lead to a pretty big drop in crude oil prices - it’s a global market so when prices are lower in the States, they’re usually lower globally, particularly because the States is the largest exporter of diesel and crude oil.”
Dr Naoise McDonagh, a senior lecturer in trade and geopolitics at Edith Cowan University, said the flood of more affordable Chinese goods into Australia, including electric cars, was keeping a lid on imported inflation.
“They’re being flooded into the market because China now doesn’t consume enough of it’s own EVs at home - in Australia that’s great for consumers,” he told The Nightly.
This was also undermining Labor’s claim about the Middle East conflict being to blame for high inflation.
“Domestic inflation is due to government spending ramping up the cost and capacity constraints within the domestic economy and crowding out private capital in ways that are non-productive, reducing Australia’s productivity because the public sector traditionally isn’t as productive as the private sector,” Dr McDonagh said.
“The Government has tried to blame the war in Ukraine and the Iran conflict as a primary source of inflation, that’s not true.
“Obviously, it’s having an impact but it’s in the minority side of the ledger.”
Non-tradables inflation linked to goods and services made in Australia has, since 2023, been consistently higher than tradable inflation flowing from the price of imports, despite the wars in Ukraine and Iran.
Generous public sector wage increases are another factor with Commonwealth pay levels soaring by 7.2 per cent during the last financial year, which was double June’s annual inflation pace of 3.8 per cent, new Australian Bureau of Statistics data revealed on Thursday.
Sean Crick, the ABS’ head of labour statistics noted public administration and safety, education and training and care economy jobs together accounted for 90 per cent of public sector jobs and wages.
Health care and social assistance recorded the strongest rate of growth in 2025-26 for both jobs and wages, with the wages bill surging by 8.5 per cent as 29,700 new jobs in that field were created at the State and Federal level.
Under Prime Minister Anthony Albanese’s watch, Commonwealth Government pay levels had doubled from 4.9 per cent in 2022-23 to 9.9 per cent in 2023-24 before moderating slightly to 9.4 per cent in 2024-25.
Reserve Bank of Australia governor Michele Bullock on Tuesday blamed domestic inflationary pressures for hiking rates for the fifth time in 2026 to an 18-year high of 4.85 per cent, stressing the Middle East oil crisis had not sparked the latest 25 basis point increase.
“I want to be very clear that we are not tightening monetary policy because of the direct impact of oil prices on inflation,” she said.
“I know there is confusion in the community, so I want to be very clear. Monetary policy cannot impact global oil prices.
“Rather, the tightening in monetary policy is to address domestic capacity pressures.”
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