Australian Treasurer Jim Chalmers was an eyewitness to the other side of the US-China dynamic as an adviser to the Rudd government during the global financial crisis in 2008-9. Back then, it was the implosion of the US property market that triggered the global debt bomb, while China lifted the world out of recession with its stimulus program. That experience will have taught Chalmers valuable lessons for the present – about the variable reliability of Washington and Beijing, and the flexibility of domestic policy to respond when either power disrupts the global economy.

We should remain wary of American hubris. There remains a risk that the Fed will overshoot. Chairman Powell’s comment that recession could be avoided came as he announced another interest rate rise, and warned that one more hike was possible in September.

The breaking of the old trade-off between inflation and unemployment – as one falls, the other rises – may be temporary, and the Fed and our own Reserve Bank could easily miss the turning point when the retrenchment cycle begins. Remember that inflation broke out last year before any central bank began tightening monetary policy. A second miscalculation in the other direction – with recession under way before interest rates are cut again – cannot be ruled out.

It should be noted that the US recovery from the short COVID recession in early 2020 has not been as strong as our own. The Americans needed 25 months to reclaim the jobs they had lost in lockdown, finally crossing that threshold to recovery in May 2022. We had restored employment to pre-lockdown levels seven months earlier, in November 2021.

Employment in Australia has expanded by 3 per cent over the past 12 months; in the US the rate of growth was 2.5 per cent. In short, the Fed is hitting a weaker economy than ours with higher interest rates.

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We should also resist the assumption that China’s economy is too big to fail, and will continue to muddle through on our behalf. There is a warning in the fine print of the May budget on what a Chinese financial crisis might mean for Australia.

The surplus that Chalmers achieved for the last financial year – expected to come in at more than $20 billion, or around 1 per cent of gross domestic product – is built on a revenue base skewed by yet another windfall from mining.

Take a step back, and recall how the first phase of the resources boom allowed the Howard-Costello government to slash personal income taxes while maintaining a series of better-than-expected budget surpluses. That party trick was no longer possible after the GFC slashed company and capital gains tax collections. The budget remained in deficit for the next 10 years, through the governments of Rudd, Gillard, Abbott, Turnbull and Morrison. Balance was finally achieved in 2019-20 before COVID sent the budget back into deficit.

Chalmers would be aware that his surplus repeats the GFC trick of relying on companies, with additional assistance from inflation and lower unemployment, which have boosted the personal tax take as well.

What happens if we are faced with another GFC-type shock? The budget will reflect this almost immediately in a collapse in company tax collections. But the structural damage will be far greater than in 2008-9 because of something neither side of politics is willing to acknowledge publicly.

The last tax reform in 2000, which shifted the revenue mix from income taxes to consumption taxes through the introduction of the goods and services tax, has long passed its use-by date. The GST base has too many gaps, and the rate is too low. Total indirect taxes, which include excises, have been falling as a share of the economy for the past 20 years and are now at their pre-reform level.

And herein lies the warning contained in the budget. The burden that would fall on middle Australia in the event of recession will exceed previous episodes, even if unemployment remains low, because personal taxes will account for a record share of revenue. That burden will be aggravated from next year courtesy of the tax cuts Labor inherited from the previous government, which favour higher-income earners.

Tax reform is never a popular political topic. But if either China or the US falter now, it will be too late for Chalmers to close the gap between what we demand of government and what we are prepared to pay in taxes.

George Megalogenis is a journalist, political commentator and author.