Fresh from meetings with international counterparts, including US Treasury Secretary Scott Bessent, in Washington, Dr Chalmers returned to Canberra with unhappy tidings.
With oil prices back on the rise and the Strait of Hormuz closed again, he acknowledged the consequences for Australia's economy, including unemployment, could become severe.
"The Australian economy is, in lots of ways, hostage to those developments," Dr Chalmers told reporters on Monday.
Given the impact of the Middle East war, he lowered expectations for how much the government's bottom line would be improved in the May budget.
The treasurer conceded a savings package the government was preparing would be different to what was planned before the Iran war.
Economist predictions for a big boost to tax revenue as a result of the conflict were overblown, he said.
"If we take the impacts of this war in the Middle East on the revenue side, it's possible, if we were finalising those forecasts today, that in some years the revenue impacts would be negative rather than positive," he said.
Independent economist Chris Richardson had previously estimated higher commodity prices and income tax revenue, partly due to the war, would yield a $30 billion increase in the tax take over the next four years.
Still, the government was planning substantial savings to get the budget back in shape, Dr Chalmers said.
The National Disability Insurance Scheme would be "easily the most important part" of the savings package.
The government aims to reduce annual growth in the $52 billion scheme from more than 10 per cent to five to six per cent.
NDIS Minister Mark Butler will address the National Press Club on Wednesday and is expected to focus on unregistered providers as well as how support packages are priced.
It was important higher spending in the budget did not exacerbate inflation and force the Reserve Bank to lift interest rates higher than it otherwise would, HSBC chief economist Paul Bloxham said.
Labor has pledged billions of dollars in cost-of-living support, such as cuts to the fuel excise, and "economic resilience" measures, such as underwriting fuel cargoes.
If oil shortages worsen and measures such as fuel rationing become inevitable, ANZ Head of Australian Economics Adam Boyton expected the government to step in with a much larger response to support households and businesses.
"Overall, we think that ongoing program cost pressures and new measures will more than offset any expense savings in the budget," he said.
Supply-side reforms that boost productivity should remain the focus, Mr Bloxham said.
Changes to recently introduced environmental laws could make an immediate difference to supermarket prices, National Farmers Federation chief executive Mike Guerin told AAP.
While businesses want less regulation, more than 50 community organisations called for the capital gains tax discount for investment properties to be reduced by half and negative gearing phased out over five years.
Labor is widely tipped to pare back incentives for property investors in the budget.
Asked about reports the government was planning to revert the capital gains tax discount back to the pre-1999 regime, which pegged the discount to inflation rather than a flat 50 per cent, Dr Chalmers said there was more work to do on tax reform options in the budget.
"We have been really up front for some time now in saying that we do think that there is intergenerational unfairness in the tax system," he said.
"The housing market is where some of those intergenerational issues are most obvious."
11°C