PHIL COOREY:
If we could just start with your speech, and I know there would be people in the audience quite chuffed with the comments you made on the EPBC Act and the PRRT. Is it now your wish to get the legislation through the Senate at the end of March given what you announced today is pretty much what the Coalition has been insisting on?
JIM CHALMERS:
I’ll take “chuffed”. And I’ll take the opportunity again – there are a number of people in the room, I won’t embarrass them by singling them out, but we’ve been working very closely with the industry to try and get this done. We want to make sure that there’s an element of certainty and reliability associated with this change. So we would like to bed it down as soon as we can. There are actually multiple pieces of legislation which give effect to the PRRT changes and different pieces of legislation are at different stages working their way through the python which is Senate approval. So we would like to get it done as soon as we can. Part of that is so that we can calm the farm on the main change, the PRRT change, but also get the approvals process into much better shape as well. And here I want to acknowledge the consultation, people who’ve participated in that, but also my colleagues: Tanya Plibersek and Chris Bowen, Madeleine King and Ed Husic and a whole bunch of these colleagues. We’ve all got the same interest in making sure that we get these approvals processes into much better shape without compromising what we need to see when it comes to the environment.
COOREY:
And while we’re on the resources sector just in reference to Ms Slattery’s opening remarks about the regulatory environment and the changing nature of mining, and we are talking about critical minerals and the extra expense of extracting those – BHP has been one of the leading critics of the IR regime, clearly that’s not going to be reversed. But on the things that the sector has asked for – not BHP but other members of the sector – is for you to look at some temporary assistance, the Prime Minister has talked about something temporary and targeted, the minerals people are talking about a production tax credit. Can you bring us up to speed about where those discussions are inside government and the likelihood we might see something like that?
CHALMERS:
It’s still to be determined but there is a lot of work going on behind the scenes. We pay very close attention to developments in the resources sector and I thought Geraldine did a great job reminding us that the energy transformation and so many of our economic goals and objectives over the coming decades rely in some cases more heavily, not less heavily on a thriving and successful resources sector. And we’re enthusiastic about that.
But we are seeing these quite wild market movements in markets like nickel. We are confident about the long‑term prospects in those markets for Australia and for our big employers like BHP and others who are here. But we have this really quite remarkable turbulence now. So we try to work out how we respond to that. In the first instance putting nickel on the critical minerals list was part of that so that they can access finance that they otherwise would have been denied. But there is a lot of work going on behind the scenes to see if there’s something meaningful and responsible and affordable that we can do more broadly to support the energy transformation and the Future Made in Australia and the key role for resources in that.
COOREY:
Do you think we’ll see something by the May Budget? Is that your intention?
CHALMERS:
Certainly there’s a lot of work going on right now in the budget context but I don’t want to pre‑empt or front run that. These are some very complex areas of policy as you would appreciate, and I think as the business leaders would appreciate too. Even though we have the budget in much better shape in the near term, we still have these big pressures coming at us in the medium term. So we have got to make sure that anything that we can come up with working closely with the business community is affordable and responsible and meaningful and gets the job done. We haven’t finished that work but we’ve certainly started it.
COOREY:
On the budget, you’ve now been talking for a couple of weeks now about shifting the balance of risks from an inflationary challenge to a growth challenge. You’re assuring us it won’t be a fundamental shift. But I wonder if you can you expand on how you fight inflation but stimulate growth at the same time. It reminds me back in 2007, Mr Costello would remember, we went into an election with one side arguing to grow the economy and one side arguing that inflation was the scourge and you had the first Labor budget that tried to do two at the same time. Is it going to be as complex as that or will we see measures for the longer term on growth?
CHALMERS:
You’ll certainly see measures for the longer term on growth and that will be a very big priority for the budget. I think, and Peter would know this and all of our predecessors would know this, that every budget is trying to strike a series of fine balances. In our first two budgets there wasn’t a sole focus on inflation but there was a pretty single‑minded focus on inflation. What I tried to say from the lectern earlier in my prepared remarks is don’t over‑interpret me saying the balance of risks is shifting. It will be a different budget in degree not kind. There will still be a premium on what’s responsible. We’re still trying to get that budget repair in a meaningful way, in an ongoing way. But we can’t ignore the way that our economy is slowing. The fact that we more or less expected that slowing growth in the December quarter doesn’t mean that we can lightly dismiss it. I think as always people in my job, again this will be familiar to Peter and Josh who you’ll hear from tomorrow, when you signal you’re thinking a little bit differently about the budget, that you’re grappling with these issues a little bit differently, there is a temptation to over‑interpret that. Really what I’m saying is, a primary focus on inflation but not a sole focus on inflation. A premium on what is responsible and affordable but we can’t ignore the fact that some of these growth drivers have become more problematic and we saw that in the December quarter.
COOREY:
A cynic might suggest it’s also fortuitous timing given that an election is coming up either this year or early next year so it does give you the potential doesn’t it to plant growth measures that will come into effect towards the election – is that just timing?
CHALMERS:
I think that commentary, and I expect it, it’s not a shock to me to read that commentary, but I think it ignores the economic realities. I’m really quite proud about the first two budgets. The way that we’ve helped inflation moderate, the way that we’ve got that first surplus and we can see the second one from here, the way that our decisions as a government in two budgets have helped ease some of the pressure that people confront. All of those things I’m quite proud of. But the reason why our first two budgets have been effective is because we put the economics before the politics. We are very focused and very cognisant of the economic conditions that we confront, playing the cards that we are dealt. And the challenges in May of 2024 are different in degree rather than kind from the challenges that we faced in October 2022. I think that’s self‑evident. So I’d rather be upfront with people and say that when it comes to striking those series of fine balances, it will be a little bit different this time, not a lot different this time, and we’ll try and do what we did in the first two which is put the economics before the politics and the politics will take care of itself.
COOREY:
My editor‑in‑chief pointed out in the opening remarks, the Intergenerational Report long‑term forecasts, we’ve had 3.1 per cent growth for the past 40 years and BAU gets us 2.2 for the next 40. What can you do about that?
CHALMERS:
I saw that in the editorial that went up last night and I heard it in Michael’s introduction and I’m pleased that you asked me about it. The whole reason – and again the IGR wasn’t my idea it was his idea but I’ve embraced it – and that’s because I want people thinking about it along the lines that you’ve just posed in your question and Michael posed in his speech and that’s exactly what the IGR is for – for us to work out collectively, are we okay with BAU? And I think we can do better than the projections in the IGR. But I want people to see IGRs as a warning sign. In the first conception they were a warning sign about aging and the pressures on the budget. That was a welcome focus then. I think there is a welcome focus on growth and some of the big shifts in our economies and our societies that we’ll hear from about later today as well. I want people grappling with this as we grapple with it. I think about it almost every day, some of those issues raised and ventilated in the IGR.
And so I think we can do better. But we will only do better if we get the energy transformation right, we get better at adapting and adopting technology, we care deeply about the human capital base and how it needs to evolve more quickly to catch up and keep up with opportunities, we get our economy more competitive and dynamic and productive. And if we do all of those things, we can outrun those projections in the IGR. Nothing is pre‑ordained, that’s the beauty of it. And we kind of get to decide collectively, not government on its own, not business on its own, but collectively we get to decide whether we’re okay with those kinds of levels of growth. I’m not. I think we can do better. But it relies on us to get all of those things that I just rattled off, we need to get that absolutely bang on if we are to succeed. And I think this decade is going to be the one that matters. The IGR horizon is four decades but we call this one the defining decade for a reason because some of these big things we’re grappling with right now will determine what BAU looks like in the second and third and fourth decades of that IGR period.
AUDIENCE MEMBER:
Just to draw together sort of from a top‑down view relating to inflation, we saw the federal government spend go from roughly 24 to 27 per cent during COVID, it’s sort of stayed at that level, and I guess your revenues caught up enabling your surplus. If I reference back to your PhD subject, he talked – as Stutch referred to – the taxing rate what’s relevant, and you made a few compromises there.
But I guess we’ve seen NDIS go past defence in the budget as a cost, and how do you balance that off, especially when you want to do the energy transition, and to this point we don't actually have any balance on whether nuclear can help or hinder, there's no numbers in the Australian public documents about how that might work. Can you just sort of draw that all together about how you balance the NDIS versus energy transition, and maintain this aspiration that the conference talks about?
CHALMERS:
Thank you for that. I mean there's heaps in that. Let me try and cover as much as of it as I can, as briefly as I can. First of all on spending, a lot of our spending in the budget is driven by inflation, by indexation, and is therefore not discretionary, so a lot of that spending growth that people talk about, and that's why I point to the real spending growth figures.
Over five years our real spending growth average is 0.8 per cent. From memory, that's about a fifth of the average of our predecessors, real spending growth has been really quite limited and that's one of the reasons why we landed that first surplus in 15 years and why there's a second one within reach. There’s a lot of focus and welcome focus, including in the Financial Review, which I appreciate, about the kind of fiscal constraints that we impose on ourselves when we put these budgets together, and I like that there's a focus on the fiscal rules, and I'm focused on them too. I want them to be achievable. I don't want to have fiscal rules, like others before me, where you put out this kind of neat set of rules, and they're almost universally ignored. And so what we've tried do is to show what's possible when we do things like; you know, we've banked 88 per cent of the upward revision to revenue over the first couple of budgets, 88 per cent, we wouldn't be anywhere near a surplus without doing that; we've kept the restraints on real spending growth.
Now we're saving, I think, $140 billion‑odd in interests costs because we're avoiding $450 billion of debt over the medium term. And so these are all ways of saying, if you look at the scoreboard when it comes to near‑term budget repair, we've made really quite remarkable progress. A $100 billion turnaround in one year is the biggest nominal turnaround in the history of the country, from a $78 billion deficit to a $22 billion surplus, and a big turnaround this year as well. So we'll be imposing constraints on ourselves, which are a big reason why the budget's come good in the near term, commodities are a big part of the story, the labour market is a big part of the story. But what we've done with those upward revisions really matters.
That brings me to the other part of your question, which is around the medium‑term pressures on the budget. So we've got that Big Five that you're familiar with – debt, aged care, healthcare, defence, NDIS. Aged care is top five or six right now, it's going to be top 2 by the end of that IGR period; NDIS, we've had a lot to say and a lot to do when it comes to making sure that can deliver for people in the medium term as well. The budget is a story of two big pieces, near term, quite remarkable progress, saving a lot on debt interests and debt, the medium term is more tricky, but we've had lots to say about defence, NDIS, interest costs, obviously we're investing heavily in Medicare and healthcare, and we'll have more to say about aged care in the coming days.
COOREY:
You've got a lot riding on NDIS. There's a $70 billion budget saving building over a decade for an ambition, based on an ambition to drop the growth rate to 8 per cent. How are you going on that? Have you got a progress report?
CHALMERS:
We made good process with the states in the last National Cabinet meeting, and I thank them –
JOURNALIST:
But it's still increasing, it's still blowing out, isn't it?
CHALMERS:
Remember the 8 per cent target doesn't start for a couple of years, so we've got a bit of time to get our ducks in a row, and also and it’s in your question, we are not talking about cutting growth, we're talking about a scheme that's going to grow 8 per cent a year in the best case, and so I think that recognises we know we're in for –
JOURNALIST:
Are you going to hit the 8 per cent?
CHALMERS:
I believe so. Time will tell.
COOREY:
We all know what's just happened with income tax, but we've had a bit of free advice from Paul Keating the other week saying the top tax rate should be 39. Are you done now with tax for the medium term now, is that it, or do you see a potential for not reversing, but lifting thresholds in the future, or lowering the tax rate?
CHALMERS:
I think any government is on the look‑out for responsible ways to return bracket creep when they can do that. I think one of the arguments which is now pretty well‑established in welcome and encouraging ways is that there's more than one way to return bracket creep, and I think about the comments that Paul made and the comments that others have made.
Now we can't have this narrow view of aspiration in our economy that says that aspiration belongs to people who are already on decent incomes. Now we have a far more expansive view of aspiration. We believe there's more than one way to return bracket creep, and I think we've found a more effective way to provide – to return bracket creep, and that's what our cost‑of‑living tax cuts which come in on 1 July are all about. At some future point, a government of either political persuasion will think about whether it's timely and responsible and affordable to do more. We're not currently working up something to that effect, but governments do that from time to time.
COOREY:
What about the competitiveness of the top tax rate. It’s applied at 180,000 since 2008, you’re nudging it up to 190,000 but it hasn’t kept pace. Do you still believe that the top tax rates are competitive?
CHALMERS:
I think it's worth acknowledging and recognising that we are the first government to lift the top threshold since 2008, as you rightly point out. Those tax changes which straddled the 2007 election mean that this is the first time for all of that time that we've jacked up the top threshold, and I don't think that should be ignored.
We're actually lifting two thresholds and cutting two rates, and there will always be people who say, "do more", you know, "cut rates faster, lift thresholds faster," I understand that. There's also a constituency that says, "don't do it at all". Our job is to do what we can afford to do, to be conscious of inflation, provide as much cost‑of‑living relief as we can, provide aspiration right up and down the scale, return bracket creep where it does the most damage, and I think in that regard we've ticked all of those boxes in the announcement that we made at the end of January.
JOURNALIST:
Treasurer, just quickly on the RBA reforms that are coming in hopefully around July, if it gets legislated. In your mind, how many current board members would you see transitioning to the Governance Board and therefore giving an opportunity, for example, with maybe two or three changes feel about right to start with?
CHALMERS:
A very timely question, John. Thanks for all of your informed writing on this over the last couple of years. We are working that out, and one of the steps in this process that we're focused on right now is we want to say to all the existing board members, "what would you like to do, what are you open to doing; would you like to stay on the Monetary Policy Board or would you think you'd make a bigger, better contribution on the Governance Board"? And I think that's a respectful way of going about it.
I work really closely with Governor Bullock, to engage with the board to work out what they would like to do or what they're open to doing, and my interest here is in having an element of continuity. I believe in continuity when it comes to those board members. I hope every single one of them continues to serve on one of the two boards. There is a difference of opinion, let's be upfront about it, with the Opposition. They think that continuity means everyone on the current board goes on to the Monetary Policy Board. That means zilch when it comes to continuity on the Governance Board.
I believe in continuity, I want to see the continuity, I want everyone to serve, but I think we need an element of continuity on both new boards, not just one new board. And so I'll engage in the usual respectful, methodical way with the board members and with the Governor in particular, with the help of the Treasury Secretary to make sure that we get that best combination. Whether that's a couple of people on governance or some other number, that remains to be seen. I'd like to hear from them what they would like to do in the first instance.
COOREY:
Okay, Treasurer, we're pretty much out of time. But I'll just finish off – probably a question most people would like to know, just for the case of our sanity, what's your tip on the next election, is it going to be –
CHALMERS:
Labor.
COOREY:
This year or early next year?
CHALMERS:
I don't know and that one's above my pay grade, that's a decision for the PM, and I'll be ready for whenever he fires the starter's gun. He's made it pretty clear he wants to go full term. I'll be ready for a budget in March to facilitate that, but my job really is different to his. His job is to work out the best timing to go to the people, and he's made it very clear what he intends to do on that front. I'll just keep beavering away on my job until he fires the starter's pistol, and then I'll be ready to go.
COOREY:
There's another poll today which shows the major parties are spinning their wheels, but there's a real likelihood of a minority government, is that something that worries you?
CHALMERS:
It does. Now, we need a second‑term majority Labor government to continue on these important things that we've been talking about today, and I know that that's not an invitation to give a sort of a series of partisan reflections. But what should happen now in the period between now and the election is we need to see alternatives from the Opposition.
And I think what the Dunkley by‑election showed was, when it comes to Peter Dutton or Angus Taylor or these other characters, is this kind of nasty negativity is no substitute for economic credibility. We need to see alternatives; we need to see them costed. Half of them say they're going to bring back Stage 3, and half of them say they don't, Sussan Ley says they're going to unwind our changes, you've got this nuclear fantasy, there's all this kind of weirdness, uncosted, ill‑considered weirdness, and I think in the period between now and the election, we need to see the alternatives, we need to know how much they cost, we need to know what they'll mean for inflation, and all of these sorts of things. The Australian people, I think, deserve to see what Peter Dutton and Angus Taylor, whether they have any alternatives, and if so how much they cost and what they will mean.