Alan Kohler:
Jim, thanks for joining us this morning. Where are you? You’re in a café in Logan, I think.
Jim Chalmers:
I am, Alan. Thanks for the chance to come back on the Money Café. I’m taking the theme very seriously. This is St Coco’s café in a beautiful part of my local electorate called Daisy Hill in between Brisbane and the Gold Coast. So, a nice cup of coffee early on Wednesday morning in Logan City.
Kohler:
You’ve had a big couple of days; in fact, I think you got home pretty late last night and –
Chalmers:
Got home this morning technically.
Kohler:
This morning, yeah, there you go.
Chalmers:
Yeah, yesterday I was in Canberra, Sydney and Brisbane, gave a speech for the Financial Review and got home about 12:30 this morning.
Kohler:
So you’ve had a couple of days of marketing the Intergenerational Report and, you know, it seems to me, just reading all the transcripts and that, you’ve just basically been asked about, firstly, the productivity assumptions of 1.2 per cent forever; and migration, which I’m not sure is even in there. But anyway, it is in there, but it’s not a big part of it. So, firstly, your defence of the 1.2 per cent productivity growth, I mean the productivity went backwards in the last 12 months. So, what’s the basis of you and the Treasury predicting this massive bounce‑back in productivity growth?
Chalmers:
Yeah, I mean, first of all you’re right: there’s been a lot of focus on migration and on a productivity assumption. Also probably artificial intelligence has been the other area that people have been really interested, I think in welcome ways. The Intergenerational Report is about a future which is full of risks, full of pressures on the budget, but also full of opportunities. And when it comes to the productivity assumption, you’d remember, Alan, when we came to office about 4 years ago, we took that assumption down. It was at one‑and‑a‑half per cent, we took it down to 1.2 on Treasury advice to make it more realistic, and we’ve stuck to that assumption for a couple of reasons.
One reason is if you look at the assumptions that some of our peer economies use the UK I think’s got one‑and‑a‑half, the US at 1.4, New Zealand is at point 9. And so we are sort of roughly in the middle range on the productivity assumption. And also, if you look through the IGR, and I’m sure you have, you can see that there’s actually a range of possibilities not just below that 1.2 but also above it. And a lot of it hinges on a lot of the work that we’re doing to make the economy more productive in the areas like getting compliance costs down, attracting more investment, making approvals faster, but also the AI story as well which will be a game‑changer in our economy for all the reasons that you’re familiar with.
Kohler:
Yeah, but the 1.2 per cent, okay, you reduced it from 1.5 to 1.2 per cent in 2022, fair enough, but it’s – but since then it’s been zero. Like, I mean, it’s completely, you were completely wrong, and now you’re basing 40 years of forecasts on productivity growth assumptions that have been wrong and are likely to be wrong again.
Chalmers:
Well, a couple of things about that. I mean, first of all, you’re right to say that there’s been a productivity problem in our economy but it hasn’t been in the last 12 months or even the last few years. It’s been the last couple of decades. We’ve been upfront about that. That’s why the Budget’s got the biggest and broadest productivity package of any budget, you know, in recent decades, because we acknowledge productivity growth’s been too slow. But also at the same time, and I think also implicit in your question, is that this is a long‑term assumption. It’s not supposed to follow the quarterly data. It’s a long‑term assumption. It’s different to the Reserve Bank in that regard. Some people have wanted to compare the Reserve Bank forecast with the Treasury assumption, but as the Governor of the Reserve Bank said this week, it’s not comparing like with like.
So, to bring all of that together, Alan, the Treasury advice on the 1.2 reflects being roughly in the middle of the pack around the world. It relies on a whole bunch of analysis of what’s happening in the global productivity scene as well as the developments we’ve seen in the last couple of decades, which we acknowledge have been too weak to deliver the higher living standards and decent real wages that we want to see in our economy. So, we’re not just acknowledging that, we’re doing something about it. It will take time to turn around a couple of decades of subpar productivity growth.
Stephen Mayne:
Treasurer, can I just jump in on AI. Take us through your journey as to when you had your epiphany on AI, because I think it wasn’t that big a feature in the last election campaign; it wasn’t that big a feature in the productivity roundtable. People were underwhelmed initially with Tim Ayres’ opening statement last December. And now all of a sudden, it has a whole chapter in the IGR. Was it when you met Dario Amodei in March when he was visiting? Was it the whole CapEx boom? Was it the 20‑plus data centres that you saw coming through in the growth figures as the shining light in capital investment? So, take us through your journey because I was amazed that you did a whole chapter, or you and Treasury did a whole chapter. Now, the opening – one of the opening chapters on AI, why was that?
Chalmers:
Well, I think it’s all of those things but particularly I think that CapEx boom that you refer to – I mean it’s been absolutely extraordinary. One of the numbers in the IGR has investment in data infrastructure reaching something like 5 per cent of GDP. And so an absolutely astronomical boom in investment, that’s been part of it. Even 12 months ago we were getting a lot of people meeting with us about their investment intentions; that obviously piqued our interest. And you’re right that probably the main difference between the IGR in 2023 and the IGR in 2026 has been that AI has become front and centre. So, I’m not sure about one particular epiphany. Obviously, meeting with anthropic part of that, but mostly this huge investment boom.
And, really, what that compels us to do is to make sure that all of this investment is in our national interest; that we capture the upside of AI and maximise the opportunities at the same time as we minimise the quite considerable risks. And that’s why what the PM signed Australia up to during the course of this week in the US around those global guardrails that are so important. The National Standards around data centres are really important, the work we’re doing on copyright and creatives, and in some of these respects we’re actually leading the world in the way that we’re thinking about minimising these risks of AI so that we can properly capture the upside opportunity.
Kohler:
To what extent does AI underpin the 1.2 per cent productivity forecast? Is that all about AI?
Chalmers:
No, it makes a contribution but it’s not doing all the heavy lifting. So the best way to think about that is to use the Productivity Commission’s work. I think about a sixth of the 1.2 assumption, broadly rule of thumb is from AI. So, making a meaningful contribution, obviously a game‑changer in the economy more broadly, but not the only story when it comes to hitting those productivity growth assumptions.
Kohler:
Yeah. Well, look, I mean, look, reading the chapter on AI in the IGR, I mean it’s – it seems to me to sum up by saying: this is a very, very big deal. There’s tonnes of risks. We actually don’t know what’s going to happen with it but it’ll be fine. Don’t worry.
Chalmers:
You had me until the end, Alan. You had me until the end.
Kohler:
No, but that’s what it says. I mean –
Chalmers:
Well –
Kohler:
– that’s the whole tone of it.
Chalmers:
It does say this is a big deal. It does that there are a heap of risks. But it does not say that we will just let it rip and hope for the best. It doesn’t say that. It says over and over again that our effort has to go into minimising, managing these considerable risks. And in the speech I gave at the ANU to launch the Intergenerational Report, I went to some lengths to say we’ll only capture the opportunity if we take seriously the legitimate concerns that people have about natural resource management, about copyright and creatives, about the labour market. You and I have talked about – I think you were good enough to put a cover endorsement on the book I wrote about this almost a decade ago, with Mike Quigley.
You know, our goal here is to make sure that Australians are beneficiaries and not victims of all of this accelerating change that we’re seeing in our economy. And Stephen’s right to point out that the big mover between the last IGR and this one is the way that AI has become front and centre. It’s a big part of the work of a whole heap of cabinet ministers, not just letting it rip and hoping for the best but taking very seriously the risks that people legitimately have about a transformative technology which will touch every part of our economy and every part of our society in the years and decades to come.
Kohler:
What do you think of the proposition that it’s going to kill us all? I mean, on that score, I just say that Elon Musk and a few people have said, ‘Oh, there’s a 10 per cent chance of it killing us all.’ Right? And then the interviewer who was talking to Elon Musk said, ‘Well, would you get onto one of your rockets if you knew there was a 10 per cent chance that it would blow up and kill you?’ And he came up with a very interesting answer. He said, ‘We’re already on the rocket. Too late.’ Where, you know it’s already happening. It’s – you know. So what do you think of that?
Chalmers:
I haven’t seen that interview, but I do know that people who know what they’re talking about have pointed to some quite serious risks around AI. We take those warnings very seriously. And, again, you know, whether it’s the PM’s work on the international stage around global guardrails, whether it’s our work as well – I mean that global guardrail piece of work is around independent evaluations, safety standards, security, all of these sorts of things, so that we can come at these warnings even if they’re not the central case, we have to take them seriously and we are.
Mayne:
A question from James Thompson who was at your speech last night in Sydney. He makes the point that the IGR makes clear that the tax burden on working‑age people is going to increase. And Alan, I think on the news last night was talking about the time in 2005–6 when it was 9 per cent and then now it’s going to go from 12 per cent to 14 per cent over the next 4 years, and James’ question is, ‘Is this really practical or will we have to think more about the balance between taxing labour and wealth?’
Chalmers:
Well, we already are thinking differently about that. I mean, James would have noticed in the Budget in May we’re trying to strike a better balance between taxes on people who get their income from wages or from other legitimate ways, the income from assets, that’s obviously been controversial and contested in ways that we expected. But, really, whether it’s tax reform, cutting taxes for workers, rebalancing the system, a better, fairer alignment between the different types of taxes or what we’re doing to make it easier for people to buy their first home, the IGR really is, in lots of ways, a justification for some of that difficult reform that we’ve taken on, which will have an intergenerational dividend.
And so, if you think about that number that you’re right to point to Stephen or James is right to point to and Alan last night on the TV, it is the case that as our population ages, fertility drops and faster than we anticipated even 3 years ago, there is a risk that fewer, disproportionately fewer, workers carry a heavier share of the tax burden. That’s why I’m cutting income taxes 5 times in 3 different ways using 3 different mechanisms. And if we weren’t doing that – this is in the IGR as well – that number you’ve referred to will be 2 percentage points worse.
So, we are making a difference but we recognise the pressure on the taxpayers at the same time and that’s really part of the motivation, certainly the intergenerational motivation, for some of the difficult stuff that we took on in May.
Kohler:
But how do you feel about the fact that we’re already a relatively high‑taxed country. There is this rise from 12 to 14 per cent. We’ve got the world’s greatest dowry of resources and yet there’s 40 years of deficits. And we’re starting with a trillion dollars in debt. I mean, shouldn’t we be the richest country in the world, and how is it that we can’t ever run a surplus over 4 decades? Does that trouble you as the Treasurer that you haven’t got – there’s not a single surplus forecast in there?
Chalmers:
Well, of course these budget pressures are a big part of the focus of my work. You know, I’m the only Treasurer in the last decade and a half to hand down a couple of surpluses. And obviously the closer you can get to balance the better, obviously. But if you want to talk about those international comparisons and how we’re faring in the world, the fiscal story in Australia is so much stronger than what we see in other countries. Now, our debt is a tiny sliver of what we see in other countries: our fiscal position more broadly, our cash balance, compare us with the world and there wouldn’t be many countries who want to swap places with us, particularly at a time when we’ve got these rising bond yields putting quite extreme pressure on borrowing costs as cheaper debt has to be refinanced for more expensive debt because of what’s happening in the Middle East, pushing up borrowing costs and the competition from the hyper‑scalers.
So, for all of these reasons, Stephen, we don’t dismiss, of course, the very serious pressures on the budget. Those pressures intensify as our population ages. But we’re doing much better than the rest of the world. And it gives me the opportunity as well, Stephen, and you’d understand this and Alan would too, but one of the big things missed from the coverage of the IGR, now one of the most important things is the absolute miracle of superannuation means that as more and more people are retired, more and more people are actually seeing their retirement incomes go up. The call on the budget from pensions is actually going down, and in other countries that’s not happening. In other countries, you’re seeing the exploding pension liabilities over the longer‑term because they don’t have our advantage when it comes to superannuation.
And so what we can say, compare us to the world, or what we can say about our own budget, is more people retiring with more money at the same time as the pension bill in Australia, as a share of our economy, goes down not up. And that is quite an extraordinary advantage that we have. And, again, it keeps bringing me back to this overall sense from the IGR. Of course the pressures are intensifying. Of course, the world is a dangerous place. The global economy is more volatile and less predictable than it has been probably in my lifetime. But we have really quite considerable national advantages too, and superannuation is one of them.
Kohler:
Yeah, but I mean I reckon Stephen is right that, you know, you’re looking at 40 years of deficits. Why don’t you tax our resources more? I mean, it just seems obvious to a lot of people that if we’ve got 40 years of deficits ahead of us, we need to – we need to tax resources more, in particular gas. I mean, everyone – David Pocock and all these other people are, you know, calling for more of a tax –
Mayne:
We did try that with the resources super profits tax.
Kohler:
Yeah. I mean, come on. Surely you can get that going again, the resources taxes that were tried and failed previously. I don’t know why you don’t do that.
Chalmers:
Well, I mean, a couple of things about that. First of all, I did reform the PRRT. I know that people would like us to go further than the reforms we did a couple of years ago, but those reforms do mean that more entities are paying PRRT and the PRRT take was written up the most recent budget. I do understand. I’m not dismissing the fact that people would like us to do more than that.
The second point is obviously at a time when there’s a premium on fuel security, for obvious reasons, we have prioritised our international agreements as part of our efforts to secure liquid fuels. Part of that is making sure that we have a good secure relationship with the buyers of our gas.
And then the last point is we actually have got a really big reform underway in the gas market which is about gas reservation, which is about fuel security for Australia, better prices for our local manufacturers and others. And so we are reforming the gas market, not along the lines that you are proposing Alan, or that others have proposed, but we’ve taken some steps. That’s making a bit of a difference. We know that people would like us to go further, but the focus for us is on the international relationships and on gas reservation, which I think is going to be a really important reform.
Mayne:
A last one from me, Treasurer. Would you agree the IGR is one of Peter Costello’s better reforms? You know, I think probably independent Reserve Bank would be, a future fund and this one. But one way it could be improved possibly would be opening up the data and the assumptions for other people to be able to scenario play with all the assumptions. Like, it’s a bit of a closed book. This is Treasury’s view. And I have heard some criticisms that it could be more independent. Like, you know, some of the talking points in the IGR are a bit similar to some of the government’s talking points, and if somehow future ones could be slightly more independent and slightly more open data. So, love the report. It shouldn’t be a 24‑hour news cycle, it should be referred to all the time. It’s a great thing you’re doing and it’s good to see you getting behind it.
But in terms of improving the IGR in future, what do you think about maybe having a couple of independent economists or academics working on it as well? And what about more of an open data approach so others can then scenario play with it?
Chalmers:
Yeah. Well, I mean, first of all, I am being supportive of the IGR, and I have paid tribute before and paid tribute again to Peter Costello for beginning it. This is the seventh one. You know, Peter and I are the only 2 who have delivered a couple of them so far. But I do think it’s a really worthwhile piece of work. One of the reasons I don’t quite share your view about the nature of the language in the IGR, I think one of the reasons why there’s such a synergy between the conclusions in the IGR and the government’s agenda is because we take our obligations, intergenerational obligations, very seriously and there’s a lot of justification for the government’s reforms in the document. I don’t think that the way that we’re currently doing it is preventing people from having very strong views, whether it’s about the assumptions that underpin the IGR or the conclusions drawn by the IGR. I think it has stirred up, from my point of view, a very welcome debate about the future of our economy. I like it when people say that there’s too much or too little emphasis here or there, or they would do things differently. I see that only as a good thing that people are reacting to it. I’m not quite sure about how we would open it up for people to interact differently, but I don’t feel like their interactions have been limited. In the last few days it’s been very willing and that’s a good thing.
The last thing I’d say about that is, you know, because I support the IGR, because I think it’s a really useful thing for Australia to engage in, if people have got good ideas about how we make it better next time, you know, whether it’s me handing it down or some other Treasurer, obviously we’re open to ideas on how to make it better. We want people to see it as we do, which is a really important way to get our head around the big shifts and shocks, as Martin Wolf would call it, coming at us in the coming decades so that we can plan accordingly, and not at the expense of dealing with the here and now. The cost‑of‑living pressures that people are under, the challenges in the global environment, obviously that’s the government’s priority and focus, but that doesn’t prevent us from trying to sketch out for people how we think this rolls out. The further out you go, of course there’s more uncertainty. That’s always been the case with long‑term forecasts, but it’s a really useful exercise. If there are ideas that people have about making it better in 3 years’ time, then obviously we’d be open to them.
Kohler:
A last one from me too, Treasurer. You did a good speech, a really interesting speech last night at the Financial Review’s power dinner, about their power, and you talked about how power is more ephemeral now and it’s dissipating more quickly. But you also referred to the politics, disruptive politics of grievance; and you were quoting Andrew Cornell but it sounded like you were kind of on board with it, and obviously we’re talking to some extent about One Nation and the rise of One Nation as a force in Australia, particularly over the last few years. And they are obviously the party of grievance.
So the question, I suppose, is: to what extent do you take responsibility for the rise of One Nation, the government, and the rise of grievance, in particular in relation to immigration, because it got out of control after the pandemic, right. I mean, there was a huge burst of immigration. Now you’re talking about bringing immigration down to 225,000 in 2 years, which is, firstly, all you’re doing is actually cementing or at least turning the previous forecast of Treasury in the Budget that you brought down this year and last year, so it was last year’s Budget as well, the forecast of 225,000. So, all you’re doing is really just saying: okay, we’re going to do what we said we were forecasting, like, almost 2 years ago. And, anyway, that 225,000 is roughly what it used to be before the pandemic, for years. So, all you’re going to do is bring it – so there’s – I suppose it’s a two‑part question. Do you take responsibility in part for the grievance that now people feel; and do you think you’re doing enough to deal with that grievance?
Chalmers:
There is a lot in that question, Alan. Let me try and do it all justice. I mean, first of all, we do know that levels of migration are a concern for people. Again, we don’t kind of lightly dismiss that. From time‑to‑time people raise legitimate concerns about that. You’re also right to say that when we came to office it was absolutely galloping after COVID and what we’ve been able to do, if you look at those migration numbers that came out last week, we’ve got net overseas migration down almost 50 per cent from those peaks; and we’re managing it down further as again, as you rightly point out, down to more normal levels which is the 225,000 in the Budget.
My view about all of this, you know, whether it’s the kind of cartoonish slogans from One Nation on this or, indeed, from the Liberals and Nationals who are desperately trying to copy One Nation, is our responsibility, and we take responsibility for this, is to manage the program down to more normal levels, at the same time as we make it clear that migration can be a force for good in our economy and in our society, but only if it’s well managed, robustly managed, transparently managed, responsibly managed. And that’s what our reforms are all about. Yes, we are about hitting those Treasury forecasts but they’re also making sure that migration is in our national interest when it comes to the skills mix; that we’re getting the builders and care economy workers that we desperately need at the same time as we train Australians for opportunities.
So, of course, we take responsibility for the migration system and the way that people think about the migration system. But overwhelmingly throughout our history and into our future migration has been, and will continue to be, a force for good. That doesn’t mean we let it rip. We manage it very, very, very tightly down to more normal levels and make sure that it’s the best version of the migration system that it can be. But if you look at the Intergenerational Report, it makes it abundantly clear: fertility rates falling further and faster than anticipated, a population that is ageing relatively quickly. It would be an act of economic self‑harm to do the kinds of crazy stuff that’s being proposed by our political opponents.
It would be damaging to the economy in the near term and absolutely devastating to the economy over the coming decades, and so our responsibility. We’re getting the policy right. It is a very tightly run system. It will be even more tightly run. We are getting the net overseas migration numbers down, at the same time as we make it clear that Australia would be absolutely mad to turn its back on migration particularly in the context of all of the challenges which are laid bare in the Intergenerational Report.
Kohler:
Well, thanks very much for joining us, Treasurer. What’s the name of the café again? We should give them a plug.
Chalmers:
Yeah, this is St Coco at Daisy Hill, at Cupania Street at Daisy Hill in Logan City. It’s a bit of a favourite for our family, actually. It used to be our Sunday morning ritual when our kids were super small. It’s one of those cafés which is really good for little kids and also lots of puppies around. But it’s a wonderful place.
Kohler:
Is it walking distance for you?
Chalmers:
Not anymore. The old place it was, when the kids were first born and we lived around the corner, and now we live about another k away. So it’s – it’s a – it’s a terrific place. Amber and Cynamon run it, 2 sisters, and they are much loved in our local community as is their café.
Mayne:
And there weren’t too many slogans from Logan this morning. So, thanks for coming along.
Chalmers:
That’s remarkable, Stephen. I’ve not heard that before. I’ve heard the other thing that rhymes with Logan but not that.
Kohler:
Very good. Well, have a good day marketing your IGR, Treasurer.
Chalmers:
Thanks very much, guys. Appreciate it.