Billi Fitzsimons:
Jim Chalmers, thank you for joining The Daily Aus.
Jim Chalmers:
Thanks very much, Billi, for having me on.
Fitzsimons:
I want to start super broad. How is the Australian economy going at the moment?
Chalmers:
It’s going better than a lot of other countries, but it’s under a heap of pressure because of developments in the Middle East. Not just that, we had our fair share of challenges before that, but a lot of what the war in the Middle East is doing to our economy is making some of those existing challenges worse. Over the long term our economy isn’t productive enough, which really just means it’s not able to grow really quickly without adding to some of these inflationary pressures in our economy. Some of those challenges are long‑standing, some of them are new, but you’d rather be us than a lot of other countries around the world.
Fitzsimons:
That’s the backdrop for the Budget last week. I want to first go to the changes you made to negative gearing. Take us through the changes.
Chalmers:
Well, you’re right there was a backdrop to the Budget, and really what we tried to do is to deliver 2 budgets in one. The first was to help people through this difficult period, the big global oil shock. But secondly, to try and make some difficult changes to make our Budget and our economy stronger into the future. A big motivation there was recognising that a lot of young people are locked out of the housing market, so we decided to take some difficult decisions – some politically contentious decisions – to try and fix that and negative gearing is part of that story.
What negative gearing means is when you can deduct the losses you make from rental income against your wages, your salary, your other income. What that has meant is it’s made it easier for people to invest in a lot of houses at the same time as it’s made it harder for people to buy a house to live in. If you’re negatively gearing now, you can still do that. If you want to negatively gear a new home, a home that’s newly built so that it adds to housing supply, you can do that.
Fitzsimons:
It makes sense that you can’t change the rules on existing investments. But at the same time there are concerns that the effect of this change will create a 2‑tier system where older Australians who are already in the property market keep getting the tax benefits, and younger Australians wanting to get in are now shut out under this change. So, is the change just enshrining that gap between the 2 generations more?
Chalmers:
No, I don’t believe so. I’ve heard that argument, I take that argument seriously, but I don’t agree with it for a couple of reasons. First of all, if you’re a younger person who can afford to invest in housing to get some investment properties, then you can still do that if it’s a new property, and so if you’re –
Fitzsimons:
I think the thing about new properties though is they’re more expensive, so young Australians who are already struggling to pay for the older homes, you’re now asking them to pay even more if they want these tax benefits for new homes.
Chalmers:
Well, not necessarily. The difference between an established house versus a new unit you might buy off the plan, or around the edges of our major cities or in our regions, you can find more affordable opportunities often with newer apartments or newer builds. So it’s not necessarily the case. That’s the first thing.
The second point is the people who are negatively gearing now, their properties don’t stay negatively geared forever. What I mean by that is eventually people stop making a loss on these investment properties, they become what’s called positively geared, so there’s a natural phasing out over time for some of these properties that people are already negatively geared.
I’ve heard the argument, but I don’t agree with it because young people can invest in property still.
Fitzsimons:
Let’s move to renters. How will this Budget help renters?
Chalmers:
All the focus has been on the housing tax changes. I understand why, there’s some pretty contentious changes in the Budget on housing tax, but it’s not the only thing in the Budget we’re doing on housing.
Right across the board, if you look at the billions of extra dollars we’re investing in building more homes, if you look at some of the changes we’re making when it comes to youth homelessness, all of our housing policies together in the Budget mean an extra 30,000 homes or so. We’re trying to build many more homes to put downward pressure on rent.
Just today, before I came to speak with you, I was in Brisbane where we announced funding for an extra 51,000 homes in south‑east Queensland and that’s because we recognise the more we build, the more downward pressure we can put on rent.
Fitzsimons:
You’re saying this Budget pretty explicitly will put downward pressure on rents. But the Budget said that it will result in an increase, a minor increase, but an increase nevertheless in rents. It said that pretty explicitly, so which one is true?
Chalmers:
The modelling that you’re referring to accurately is just about the tax changes, but if you combine the tax changes, the billions of extra investment and some of the other initiatives, in total what the Budget does is add to supply and put downward pressure on rent.
We modelled that outcome when it comes to our tax changes because we knew people would be interested in it, but it’s the total impact that matters across the budget, and that will be positive.
Fitzsimons:
So if we look at what the government’s doing for supply, you’re behind on the goals there. The government has a goal to build 1.2 million homes by 2029. The latest report projects you’ll be short of that by 220,000. Have you needed to introduce these measures on negative gearing, capital gains tax, because you’re failing to meet that goal?
Chalmers:
We’ve always recognised it’s a very ambitious goal, but I’m confident we can get there if everyone does their bit and –
Fitzsimons:
Even with the latest data?
Chalmers:
I think so. Nobody expected us to build 1.2 million straight away. This housing challenge in our economy has been a feature of our economy and our society for a really long time. And you can’t just click your fingers and all of a sudden build a lot of new homes, but –
Fitzsimons:
No, but your goal was by 2029 and your reporting says you’re behind on that by 220,000.
Chalmers:
Yes, by 2029, understood. We’ve got a lot of work to do, and that’s why there’s an extra $2 billion in the Budget to build more homes, it’s why we made this announcement today in Queensland about an extra 51,000 homes, it’s why we’re doing a whole range of things simultaneously.
We’re actually investing now a total of $47 billion in housing. Supply is a big part of the story, probably the biggest part of the story, but also the composition of the market – getting more first home buyers into the market – that’s our goal too.
Fitzsimons:
Another big reform you announced in this Budget was to the capital gains tax. Take us through those changes.
Chalmers:
The capital gains tax discount is when you pay tax on a gain that you make from an investment, whether it’s property, shares or another kind of investment, you pay tax on the capital gain. The current way that the capital gain is calculated is you get a discount, you pay tax on half of it.
The new way that people will be paying tax on their capital gain is a more accurate reflection of how much inflation there’s been while you’ve held the asset. A different kind of way of calculating the discount but still a discount – still paying tax at your marginal rate but calculating the discount differently.
The reason for that, which comes back to these questions you’ve been asking about housing, is in 1999 the Howard–Costello government changed the capital gains tax arrangements. What happened then was it made investing in existing homes way more attractive and other kinds of investments way less attractive because of the types of returns that people were getting.
A lot of analysts and economists have noticed since that change was made a quarter of a century ago was that house prices grew much more quickly than incomes. Young people now are paying a price for that policy mistake, and we’re trying to fix it.
Fitzsimons:
The changes will apply to all assets, not just property. I think there’s a lot of young people who decided a long time ago that investing in the property market was too out of reach, and so they instead decided to invest in the share market. But now you’re taxing those shares at a higher rate too. So how is that helping young Australians?
Chalmers:
Well, it’s not necessarily a higher rate, it depends how long –
Fitzsimons:
For the vast majority it is.
Chalmers:
It depends on how long you hold them for, it depends on what kind of shares, it depends on your income, but it’s not necessarily the case that people will be paying a higher rate on their shares. It depends on a whole bunch of things and if you look at that 20‑year period relative to housing, people were being discouraged out of the share market. The other thing that’s important here is about 1 in every 10 people under 35 have got shares, so that’s not a tiny number but it’s not a big number.
Fitzsimons:
There’s so much there to unpack. I’m trying to figure out where to go first. You just said that the current system undercompensates shares.
Chalmers:
Over that 20‑year period, yes.
Fitzsimons:
And you’re trying to fix that by taxing shares at a higher rate?
Chalmers:
Not necessarily higher. It depends how long they hold the shares, what kind of return they’re getting, what their marginal tax rate is.
Fitzsimons:
But again, for the vast majority, they will be taxed at a higher rate.
Chalmers:
Well, it remains to be seen. I mean, we can only go on what we’ve seen.
Fitzsimons:
You don’t know the modelling on that?
Chalmers:
Yes, I’m explaining the modelling, which is in the 20‑year period we saw that shares were under‑compensated and housing was over‑compensated, and so –
Fitzsimons:
That’s the previous 20‑year period, but in the future –
Chalmers:
We can’t analyse the next 20 years that haven’t happened yet. We’ve analysed the period of time between the change being made.
What we’re trying to do here is to remove that big distortion that the capital gains tax change made. When the capital gains tax discount was introduced at 50 per cent it distorted the market. We’re trying to have a fairer, more neutral treatment of all kinds of investment.
Fitzsimons:
I’m still trying to figure out how fixing the under‑compensation of shares that you’re saying currently exists will be fixed –
Chalmers:
Well, relative to housing.
Fitzsimons:
But you’re announcing the changes to apply to all assets now?
Chalmers:
Yes.
Fitzsimons:
Let’s move on. You said 9 in 10 people under 35 don’t have any shares. Where did you get that data from? Because when I looked at it, ASIC says that 1 in 5 people under the age of 28 do invest in shares. So is it possible that this is more prevalent than your numbers suggest?
Chalmers:
The numbers I’ve got are the most recent numbers from the Treasury. I’d have to have a look at why there’s a discrepancy between your numbers and ours.
Fitzsimons:
Because ASIC is a government agency?
Chalmers:
It’s an independent regulator, but yes, understood. I’ll check that out, but regardless, I think sometimes when you read the commentary about the change we made Tuesday night it assumes that everybody’s in the share market.
All I’m saying is some people are in the share market, that’s a good thing. Again, if you look at the experience we’ve had over the last quarter of a century or so, shares became relatively less attractive and the proportion of people with shares came down over that period. This change is about trying to address that.
Fitzsimons:
Opposition Leader Angus Taylor has called the changes you’ve made an assault on aspiration. There are aspiring young people who might start their own company, or they might work at start‑ups with the hope that that risk they’ve taken will pay off in equity. How will the government’s changes impact innovation?
Chalmers:
There are a number of changes we’re making in the Budget including a whole bunch of tax cuts for innovators. There’s a $3.5 billion tax package in the Budget for business and the main emphasis there – whether it’s about the treatment of losses, the thresholds for venture capital, the instant asset write‑off for small business that we’re making permanent – all of these things are about recognising and rewarding people who take risks to start companies.
When it comes to the capital gains tax changes, we acknowledged even before the Budget was handed down on Tuesday night, in fact we wrote into the Budget papers, that we understood that start‑ups, venture capital, particularly the tech sector, has a different way of calculating the cost base in the capital gains tax system. We were doing a bunch of consultation privately before Tuesday night, and now publicly to make sure that we get that right. It’s not actually that unusual in putting in place a substantial tax reform that there is consultation about how it’s implemented. And we’ve said privately and now publicly to the sector and to that part of the economy, a really important part of the economy, that we will consult with them to make sure that we get this element of it right.
Fitzsimons:
So, there could be further changes?
Chalmers:
I don’t want to pre‑empt there being further changes, but certainly we’re engaging with them in good faith. I’ve been doing a bit of that personally, and the Treasury department’s been doing that too.
Fitzsimons:
I want to move to the NDIS. The Budget outlines a slowdown in spending on the NDIS, and as a result 160,000 people will lose access to the NDIS by 2030. Why?
Chalmers:
Because the NDIS has strayed a long way from its original purpose, and because of that we’re seeing the costs of the NDIS grow at an unsustainable rate. If you’re a big believer in the NDIS, like I am, and providing a decent level of care and support for Australians with a disability, then it can’t go on like it is.
The growth in the NDIS costs have been astronomical, frankly, and we have to try and make it more sustainable so we can afford to provide that decent level of care. At some future point we didn’t want a government of a different political persuasion with a different set of values to us to use the extraordinary growth in the NDIS as a reason to abolish it or to cut it in ways that didn’t provide that standard of care that people need and deserve. We’ve taken some difficult decisions, nobody’s pretending that they’re easy –
Fitzsimons:
So, the government is looking to, essentially what you’re saying, claw back revenue lost from the NDIS, but some argue that revenue could be raised through taxing big gas corporations. When TDA asked our audience if there was anything they wished the government had included in this Budget, nearly a third of respondents said they wanted the government to implement a higher tax on gas exports. The government didn’t do that. Why not?
Chalmers:
First of all, on the NDIS, the NDIS still grows. But on your broader point about gas tax, I acknowledge that there’s a very big, very popular campaign underway and I do actually understand that people have got strong views about it. I hear about it too, when I’m out and about people will raise this with me, and I understand the arguments.
In our first term I made some changes to the PRRT, the gas tax, so that we get a bit more revenue sooner. Again, I genuinely get it, people would like that to be much more and much sooner, I understand that. But I think that there are good reasons to prioritise the 2 things we are prioritising. The first one is at a time when we’ve got this big global oil shock, we’ve got to prioritise these 2‑way supply relationships with our Asian partners who refine a lot of our fuel. That’s the first thing.
The second thing is we announced on the Thursday before the Budget a big change in policy with a gas reservation, and a gas reservation is about reserving 20 per cent of our exports for domestic use so that we can get the price down a bit, and so that our industry can access more gas at more affordable prices.
I acknowledge that a lot of people, including no doubt a lot of people who are listening to us chatting today, will have a strong view that some of the proposals out there around gas tax are more important than those 2 things. I think those 2 things are really, really important, and that’s without lightly dismissing the arguments that people make.
Fitzsimons:
Just on the changes you made in 2023. You did announce changes to PRRT then on the advice of Treasury. But Treasury also recommended at that time that the government tighten the rules around how gas companies reduce their tax bills, and you rejected that recommendation.
Chalmers:
I’m pretty sure we picked up and ran with almost all the recommendations. I have to check about that one you’re raising.
Fitzsimons:
There were 3 that you rejected.
Chalmers:
What our changes meant were that it used to be 11 entities caught up in the PRRT and we made that 16, we collected a bit more revenue sooner. And even in the Budget on last Tuesday night we expect to collect another $1.6 billion. Again, I acknowledge that –
Fitzsimons:
But that wasn’t because of any government reform, which was because of the war in Iran.
Chalmers:
No, about half of that was about developments in the Middle East, the other half would have happened without the war ovein Iran.
Fitzsimons:
Right. The Budget, from what I read, pretty explicitly said it was because of the war in Iran.
Chalmers:
About half of it was.
Fitzsimons:
Right.
Chalmers:
You’re not wrong in saying that some of it was, that about half of it was. Again, people would like us to raise much more money here, I get that. I’m genuinely not dismissing that or ignoring that, but we’re raising a little bit extra and sooner because of the changes that we made and we’re also prioritising those other 2 things, including gas reservation, which is a big deal.
Fitzsimons:
All right. To conclude, you’ve said that this was a Budget for young people, and I mentioned that we polled our audience on the Budget and 67 per cent of respondents said they don’t believe the Budget will make the lives of young people better. Does that tell you that the generation you’re hoping to help doesn’t agree?
Chalmers:
It doesn’t surprise us when you get those kinds of outcomes in polls. We don’t take these difficult decisions expecting 8 in 10, or 9 in 10, people to say that that will instantly make a big positive difference in their lives. But I’m really confident that the changes that we announced – which are really difficult politically – I’m really confident that they will make a difference to the lives of young people over time. Maybe people won’t feel it 5 days after a Budget is announced, but some important changes that I think will pay off.
Fitzsimons:
Jim Chalmers, thank you so much for joining The Daily Aus.
Chalmers:
Thanks very much, Billi.