David Speers:
Treasurer Jim Chalmers, welcome to the program.
Jim Chalmers:
Thanks very much, David.
Speers:
So, when rates went up on Tuesday, you said government spending was not a factor in the decision. Was it a factor?
Chalmers:
Well, David, our political opponents and their acolytes are deliberately and dishonestly trying to conflate 2 different things. The idea that public demand is part of aggregate demand is not contested by me or by anyone. The question isn’t whether public demand can create inflationary pressures; the question is whether it did towards the end of last year, pushing up inflation higher than anyone would like and causing the independent Reserve Bank to hike interest rates during the course of last week.
Now, the point that the Governor made on Tuesday and again on Friday, the point that I’ve made consistently throughout the week, is that the thing that surprised the Reserve Bank on the upside towards the end of the year was the recovery in private demand. The Reserve Bank Governor actually pointed out that public demand retreated quicker than they were anticipating.
Now, for some reason, this has not been mentioned, either in the clip that you just played or in the stories that we’ve been reading in recent days, but that is a fact. The Reserve Bank Governor has said that private demand accelerated faster than they thought; public demand retreated faster than they thought, and that’s the point that I’ve been making.
Speers:
Just so people aren’t confused here, public demand, government spending, was still increasing, wasn’t it, in the second half of last year?
Chalmers:
No, public demand growth last year was slowing; it was less than a third of what it was the year before
Speers:
Public demand growth, but public spending, government spending, was growing.
Chalmers:
Well, in both of our budget updates, David, we actually improved the Budget in both instances. What matters is the contribution that public demand growth is making. The Reserve Bank Governor and myself have both made the same point that public demand growth was slowing at the same time as private demand growth was gathering pace.
Speers:
Yeah.
Chalmers:
Now, once again
Speers:
Sorry, sorry, I’ll just try one more time though: public demand growth might have been slowing, but public demand itself was growing; public spending was increasing.
Chalmers:
No, but what matters, David, is the contribution that it’s making to demand, and again, nobody sensible or serious is contesting that public demand is part of the aggregate demand calculation. But what matters is the contribution that it’s making. Public demand was retreating, private demand was accelerating. The Governor made that point on Friday. Now, if you take this argument from our political opponents to its logical conclusion, then what they are conceding is that the policy that they took to the election for bigger deficits and more debt this year and next year would mean that inflation would be higher
Speers:
Okay.
Chalmers:
and interest rates would be higher had they won the election. The reason I’m making this point, David, is because the same people who are making this point now about public spending, inflation and interest rates weren’t making this point last year when inflation was coming down quickly, and the Reserve Bank cut interest rates 3 times. I have said throughout
Speers:
Let’s leave your opponents
Chalmers:
that the budget position is not the primary determinant of prices in the economy, but we can and will continue to play a helpful role in the fight against inflation.
Speers:
Okay. Let’s just leave your opponents to one side for a moment. I just want to be very clear on this for viewers. You’ve said public demand was retreating, but public demand was also increasing. Is that right?
Chalmers:
Well, not in the first 2 quarters of the year, David
Speers:
No, I’m talking about the second half of the year.
Chalmers:
it was actually making
Speers:
The September quarter.
Chalmers:
Well, I’m referring to the point that the Governor made, David, which is that public demand was making a smaller contribution, private demand a bigger contribution.
Speers:
But it was still growing.
Chalmers:
Now, this is the
Speers:
But it was still growing, is the point. I just want to be clear, you accept that it was still growing.
Chalmers:
Well, typically it is growing, but what was unusual last year occurred in the first half of the year, was when it was actually making a negative contribution. The big contribution was being made by the private sector. Again, this is not a political opinion, David, this is the facts that we saw in the national accounts and in other data.
Speers:
And the facts are, it was
Chalmers:
A fact which has been pointed to by the Reserve Bank Governor, but ignored in the clip earlier and also in much of the coverage.
Speers:
Okay. But public demand was growing in the period that we’re talking about here, and that was a factor in pushing up inflation, correct?
Chalmers:
It was shrinking in the first half of the year. In the second half of the year, it was making a much, much smaller contribution. The reason why we had inflation tick up higher than we’d like in the second half of the year was the acceleration in private demand, the end of the state‑based energy rebates, some more persistent pressures in housing and in other areas as well.
Speers:
But with [indistinct]
Chalmers:
Now, these are economic facts which the Reserve Bank Governor and I have both pointed to.
Speers:
No, I appreciate sticking to the facts. Which was growing faster, though, public demand or private demand in the second half of last year?
Chalmers:
Private.
Speers:
Was growing faster?
Chalmers:
As a contribution to GDP, private was growing much faster.
Speers:
But which was actually growing faster in and of itself?
Chalmers:
Beg your pardon?
Speers:
Which was growing faster, private demand or public demand?
Chalmers:
Private demand was making a significantly bigger contribution in the second half of the year, and in the first half of the year, public demand was making a negative contribution.
Speers:
Okay. Let’s move to the broader issues. The Reserve Bank has said in the statement of monetary policy, it’s not just interest rates going up, it also has a weaker outlook now for growth and for real wage growth as well. It is a pretty tough outlook for a lot of households out there. What does the government do? Are more household rebates that you’ve gone with in the past the answer, or do you need a different approach now?
Chalmers:
Well, this persistent inflation is not the sole influence on the Budget we’ll hand down in May, but it will be the primary influence, I think.
We’ve got a situation where the economy more broadly is performing relatively well. We’ve got stronger growth and lower unemployment than almost all of the major advanced economies. We’ve got lower debt and stronger jobs growth than all of them. We haven’t had a negative quarter of growth like they all have.
And so, Australia’s economy is performing relatively well, but we’ve got these 3 big challenges: inflation, productivity, and also this global economic uncertainty.
And so I think the point that John Keogh made on the couch a moment ago is relevant here. You know, a big objective of the Budget needs to be and will be to lift the speed limit on the economy so that it can grow more strongly with lower inflation. That really is one of the primary motivations and objectives of the work that we’re doing to put the Budget together.
The Budget will be about productivity. We’re working up a productivity package. There will be a savings package that we’re working on. We’ll consider whether more steps can be taken on tax reform. But overall, it will all be about lifting the speed limit on the economy, making sure we can grow quicker with lower inflation, attracting investment, dealing with intergenerational issues, and also continuing to get the Budget in better shape.
Speers:
All right. Well, you’ve just given us a tease there of the Budget. I’ve got a bunch of questions in my head now, Treasurer. Productivity, some spending reduction and tax reform coming in the Budget. Can you give us any inkling into your thinking on productivity, firstly? You did take some steps after your roundtable last year, but what are you thinking about to get productivity going, which is what all economists say we need?
Chalmers:
Well, first of all, obviously, we don’t finalise the Budget at the beginning of February; we finalise the Budget at the beginning of May. But there’s a lot of work going into another productivity package.
You know, we’ve actually got a big and ambitious agenda on productivity already, you know, cutting nuisance tariffs, making approvals faster, environmental reform, Foreign Investment Review Board reform, competition policy, a national AI plan, and a lot of that action has happened since the Reform Roundtable that I hosted in the third quarter of last year.
And so that work is ongoing, and it’s a big influence on our thinking in the Budget. And really, the emphasis in the work we’re doing for the Budget is attracting more investment. I think if we attract more investment, we lift the speed limit on the economy, we make our economy more productive, more dynamic, and more competitive, because that’s the best way to lift living standards for more people into the future.
Speers:
On tax, you flagged more tax reform coming in the Budget. One measure you’ve already announced, you did a deal with the Greens on superannuation tax reform to hit the bigger accounts with a higher rate. When are you actually going to introduce the legislation for that?
Chalmers:
Well, first of all, we’re still talking to the Greens about that. Some of that engagement’s happened at office level. We understand and recognise, obviously, that we don’t have the numbers in the Senate to pass everything on our own, and so those discussions will be ongoing.
I’m looking to introduce the Better Targeted Superannuation Concessions Bill on Wednesday if I can, certainly this week, and that bill is all about making the superannuation system fairer from top to bottom. It’s about maintaining concessional tax treatment in super across the board, but boosting super for people with low balances and making the tax concessions more sustainable for people with millions and millions of dollars in their super.
Speers:
What about capital gains tax, the discount that’s there? Will you be winding back the capital gains tax discount?
Chalmers:
Well, as the Prime Minister’s made clear, I think, in the Parliament and certainly yesterday in Perth, you know, we’ve got a tax policy already, and the major part of that is cutting income taxes 3 times. That is the primary focus of our efforts when it comes to tax.
Now, we do acknowledge more broadly that there are intergenerational issues in housing and in tax, but we are dealing with those intergenerational issues in other ways: in the housing system by building more homes and making it easier for people to save a deposit, in the tax system by cutting income taxes 3 times, making superannuation tax concessions more sustainable, boosting low income superannuation.
All of these efforts in tax and in housing are about understanding and recognising and acknowledging we do have these intergenerational pressures, and the government is serious about dealing with them.
Speers:
But on the capital gains tax discount, I think it was the Parliamentary Budget Office pointed out about 60 per cent of the benefit of this goes to the top one per cent of taxpayers. Is that a problem for you?
Chalmers:
Well, first of all, I mean, we release our own analysis, the Tax Expenditure and Insight Statement, and that’s provided a number of, well, some analysis that’s not inconsistent with the conclusion of the Parliamentary Budget Office.
Now, as I said, we’ve got a tax reform agenda, it’s primarily focused on cutting income taxes
Speers:
But is that an equity problem for you, this concentration of the benefit going to the very top? The wealthy getting the lion’s share?
Chalmers:
Well, when we consider next steps in tax reform, obviously, issues around intergenerational equity are front and centre. We said in and around the Reform Roundtable, certainly in its immediate aftermath, I know that there are intergenerational issues in housing and in tax. We’ve got a big agenda to deal with those issues already, and any further steps that we would take to address some of those intergenerational equity issues would be a matter for Cabinet.
And I mention that because, not to be evasive about this, but we take our collective decision‑making in the Albanese government seriously. Any further steps would be a matter for Cabinet, but we’ve already got a big agenda on tax and housing, and the focus is on rolling that out.
Speers:
Can you at least say you won’t do anything that’s retrospective; that’s going to hit existing investments?
Chalmers:
Well, I’m not going to get into hypotheticals on a policy that we don’t have, David.
Speers:
All right.
Chalmers:
You know, obviously, any government that considers these kinds of steps would work out whether any transitional arrangements are required, and if so, what they look like, but we haven’t changed our policy, and so I’m reluctant to go into those kind of details.
Speers:
Look, a couple of other issues, Treasurer, that alleged terror attack on an Invasion Day rally in Perth. Can you understand why some Indigenous Australians are angry that more hasn’t been done to tackle the racism they’ve been facing?
Chalmers:
Well, I think it’s a reminder that terrorism and hate speech takes a number of forms, and the response from state and federal police and ASIO to that outrageous act of terrorism in WA was swift, but we do understand that people are edgy and for good reason right now. And we’ve got a big agenda when it comes to cracking down on hate speech, cracking down on terrorism, but we know that the nature of that evolves over time, and so will our response.
Speers:
I mean, it’s more than a year now since the Race Discrimination Commissioner presented his AntiRacism Framework to the government; still no response. Is it time for the government to at least provide a response?
Chalmers:
Well, first of all, it wouldn’t be right to say that we haven’t been working on and rolling out updates to the hate speech regime and the like, but obviously, when it comes to that report, antiracism report, we’re working through the recommendations.
We take these challenges to social cohesion incredibly seriously. We know that hate speech and terrorism takes many forms and that our response needs to as well, and that report will be an important input as our response evolves.
Speers:
And look, Israel’s President, Isaac Herzog, arrives in Australia tomorrow. He’s here, of course, to comfort Jewish Australians after the Bondi atrocity, but we know protests over the war in Gaza will take place. Is this visit, do you think, going to help social cohesion in Australia?
Chalmers:
Oh, look, I understand that this visit is contentious and it will invite a range of views, and some of those views will be strongly held. But this is about grieving with the families and loved ones of the 15 souls that were thieved on Bondi Beach, and so I hope that any protests that take place are peaceful and lawful when he’s here in Australia.
Speers:
And Treasurer, before I let you go, the news this morning of the Coalition reuniting. A reaction from you, does it change much for the government?
Chalmers:
I think these endless cycles of bust‑ups and patch‑ups are fooling nobody. You know, no amount of fake smiles for the cameras today can cover up for the fact that the right of politics in Australia is now a three‑ring circus. It’s a three‑ring circus of petty, personal and internal rivalries, and I think anyone who thinks that this is the end of it is kidding themselves.
Speers:
Jim Chalmers, thanks for joining us this morning.
Chalmers:
Thanks, David.