DAVID SPEERS:
Treasurer, welcome to the program.
JIM CHALMERS:
Thanks very much, David.
SPEERS:
Now we'll come to your plans on manufacturing in a moment, but I do want to start with the horrific attack at Bondi Junction. What's your reaction to what's happened there?
CHALMERS:
Well it's devastating and senseless and really quite hard to fathom. I think everybody's heart breaks for the loved ones of the victims but also the workers and the witnesses who will remember that day for the rest of their lives. And we pay tribute to the police officer, all the first responders, indeed everybody who put themselves in harm's way to try and limit the senseless carnage that we saw at Bondi Junction.
SPEERS:
And just the other breaking, unfolding news that's happening in the Middle East right now with Iran launching attacks on Israel, or missiles and drones. How worried are you about that?
CHALMERS:
These are incredibly concerning developments. We've seen enough bloodshed in the Middle East already. We don't want to see more innocent lives lost in that part of the world, and it would be much better if the Iranians used their influence in the region to try and calm tensions rather than inflame them.
SPEERS:
Does Australia stand with Israel at the moment?
CHALMERS:
We've made it clear through other spokespeople already out today that we condemn the actions of the Iranians. As I said, Iran can have a positive role to play in the region or a negative role to play in the region. This will inflame tensions further.
Our big concern here is that we don't want conflict in the Middle East to be broader and deeper than it already is. We've already seen enough lives lost and so that's why these developments yesterday and overnight are incredibly concerning to all of us.
SPEERS:
I will come back to the potential Budget and economic impact of what's going on in the Middle East too.
Look let's turn though to the plan, a Future Made in Australia, more subsidised local manufacturing.
Just to pick up on what we heard from the Prime Minister just there, why should Australian taxpayers be giving money to a private company to stop it going to the United States? What's the public interest objective here?
CHALMERS:
Well a couple of things about that. Our plan for a Future Made in Australia is much broader and much deeper than the way that you've just described it.
The world is changing and that pace of change is accelerating and we want a slice of the action for our workers and our businesses and our investors. And the opportunity for us lies at the intersection of our industries, our energy, our resource base, our skills and human capital, and our investment strategy.
This is how we align our national and economic security interests, it's how we deliver another generation of prosperity, by making ourselves an indispensable part of the global push to net zero.
So when it comes to public and private investment, it's really important to remember that what we're talking about here isn't some kind of free‑for‑all of public funds, we're talking about incentivising private investment rather than replacing it.
The heavy lifting will still be overwhelmingly done by the private sector but there's an important role to play by governments and by public investment as well. That will still only be a sliver of the hundreds of billions of dollars that we need to land this energy transformation, to make ourselves a renewable energy superpower and to secure our place in a future which will be dominated by the net zero economy.
SPEERS:
Can you give us a sense of the scale here? I think you used the word ‘targeted’ there. How far are you willing to go, or how much are you willing to spend? Is there any upper limit on this?
CHALMERS:
We'll obviously make our plans clear on Budget night, and I think the Prime Minister has done a terrific job during the week, signalling to the Australian people and to our industrial base the sorts of directions that we want to take the country in.
In a world of churn and change we've got big advantages, and we want to make the most of those advantages. So there will be a significant investment in the Budget. It will be substantial, but it still won't be the biggest piece of the story here and that's why the Budget will also have a very big focus on how we attract and deploy and absorb private sector investment as well in the service of these really important national economic objectives.
SPEERS:
How do you do that? Is that through tax breaks?
CHALMERS:
That's obviously one of the tools that we are considering but not the only one. What you'll see on Budget night is a broad and comprehensive strategy of which incentives for industry is a part but not the only part.
We really want to incentivise private sector investment as well. We want to turbo charge investment in the future of our economy and that will be a big focus of the Budget.
SPEERS:
Because comparatively Australia has high company tax rates. It's a disincentive I suppose to stay or set up in Australia. So you'll try and address that through some form of tax incentive?
CHALMERS:
We are prepared to consider the tax system as one of a whole range of levers that may be useful as we pursue a Future Made in Australia and make ourselves that indispensable part of the global net zero economy. But again, what I'm signalling to your viewers is what they will see on Budget night – it will be broad, it will be comprehensive. The tax system may play a part, public investment will play a part, but overwhelmingly what we're trying to do here is incentivise private investment, not replace it.
SPEERS:
Right.
CHALMERS:
That will be a big focus too.
SPEERS:
If you want to be broad, as you say, you could lower the company tax rate, couldn't you?
CHALMERS:
That's not something that people can expect to see when we unveil the full package, but we've said publicly before and certainly behind the scenes we're contemplating whether or not there are ways to use the tax system to incentivise the kind of private investment that we need to see in the future of our economy, to ultimately benefit our workers and businesses and investors.
SPEERS:
So listening to you, it sounds like the emphasis will be more on tax incentives than direct handouts?
CHALMERS:
I think people can expect to see some combination of all of the levers available to government. We have a willingness and enthusiasm really to come up with something which is robust and rigorous, with strict tests governed by the act that the Prime Minister flagged during the week.
What we're looking for here is where we have genuine advantages and compelling imperatives. We're looking for where we can make our businesses more competitive, build the capacity of our people and our regions. Become part of that net zero global economy, turbo charge the private sector, get value for money.
These are the sorts of rigorous and robust tests that we will apply to all of these sorts of decisions that you're asking me about today.
SPEERS:
And when you say, you know, broad here can you give us any sense of – I think you also said it would be robust as well and targeted. You've got manufacturers all lining up this week saying, ‘yes, please. We'll take whatever you're offering’. Are you only talking about though, specific green technologies, or would this go to manufacturers of other things that simply want to decarbonise their production line?
CHALMERS:
I mean broad as in comprehensive, but obviously when it comes to an economy of our size we need to focus on where we have those genuine advantages and those compelling imperatives and we have big advantages, whether they are geographical, geological, meteorological, geopolitical – these are our big advantages, and we want to apply that to our thinking about the future of our economy.
A Future Made in Australia really is our big opportunity to deliver the kind of economy that will deliver another generation of prosperity.
We need to understand that a generational change in the global economy and in the opportunities available to Australia requires us to undertake a generational change in our thinking. And that's what this will be, and you'll see it on Budget night.
SPEERS:
Danielle Wood who you appointed as Chair of the Productivity Commission raised some concerns about this sort of approach, diverting jobs and investment away from other more productive areas of the economy, the need for an exit strategy so you don't end up subsidising companies forever. Have you spoken to her about these plans?
CHALMERS:
We've had general conversations over the course of recent weeks about our aspirations and our objectives here when it comes to being a renewable energy superpower and a Future Made in Australia.
I thought Danielle Wood made some important points but some obvious points about making sure we get value for money. We've got strict frameworks, we've got exit strategies and off ramps and we're taking into consideration the impact of these plans on the economy more broadly.
I think those are important points but they're also obvious points. They're also factors that we are already taking into consideration as we finalise the policy. Frankly, it would be pretty strange if we weren't.
SPEERS:
So she's not out of touch with international reality as your old boss Wayne Swan suggested?
CHALMERS:
Well, I respect both of them and I listen to both of them, but I form my own views and I use my own words. And Danielle Wood's contribution was important and obvious, I think Wayne's was too. We need to understand that the world is changing, that pace is quickening, and we need a slice of the action. So I think it's possible to have both of those sets of views simultaneously. We have certainly been factoring in all of those considerations as we finalise the package and as I said a moment ago, it would be pretty strange if we weren't already thinking along the lines identified by both of them.
SPEERS:
As you try to attract more investment there's also the question of who should be allowed to invest in, I guess, solar panels, battery making, but critical minerals in particular in Australia. You've been working on changes to the foreign investment rules. When can we expect to see them?
CHALMERS:
We want to streamline and strengthen the foreign investment regime in this country because we want to attract the right kind of investment in our national advantages. Part of making sure that we get the investment climate right is making sure that we strengthen and streamline the Foreign Investment Review Board processes. I have been working on this for some months. I've got a little bit more work to do with my colleagues to finalise a package. I'd like to announce it before Budget if I can – that's to be determined, but ideally we'll put the finishing touches on that package and make it public in the coming weeks and that will be all about recognising that we can streamline investment when it's in areas which are low risk but high reward and we need to strengthen the arrangements where the risks outweigh the benefits and so those are my priorities when it comes to foreign investment. I have almost finalised that package and I hope to publicise it before long.
SPEERS:
Alright. So just to pick up on your point there, do you want to make it harder for foreign investment in critical minerals?
CHALMERS:
I don't think about it necessarily in the broad as about one industry or another. Obviously there will be elements of that in the final package but really what we're trying to say here is that overwhelming investment in our economy is a good thing. We want to streamline it for investment that is in our national economic and security interests. But we want to strengthen it. We want to make it more robust when that investment is riskier.
We don't necessarily just take a sectoral view about that. We apply a whole range of tests and when I announce our foreign investment reforms in the coming weeks, I'll make it clear how we intend to strengthen it in some areas and streamline it in others.
SPEERS:
A lot's been written lately about your appetite for reform, Treasurer. Will this one on the foreign investment rules, should we be seeing this, expecting this to be a significant reform?
CHALMERS:
This will be a big economic reform and a bit like the mergers reform that I announced at the Bannerman Lecture in Sydney during the week. The biggest change to mergers in half a century, combined with our reforms to foreign investment, these are two important parts of our economic reform agenda but not the only parts.
Any objective observer of our record knows that we are engaged enthusiastically and comprehensively in economic reform, whether it's energy or markets or capital flows, whether it's our institutions. Across a broad range of areas, we are enthusiastic economic reformers. There will always be people who want us to do more, there will always be people who want us to do less, sometimes their views are informed, sometimes they aren't, but we've done more economic reform in the last 23 months than we've seen in this country for the last 23 years.
SPEERS:
Look, let me turn to what's happening in the economy and perhaps internationally first because I think you're off to the United States in a few days for some pre‑Budget meetings there.
Look, inflation has gone up again in the United States. How concerned are you about that and how does the inflation outlook look to you right here now?
CHALMERS:
It's true, I'll be meeting with my G20 economic ministerial counterparts and the Central Bank Governors, the IMF, the World Bank and others in Washington DC later this week. That will be an important opportunity to take the temperature of the global economy.
Inflation in the US is going up, we've got recessions in some countries, we've got a substantial slowing in the Chinese economy, we've got all of the costs and consequences of these conflicts that we're seeing in two important parts of the world as well. So all of this will be a factor on the Budget and on our economy. It means that the degree of difficulty for this Budget is a bit higher, even perhaps than the first two and the big influences on our Budget will be this global economic uncertainty, cost‑of‑living pressures, which I'll come back to in a moment, and also the fact that our economy has been slowing as well.
We've seen inflation come down in Australia in welcome and encouraging ways. We're seeing it go up in the US and that reminds us that even though inflation has come off substantially from those peaks a couple of years ago it's not always in a straight line, it can zig and zag, and that's why a primary consideration in the Budget will be continuing the fight against inflation as we deal with slowing growth, as we try and make ourselves more resilient to this global economic uncertainty.
SPEERS:
So you don't want to do anything in the Budget that's obviously going to make the inflation problem worse. Are you saying it might not keep coming down any time soon, inflation?
CHALMERS:
We still expect inflation to moderate a bit more. It has come off really quite substantially since before the election and since the peaks in 2022, and that's a good thing. But what we're seeing in other countries like the US is that that moderation and inflation hasn't been linear, it hasn't been in a straight line, it can zig and zag and that's why there will be ongoing vigilance in the Budget when it comes to the fight against inflation, even as we recognise that the balance of risks are shifting a bit in our economy, global and domestic, and we can't ignore that either.
SPEERS:
China, you mentioned China's growth is slowing. What's that mean for us?
CHALMERS:
We'll get some more numbers from the Chinese economy on Tuesday but what I can tell you, David, is that our current Treasury forecasts which will be published in the Budget have a downgrade for Chinese economic growth.
What we're looking at here in the current forecasts which will be finalised between now and the Budget itself is growth with a four in front of it, for three consecutive years in China. If that happens that will be the slowest period of economic growth in China since they started opening up in the late 1970s.
So we expect the Chinese economy to be a bit weaker for a bit longer and that has obvious consequences for us, for our economy, but also for our Budget.
SPEERS:
What's it mean for the iron ore price?
CHALMERS:
We've seen the iron ore price come off really quite substantially. This is a big influence on our Budget, as you know, not the only influence, the labour market's important here as well. But the iron ore price was about, was more than $130 a tonne at the start of the year. It's been bouncing around in the low 90s. To give you a sense of what that means for the Budget, the difference between 130 plus and in the low 90s is something like $9 billion in revenue in the Budget, something like $35 billion in nominal economic activity, so can you see the drop off in the iron ore price. You can see why this is one of the reasons why we expect much, much smaller revenue upgrades in the Budget than we've become accustomed to on the last couple of occasions. That demands a bit of a different approach to the Budget and that's what you'll see on 14 May.
SPEERS:
So just finally, given that $9 billion hit you just mentioned then, I suspect I know the answer to this, but are you going to get a surplus in this Budget?
CHALMERS:
That's still our goal – it's a bit harder now because of the iron ore price and because of what we expect to see with the softening in the labour market but that's still our goal and that's because the first surplus that we delivered in 15 years, last year, was an important way to put downward pressure on inflation in our economy. We'd like to have a second one if we can, we're not there yet – the degree of difficulty has gone up a bit, but it's an important way to put downward pressure on inflation. It's not an end in itself, it's how we engage in the fight against inflation and make our Budget stronger in the context of this global economic uncertainty and fund our priorities.
SPEERS:
Treasurer Jim Chalmers, thanks so much for joining us this morning.
CHALMERS:
Thanks.