HAMISH MACDONALD:
This is RN Breakfast, global economic storm clouds are gathering as the Federal Treasurer Jim Chalmers prepares to deliver his first budget in just under a month, and despite a $50 billion boost to the budget bottom line, the government isn't promising any relief for Australians struggling to pay the bills. The Government has revealed it's discovered another $6 billion in unfunded spending, and rising interest rates will add tens of billions of dollars to the growing debt in terms of servicing it. The Federal Treasurer Jim Chalmers joins us now, welcome back to Breakfast.
JIM CHALMERS:
Thanks very much, Hamish,
MACDONALD:
You say you've uncovered another $6.1 billion in unfunded spending? What is it? Why is it unfunded? And how are you paying for it?
CHALMERS:
The big reason, Hamish, why we did have that improvement in the last year of the budget, is that a lot of money that was promised by our predecessors wasn't delivered. And so it then spills over into subsequent years. So, it's areas like COVID‑related spending around PPE. A lot of infrastructure projects, which were promised but not delivered have moved over into subsequent years, and so we need to find money for a large chunk of that. There have been delays in grants and in other areas too. But really what that $6 billion figure is all about, is about a range of pressures on the Commonwealth budget, which were not budgeted for by our predecessors, and which come in addition to the rising costs of servicing that trillion dollars in debt that we've inherited. So there's a lot of pressure on the budget, we want to engage people in a national conversation about that. There will be cost‑of‑living relief in the Budget I’ll hand down next month, in areas like childcare, cheaper TAFE, cheaper medicines, we've obviously already supported that increase in the minimum wage as well. So we're doing what we're can, but we're doing that within the constraints imposed on the Government, by some pretty serious budget pressures.
MACDONALD:
I do want to pick up on some of those threads. But is there potentially more unfunded spending that you haven't yet discovered? Or if you have, haven't told us about?
CHALMERS:
As we go through the budget, we are discovering more and more pressures on the budget, you know, for example‑
MACDONALD:
But my question is, is there more than this? I mean, are you aware of more?
CHALMERS:
What we've said already, is that there's been extra spending in COVID that wasn't budgeted for. There's obviously been some pressure on the budget, which comes from supporting people through natural disasters and floods. There are these underspends that I'm talking about now. But probably the most substantial new pressure, certainly one of the fastest growing areas of spending in the Budget that I hand down next month, will be the interest costs on the trillion dollars of debt. Because what happens is when interest rates go up, as they have been, as every Australian homeowner knows, it also means it costs more to service the debt that's in the budget. And that will put pressure over the next decade on the budget, some tens of billions of dollars. And so that means that that is another constraint that we're having to deal with. But within those constraints, we will provide cost‑of‑living relief, we will provide investments in the future of the economy and investing in people, and their skills and their energy. And we will start to deal with this legacy of wasteful spending, which has been a feature of the budget for too long.
MACDONALD:
Can you tease out what you mean, now about the growing cost of servicing the debt? Are you saying it's more expensive to service the debt that we already have? Or that the new debt that we will be taking on will become more costly to service?
CHALMERS:
Both, Hamish. The debt depends on how long the debts been dated, when the borrowing has happened. But to give your listeners a sense ‑
MACDONALD:
Just so we understand, because we are getting into fairly complex territory here, the trillion dollar debt that you refer to constantly, is that exposed to this?
CHALMERS:
Yes, it is Hamish, it is. And that's because the Government borrows over different time periods. And that gets rolled over, over time. But to give your listeners a very brief sense of the issue here. In the last budget, it was expected that the cost of servicing debt would be about 17 and a half billion dollars. By the end of this budget period, it will be 26 billion, they expected $26 billion. It's now $33 billion. So even in the course of this budget, in one year, at 2025‑26, the cost of servicing that debt has gone up $7 billion over the decade, it's gone up about $24 billion. And so that's just to give people a sense. There's pressures on the budget from COVID, from natural disasters, from the deteriorating global situation, but also the cost of servicing that debt at the same time as we fund aged care, and NDIS, and hospitals and defence. We also have to allow for the increasing cost of servicing the debt, for the money that's already been borrowed.
MACDONALD:
So if it's all as bad as you paint it to be, what are some of the answers? I know that you keep saying you want to have this conversation with the Australian public. But where might that conversation take us?
CHALMERS:
First of all, I am still confident and optimistic about the medium‑term future of our economy and our country. And we have a lot going for us, we do have low unemployment, we have been getting good prices for what we sell the world, it's come off pretty substantially recently, but we have been getting good prices before that. We had relatively solid growth in the last economic numbers that came out. And so we have some things going for us. But there's no use pretending that we would be completely spared a global downturn, and the global situation is getting worse, not better. There's no use pretending that we don't have an inflation challenge or real wage challenge, and that rising interest rates won't sting the Australian economy and the Australian people. And so the conversation I want to have with people, and the October Budget is the beginning of this conversation, not the end, is how do we responsibly fund the things that we truly care about and value, not just in our economy but in our society? How do we recognise that combination of desirable spending and unavoidable spending, in those areas that I've just run through?
MACDONALD:
Sure. I think we can all hear you saying that very clearly. But obviously, one of the things that you might talk about in that conversation is taxes. And yet you are wedded to the stage three tax cuts, which we all know is very costly, and you won't have that conversation.
CHALMERS:
The conversation begins, we think, in areas like multinational taxes, I think that is the area which is most ripe for reform. I've been saying that for some time. And so the October Budget will take some of the initial steps towards making sure that multinational corporations pay a fairer share of tax when they make their profits so that we can fund services in this country. I've said for some time I'm up for tax reform in that area, it comes hand in hand with trimming spending where spending has shown to be wasteful over the course of the best part of a decade. And it also means growing the economy the right way. All three of those elements have a role to play, as we've said for some time. And that's the conversation I want to have with Australians.
MACDONALD:
You talk about, I suppose that the possibility of Australia being insulated from the global headwinds. Europe and the US are now expected to slip into recession, growth in China is slowing. Do you think it is even vaguely possible that we won't go into a recession?
CHALMERS:
First of all, I think we do need to recognise that the global situation is deteriorating. And the challenges in the global economy in the US, the UK, China, Europe, and elsewhere, those challenges are intensifying rather than dissipating. And we won't be completely immune from that. Our expectation is that the Australian economy will continue to grow, but so will the challenges to the Australian economy. And my job is to focus on where I can actually make a meaningful difference to these challenges that we confront. In areas like skills shortages, areas like dealing with our supply chains and problems there have been pushing up inflation, getting wages moving again in a responsible and sustainable way. This is the focus of the Government because this is where we can actually make a difference. We can't by ourselves end the war in Ukraine, we can't by ourselves help the US and UK and China avoid either recessions or the flattening of growth in their own economies. But what we can do is invest in cleaner and cheaper energy, invest in skills, invest in childcare, provide responsible cost‑of‑living relief so that we can deal with some of these pressures in the economy without adding to the challenges faced by the Reserve Bank.
MACDONALD:
And yet for all of that, the polling out today shows that only a third of Australians support lifting the annual migration cap to 195,000. Do you think that we are all sort of missing the point here, if we want the economy to find its way through this?
CHALMERS:
I don't think so. And I think for Australians who have expressed that view, not just here, but previously as well, the assurance that we give them is that we don't see a responsible migration program as a substitute for training Australians for opportunities or making it easier for newer parents, particularly newer mums, to return to work if they want to and work more and earn more. We need to do all of these things simultaneously. We're not increasing the migration cap in isolation. For me, the prerequisite for doing that is to make sure that we're acting in these other areas to deal with these substantial labour and skills shortages which are holding our economy back. Our priority is training people, making it easier for people to go back to work. We've also got initiatives to help older people if they want to work a little bit more, without getting penalised for that. Migration is part of the story, but it's not the whole story.
MACDONALD:
Jim Chalmers, we are going to have to go, but the government will introduce legislation this week for a federal ICAC. There's a bit of a stoush going on about whether third parties, businesses and unions should also be in the sights of this commission. What's your view?
CHALMERS:
We've got a model that we're consulting with the Parliament on, and Mark Dreyfus has done a mountain of work on this and I pay tribute to him. He's working closely with the Prime Minister and with all corners of the Parliament, to try and land a workable national anti‑corruption commission. There's been a hole here for too long now, and we want to fill it. We want to make sure that it's a workable model. The details of that model, and those negotiations are a matter for Mark and Anthony.
MACDONALD:
Alright, Jim Chalmers thank you very much. It's always good to talk to you.
CHALMERS:
Thanks so much, Hamish.