KATHARINE MURPHY:
Jim, welcome to the show.
JIM CHALMERS:
Thanks, Katharine, for having me back.
MURPHY:
Well, first of all, I should I think say happy anniversary. Is it ten years in the Parliament?
CHALMERS:
Ten years in the Parliament. So this Thursday of this week – ten years since the 2013 election.
MURPHY:
I thought it was close. But, of course, that’s your front-facing bit of the Parliament. It doesn’t take into account the thousands of years you were –
CHALMERS:
I have been knocking around here for a while.
MURPHY:
I just wanted to mark the milestone because 10 years in the parliament, that’s a good milestone.
JIM CHALMERS:
Unfortunately, almost 90 per cent of that in Opposition, but we’re working on fixing up that imbalance.
MURPHY:
Well, there you go. Anyway, we’ve got to start with Qantas, because it’s been a huge issue this week and legitimately so. There’s been controversy around Catherine King, the Transport Minister’s decision to knock back more flights from Qatar at a time where Qantas has made a big, fat profit and where most of the country thinks Qantas service delivery feels optional to them. So obviously you are not the Transport Minister; I’m not asking you why you made a decision you didn’t make. But you are the Treasurer; you’re responsible for productivity in the economy, competition in the economy, all of that piece, right? So what is the case for protecting Qantas from competition? From a Treasury perspective, what is the case?
CHALMERS:
I think it’s possible to have a more competitive and a stronger aviation sector at the same time as we allow for decisions that are taken from time to time by transport ministers of both political persuasions frankly about these country-to-country arrangements. And the aviation sector is actually expanding. The international capacity is growing rather than shrinking. That’s a good thing. And my job, as you rightly identify, is to get the kind of broader competitive settings right, try and get a more competitive, dynamic, more productive economy.
And in that light I think it’s really important that people focus on the Aviation Green Paper that Catherine King has just released, and that is about the future of the aviation sector. A very important part of our economy and a big focus for us.
MURPHY:
It’s just we’re alluding to it in my question and your response to it; it’s such a case study, Qantas, and what’s happened over the last little bit a problem that you’re dealing with in the Australian economy, which is companies are large, there’s not enough competition in the number of key sectors, it gives producers a lot of power, consumers very limited power. Again from a policy point of view, Andrew Leigh, one of your offsiders in the portfolio, is having a look at this closely. But it’s sort of a tough nut to crack, though, isn’t it? It’s sort of small economy syndrome, right? So what can people expect on competition reform realistically?
CHALMERS:
Yes, our economy is not competitive enough. That means it’s not dynamic or productive enough. And that’s our starting point. And we have unleashed Andrew Leigh, the really quite extraordinary expertise and enthusiasm that he has for competition policy, and that’s because we need to try and turn this ship around. It has implications for the cost of living, it has implications for our living standards more broadly, productivity in the economy, as we’ve said. And so we have kicked off a process of revisiting a lot of the competition settings in our economy. Whether it is things like no-compete clauses when people leave jobs, where it’s things like mergers and acquisitions which the ACCC has been on about for a while, we do think there’s an opportunity to chip away at this competition challenge in our economy, and that’s what the work that Andrew and I will do.
MURPHY:
Okay. Another thing I want to touch now on just quickly just before we move on to a discussion I know we both want to have about the economy, below the radar. Because Qantas was such a big issue this week, it didn’t go unreported but it went largely unremarked, the Government released a new strategy for trade diversification in the ASEAN region. The context for this, guys, if you think, “Well, why on earth would we do this,” is China basically has locked out Australian exports over a number of years, so there is an imperative to look for other markets in the region. And also just part of the economic growth story; it’s not just a hedge against China. There are reasons to do this positively as well as negatively.
But the thing I was interested in that is in your bailiwick, there’s a signpost in the report that says we might sort of come up with a more favourable foreign investment regime for ASEAN countries. What? What is this?
CHALMERS:
There’s a heap in that. Let me try and unpack it as quickly as I can, as briefly as I can. Incredible work by Nicholas Moore working closely with Penny Wong and the Prime Minister and with our support. Businesses, investors, governments, including definitely our government, are trying to work out how do we de-risk our supply chains and our trading relationships without decoupling.
MURPHY:
God, and friendshoring has become a thing. My god, I’ve been away six months and friendshoring – anyway.
CHALMERS:
The Americans talk about that a lot. My friend and counterpart Janet Yellen talks about that a lot. It’s really about de‑risking our relationships without decoupling. And what this new strategy that the Prime Minister released is all about is about recognising that as the world is fragmenting and as we’ve learned a lot from COVID about our supply chains and our trading relationships, those things need to be as reliable and as resilient and as robust as possible.
And so the wonderful work that Nicholas Moore has done – and I thank him for it and I engage with him relatively regularly on it – is about how do we chip away at that in our region. It’s the opportunity of a century, the growth in Asia. And we’ve got so many advantages that we bring to the table. And one of the things that I would like to try and do – and it’s in Nick’s report for good reason – is we want to make sure that the Foreign Investment Review Board process continues to weigh up our national interest. Every country’s got a right to weigh up investment in the context of its national interest, but are there ways that we can make it more investor friendly. And we have been doing a bunch of work on that already. But Nick’s work and Nick’s recommendation in the strategy I think is a really important way, a really important signpost for the progress that we hope to make here.
MURPHY:
I’m just thinking China, there might be some pushback if there’s a more favourable set of conditions for one set of economic partners as opposed to others. I realise there are different arrangements anyway.
CHALMERS:
The most important thing there is that our FIRB arrangements are non-discriminatory. They are not about country versus country; they’re about types of investments. They are about amounts of investment. And that will continue to be the case. It’s a non-discriminatory policy. But, for example, one of the things that we’ve been grappling with is where there are repeat investors, whether or not – Nick puts it well when you talk to him about it as well – whether or not people have to go back to the very beginning if they are a longstanding trusted investor, whether they have to kind of run the gauntlet from beginning to end each time. We’ll have a look at that and see if we can do better.
MURPHY:
Okay. Interesting. Now, let’s get to the economy, because obviously we had new economic data from the ABS this week, which basically indicates that population is the sort of factor keeping the economy afloat at this point. And a lot of commentary around over the last couple of days about Australia being in a per capita recession. One more foregrounding thing before we get to the question. In our Guardian Essential poll this fortnight the biggest negative movement in the poll was people’s perceptions about their financial circumstances at this point in time. It was a 6-point negative movement in only a month. So people are obviously feeling very vulnerable. Now, economists talk about hard landings and soft landings. Are we heading for a soft landing?
CHALMERS:
Well, that's certainly the expectation of the Treasury in their forecasts but it’s not assured. That’s the truth of it. And nothing in the forecasts, whether the Reserve Bank forecasts or the Treasury forecasts, is preordained. And I think it is true that the coming 12 months or so will be bumpy in the economy, and we know that the most important consequence of that is that people are feeling the squeeze. People are under in some cases intense and immense pressure in their household finances, and that’s what you’re referring to. And we understand that.
That’s why amidst all of the Government’s priorities, the number one priority is to roll out these billions of dollars in cost‑of‑living help in a way that takes some of the edge off this inflationary pressure rather than adding to it. And it’s carefully calibrated to do that. There is a lot of support rolling out, but whether it’s in energy or whether it’s in out-of-pocket health costs or rent assistance or social security, it’s about trying to take the edge off these inflationary pressures rather than adding to it.
Now, I understand that in this climate where people are under pressure – and we acknowledge that – we have to demonstrate, it’s on us to demonstrate, that a good government can do more than one thing at once. We can maintain a focus, a primary focus, on the here and now, the pressures that people are under at the same time as we lay the foundations for the future and some of the issues in the Intergenerational Report, at the same time as we recognise First Nations people in the constitution.
Bad governments can’t do multiple things at once; good governments can. And this is a good government capable of doing more than one thing at once. When people are under pressure it does make it harder to focus the nation on the longer term as well, and our opponents will always play politics with that. It’s sort of a humiliating confession of sorts when our opponents say that they can only think about one thing at once in the here and now and can’t think about the future. That should be disqualifying. We are capable of doing more than one thing at once, but we recognise that when people are under pressure it’s a bit harder to do some of the longer term things that we all need to do as a country.
And if you look at that Intergenerational Report and you think about the shift from hydrocarbons to renewable; from IT to AI, you think about the fragmentation of the world that we were talking about, the ageing of the population, the pressure on the Budget, we need to serve our immediate priorities and our generational responsibilities at the same time, and that’s what we’re doing.
MURPHY:
I want to drill down. There’s a couple of really interesting things in the Intergenerational Report, which you released in the time I was away. So there's a couple of things I want to pick up about the Intergenerational Report and put to you. But let’s just go back to the soft landing for a minute. You say it’s not assured. Now, obviously treasurers choose their language very carefully. You’re leaving open the prospect that we could see a recession – not a per capita recession, a recession-recession?
CHALMERS:
That’s not my expectation, it’s not the expectation of the Treasury or the Reserve Bank in their forecasts. I guess the point that I'm making is that Australia's economy has performed in a really steady and sturdy way, we saw that in this week's National Accounts, we've got a lot going for us, our labour market has been incredibly strong, we've got the budget in better nick, the first surplus in 15 years, our international education and tourism sectors are performing remarkably well and that's one of the big standout pieces from the national accounts as well. So we've got a lot going for us, we expect the Australian economy to continue to grow, but the next 12 months, there will be a lot of uncertainty. I don't want to say that we're hostage to developments in China, or the impact of these interest rate rises, which are already in the system. But those two things will be the biggest determinants of whether or not we meet the forecasts from the Treasury, or underperform or over-perform against them.
MURPHY:
I’m glad you flagged China, because obviously there’s been a lot of commentary around about the Chinese economy, and that’s part of the story about the recent depreciation in the Australian dollar. That’s the analysis around the markets. As the listeners will know I'm in a bit of a time warp because I've been away for a while, so coming back in – it's sort of funny; when I went away you were very concerned about the US. When I've come back obviously China is front of mind. And so things look pretty bad, not to put too fine a point on it.
CHALMERS:
I think of it as this kind of tug-of-war between risk and resilience. And at the start of the year in the risk column we were worried about the financial system – Silicon Valley Bank, Credit Suisse. We were worried about a hard landing in the US. And, again, a soft landing is not assured in the US. But the balance of risks has shifted in the global economy. There’s still an immense amount of global economic uncertainty – Russia‑Ukraine, a lot of countries have gone backwards in the course of the last recent half a year or so.
So there’s still a lot of risk in the global economy, but sharpest point of the risk right now I think is the slowdown in China. I think everybody is watching very closely developments particularly in their property sector, but also their retail sector, their exports have been a bit weaker, their economy is slowing. They’ve got deflation, if you can believe it.
MURPHY:
Difficult to believe, but yes.
CHALMERS:
So China really is on the international horizon the part of it which is most concerning to us which we monitor most closely is China. And in the domestic scene obviously we’re seeing these interest rate rises which began before the election and continued after. We are seeing them biting quite substantially in the household consumption data, including in the National Accounts. And so those two things will be the main determinants – the impact of rates, the impact of a slowing China. Those are the two thing that I think will be the biggest determinants of whether we do as we expect – which is to continue to grow but quite slowly – or whether we under or overperform against those forecasts.
MURPHY:
Okay. Now, let’s go to the Intergenerational Report, because it will get back into this subject of reform and whether reform is possible in an environment like this. There are a couple of points – well, many points of interest in the Intergenerational Report when I read it a few days ago. But a couple of specifics I want to put to you now. One thing it pointed to on the revenue side in the coming decades is obvious if you think about it for more than two seconds – the electrification of the transport fleet will basically erode and eventually eliminate a fuel tax revenue. So that punches a big, big hole in the Budget. The other thing of interest – because you and I talk about tax a bit and my favourite bugbear are the stage 3 tax cuts, but anyway, let’s –
CHALMERS:
That’s for those of you playing Katharine Murphy bingo.
MURPHY:
Yeah, I think we got 16 minutes in before I mentioned it – it’s kind of amazing really. No, but the IGR reframes that whole concept a bit. And so I want to bring us up to date in how – I’m going to continue to plague you about this issue, right? So the IGR basically says that personal income tax will grow from 50 per cent of receipts now to 58 per cent in a few decades. So that brings us to a bracket creep issue – as you earn more, you pay more tax. There’s obviously a policy thing now which, is legitimate and pressing. So I’ve got two questions. Let’s do the personal income tax first, because we can just work out where we reset on.
CHALMERS:
It’s your show, Katharine. We do it in whatever order you would like.
MURPHY:
Let’s reset conceptually on stage 3. I’m doing it largely for my benefit. But Jim actually makes the decisions, so it’s quite useful to have this conversation with the decision-maker. So, look, the stage 3 tax cut package, advocates of it say, “Look, it does marvellous things for bracket creep. Everything’s fine. It’s great.” Well, sure, but the way that it deals with bracket creep confers a benefit on people who earn the most. There’s an argument for that at a conceptual level, but Labor Governments are generally interested in progressivity in the tax system and equity and making sure that people who don’t earn very much get along okay. So are we likely to see you reconfigure that package with bracket creep in mind so that what it tries to do in a policy sense actually benefits the people who need it most?
CHALMERS:
A couple of things about that. And partly the secret is in the name – stage 3. The first two stages, the ones that we were most enthusiastic about at the time when they were going through both houses of the parliament, they had a different distribution to stage 3. And so I think one thing to encourage people to do is to see it in its entirety. Obviously stage 3 is the one that’s not legislated to come in before the middle of next year. And you’ve heard me say before that we haven’t changed our position on it.
On the broader question of bracket creep, we have never contested this idea that governments of both political persuasions from time to time try to return some of the bracket creep as people, edge up the tax scales. That, to me, is a very, very worthy aspiration because absent that, people just find themselves higher and higher in the scales, which is good for the Budget but not especially good for the worker.
And so returning bracket creep over the next – course of the next 40 years of the IGR period, there will be governments of both political persuasions, hopefully dominated by Labor Governments, but both political persuasions will give back bracket creep in one way or another. And the next opportunity to do that is the middle of next year.
I understand, we’ve talked about it many times, about how contested the distribution of stage 3 is. I understand that. You know that I welcome people having a range of views about stage 3, but I think that there is a remarkable degree of common ground when it comes to the overall aspiration, which is you give bracket creep back when you can afford to do that.
MURPHY:
So that sounds like maybe.
CHALMERS:
I say the same thing to you each time, which is that we haven’t – we haven’t changed our view about them. But I think the things I’m trying to leave with you is that there have been three stages. The distribution of the three stages have all been different. And your question is about the IGR, the fact that the tax-based changes over the time, EVs will make a huge difference to excise. I hope that we’re not taxing tobacco at the end of the IGR period. I hope we are raising precisely zero dollars from tobacco excise. And so the tax base will change. And the IGR does point out that we lean heavily on personal income taxes, and that’s why governments of both persuasions will give back bracket creep when they can afford to do that. And they’ll weigh it up against all their other priorities as well.
MURPHY:
That does sound like maybe. Anyway. Fuel tax, it’s sort of like – it’s a specific problem obviously, what do you replace a fuel tax with. But I want to pull us out a little bit. It relates to the bracket creep piece as well, really, and it comes back to this idea that we want to talk about, which is how do you pursue reform in difficult environments. Let’s just start with first principles: obviously fuel tax falling out of the Budget, that revenue hole, that’s going to take probably a couple of decades, really, to sort of scale up to the full bad version of it. Although maybe electrification happens quicker. I don’t know, but anyway. Long preamble. What I’m trying to ask you, Jim, is: you’re the current holder of the Treasury portfolio, do you feel responsible for the retooling of the tax system that is going to have to occur. Or do you think, “Oh well, the next bozo can deal with that because I’ve got enough to deal with in terms of my intraday stuff. We don’t actually have to think about this probably for another five years. That can be whomever my successor – that can be their problem”?
CHALMERS:
I’m not an enthusiastic intergenerational buck-passer.
MURPHY:
That’s a much better way of saying it than the way I framed it so thank you.
CHALMERS:
I feel that way about the Voice frankly – that we shouldn’t leave it to our kids. I feel that way about the economy. And, the point I’ve made about tax is we’ve got a full book of tax. Like, we still haven’t legislated the super changes. We haven’t legislated the PRRT. There’s more work to do on multinationals. To be frank with you, I get a little frustrated when people think, well, when is there going to be – we’ve got three big pieces that we’re working on right now which are contentious and contested.
MURPHY:
I didn’t suggest you’re sitting on your backside. It’s a bigger question.
CHALMERS:
I understand. And so that’s our priority. But I – whether it’s the wellbeing framework, the Intergenerational Report, the Employment White Paper, I try and take a longer view as Treasurer. One of my frustrations with my three immediate predecessors, when I think that they were trying to win the six o’clock news every day and that the long-term largely got ignored. I know you don’t want to be partisan, but that’s how I feel about it. That’s how I’m trying to be different to my predecessors.
The thing that gets most commonly raised with me about the chats that you and I have from time to time is when the time that we were talking about Australians will cop big things done slowly, not big things done quickly, not little things done slowly. People who listen to you each week will occasionally raise that with me. And that’s how I feel about things like tax. And so I think the most important way to build consensus and to find common ground about reform is to till the soil. The Intergenerational Report is the perfect way to focus the nation’s mind on some of these longer term issues, but so will the Employment White Paper and the wellbeing framework and some of the other things I’ve tried to do differently. Because I believe if you want to ask the Australian people to come on a reform journey with you, you’ve got to give them a sense of why first. And that’s why I don’t really mind when you put out the Intergenerational Report and people will kind of pull it apart and, there’ll be all kinds of views and you don’t have to agree with all of them, that’s what I want. I want to stir that up a little bit. I want to explain to people the sorts of things that we are grappling with, because if you want to get some of these longer term issues right, you’ve first got to build the case for why.
MURPHY:
You and I have known each other for a very long time. You are sort of by temperament and style a storyteller. So I understand that. I understand why you value that and that you think that’s important. And, look, I agree. But it is we’ve watched at the moment the sort of conditions that we’re looking at at the moment is the Voice campaign is in trouble. That’s what all the polling tells us, and that’s what the gut feeling tells us as well. The general kind of noise ramping up around the energy transition again. There’s various sort of shifting pieces in that. I’m seeing adversity. Now, the whole dialogue so long as I've been in Canberra as a political reporter between treasurers and prime ministers is reform versus, how do we win the next election and how do we win the next election sometimes involves not disturbing interests in society and the economy who don’t want to be disturbed. Do you think the Prime Minister maintains the appetite to keep moving forward?
CHALMERS:
I do –
MURPHY:
And yourself. I shouldn’t actually just personalise it to the Prime Minister. Do you maintain the appetite to keep moving forward?
CHALMERS:
Of course we do. You were kind enough to mention at the start the fact that I’ve been knocking around here as a member of Parliament for a decade today, and the Prime Minister has been around here for longer than that. And I think the overwhelming sense you get of this place is when the opportunity presents itself you’ve got to make the most of it. You can’t waste a day. That’s the Prime Minister’s approach, and it permeates right down through the Cabinet. It’s the approach that I share.
But when you are trying to do things and you’re trying to change things, then you invite some turbulence. I mean, that’s just how it is. The alternative to that is to do absolutely nothing and to waste another decade, and that would be a tragedy for Australia. And so we understand, whether it’s the energy transformation or whether it’s the Voice, whether it’s tax reform, we understand that when you try and change something that can stir up people who would rather things stay exactly the same. But we can’t afford to waste another decade as a country. There is so much about this country which is terrific. But there is so much that could have been better if we didn’t have this wasted decade where we missed all these opportunities and all of these messed up priorities. And we want to change that. Otherwise it’s no point being here.
The thing that I really love when the Prime Minister says it is when he says we’re not just here to warm the seat. That is the neatest encapsulation of how I come at it and how he comes at it. It would be an easier life to do nothing. True. That’s not contested. But it would be a waste of our time and a waste of the nation’s time, and we can’t afford that.
MURPHY:
We’ve got two minutes left I think – just one more on the spirit of reform and just looking forward into your immediate future. I think we’ve got an Employment White Paper coming. What can you tell me about that?
CHALMERS:
This will bring together so much of the government’s work, so many ministers have been working really around the clock on this Employment White Paper that I’ll put out before the Voice referendum. Hopefully the end of September, but it might be the first week of October or something like that. And really what the Employment White Paper is all about is how do we understand the shifts in the labour market into the future and how do we position our people to be the major beneficiaries of that. If there’s one thing that I think about as Treasurer it’s how do we understand what is changing in our economy and in our society and how do we make sure that our people are beneficiaries and not victims of that. That’s the main thing. That’s the whole frame for how I think about all of these policy challenges, including in the labour market.
And so what this Employment White Paper will be all about is about how do we understand full employment, how do we get secure jobs and better pay, how do we deal with skill shortages now but understand how the labour market is changing so we get the workers we need in the future. How do we make our economy more productive, and how do we deal with these barriers to opportunity, including in communities like the one that I represent. When we’ve got national unemployment at 3.7 per cent but we’ve got pockets of intergenerational disadvantage and long-term unemployment, how do we try and bust that up as well in an intergenerational sense.
And so we will be releasing that before long. It is – if you want to look at the history of it, you had Chifley after the war. You had Keating in the early 1990s. Now we’ve got this Employment White Paper. So for the first time in really kind of 30 years-plus that we’ve had this look at the labour market the way that we are. I’m really proud of how it’s evolving. I’m proud of the work that other ministers have been doing and contributing to it. We’ve had a heap of input. It really had its genesis in the Jobs and Skills Summit. We talked about it before then, but the Jobs and Skills Summit really crystallised a lot of the directions that we’ll be taking in the White Paper when I release it. I’m really excited about it. I think it’s going to be a really good piece of work.
MURPHY:
Okay. Well, that’s a significant watch this space for the listeners. And, of course, Jim is like – well, I think you’re probably the chief friend of the pod, really.
CHALMERS:
Am I number one for regularity?
MURPHY:
I think you might be number one. We will have another conversation obviously about this once it’s in the public domain and all the other issues that we are continuing – or that we’ve canvassed in this conversation too. So thank you very much for coming in.
CHALMERS:
Can I just say briefly, Katharine, as a friend of the pod and as a listener of the pod, how wonderful it is to have you back. And I’m sure I’m speaking for your legions of listeners when I say that it’s wonderful to have you back on the mic.
MURPHY:
I find praise confusing, but thank you, Jim. That’s more than kind. Thank you.