KIERAN GILBERT:
Jim Chalmers joins us from Brisbane. Treasurer, thanks for your time. Let's start on the energy front. The numbers released by the Government over the weekend show a drop in the forecast wholesale electricity price. Does this essentially guarantee from the Government that the intervention that has been made will work?
JIM CHALMERS:
Good morning Kieran, and welcome back to 2023. It's a really welcome indication in those forecasts ‑ wholesale prices for the coming year ‑ that the intervention that the Albanese Government made into the energy market late last year will work. We expect the various caps to be implemented. We expect it to make a meaningful difference to these price increases that were forecast in the October Budget. Our objective here is to try and moderate, to try and take the sting out of, to try and take the edge off some of these price rises that we will see in energy prices through 2023 ‑ a big part of the inflation problem in our economy. And we're really heartened by these new wholesale prices forecast for the coming year, which show that our intervention looks like it will work.
GILBERT:
There had been a flurry of speculation around whether or not the gas producers were withholding supply ‑ a bit of a bargaining effort or putting pressure on the Government. Has there been any evidence that producers have been trying to do that, essentially to strong arm the Government on this issue?
CHALMERS:
I think certainly people have been getting their head around this intervention, which only came into place just before Christmas last year. Inevitably, in expected ways, as the companies on both sides of the equation ‑ sellers and buyers ‑ get their head around this intervention, there'll be an appetite for more information, which the ACCC is now providing. There will be an element of back and forth as we bed it down. Some of those prices which were reported in the media over the last week or two, they were from deals struck last year ‑ they are precisely why we acted in the way that we did: the gas cap, of course, the ongoing reasonable pricing regime that we're consulting on, the states imposed a coal cap, and we're providing household assistance for electricity bills in the coming year as well. All of these things together, we expect will take some of the sting out of these forecast price rises, which are putting pressure on families and businesses and industries right around the country.
GILBERT:
Ed Husic says the producers are addicted to the Putin war‑time profits and are now having withdrawal symptoms. Do you agree with his assessment?
CHALMERS:
We all use different words to describe the situation. And Ed, as always, is doing a great job standing up for industries of this country and his portfolio, especially manufacturers who do run the risk of being hollowed out by prices if they're too high for too long. That's an obvious point. The gas industry is an important part of our economy. It's an important part of our energy mix, but we need them to do the right thing. They're doing incredibly well on global markets right now, and all we're asking is that they do the right thing at home so that we don't see households and pensioners and small businesses smashed, and we don't see industries hollowed out by these high prices brought about by the war in Ukraine.
GILBERT:
Treasurer, on other matters, now the Defence Strategic Review is scheduled to be released publicly in the next couple of weeks. Are we heading to defence as a per centage of our budget and our economy more broadly, of well over 2 per cent of GDP, now heading more likely to three or 4 per cent given the huge submarine and AUKUS commitments?
CHALMERS:
Already in the Budget I handed down in October, there was something like a 13 per cent increase in defence spending over the forward estimates, and I think from something like $49 billion to $56‑$57 billion dollars in the defence budget. That is before we factor in the Government's coming decision on submarines and the Defence Strategic Review. And so we expect defence spending in the budget to grow very strongly. The numbers will be presented in the May Budget if we can, but already we're spending 2 per cent of GDP. Already that's rising substantially. It's one of the fastest growing areas of spending in the budget, along with some of those other areas we've discussed on other occasions. So we need to make sure that we can find room for what is this necessary investment in our national security.
GILBERT:
It's massive plus the NDIS growth, it's going to go well past the cost of Medicare. You've said over months that we need to have a conversation and that you appreciate the fact that we're having a national conversation about how to pay for all of that ‑ and essentially, the structural budget deficit. Where are you taking that conversation in the lead up to your second budget?
CHALMERS:
Kieran, that's my way of saying we need to be up‑front with people about what we can afford, and how we make the investments that we want to make in some of these areas sustainable over time. One of the things I've been most heartened about in the first eight months or so of this Albanese Labor Government is people's willingness to engage on some of these big questions. And so the national conversation that I want to have about the budget is how do we line up our budget and our economy with our values, how do we fund the things that we truly value: looking after people with a disability, strengthening Medicare, doing the right thing by people in aged care, funding national security. All of these big national priorities, how do we find a way to fund them and how do we make that investment sustainable over time. I'm confident the Australian people are up for that conversation. They've shown a real willingness, and from our side, we've tried to talk up to people, not down to them about these challenges. We're optimistic about the future, we're realistic about the global economy, and we're realistic about what we can afford to fund. And one of the reasons why we want to be a long‑term Labor Government is because we know that the best way to affect the change that we want to see in our economy and in our society is over time. You can't achieve everything that you want to achieve in one budget ‑ not in October, not in May ‑ you've got to work away at some of these issues over time, and that's what we're doing.
GILBERT:
You've spoken about the headwinds, is there a chance though that things are better than what you have previously thought? You look to China, for example, coming out of COVID‑zero. There's a lot of people and analysts who think actually China is going to bounce back in a big way over the coming months. So I know that Don Farrell, the Trade Minister, has got talks with his counterpart in the next few weeks to try and get those tariffs removed on $20 billion dollars’ worth of our exports. Could that be an upside for us if China bounces back much more quickly?
CHALMERS:
China will be a big part of the story, obviously, when it comes to our expectations for the global economy this year. I think most economists and analysts still expect it will be a difficult year in the global economy ‑ a combination of a war in Europe, difficulties around COVID and supply chains, higher interest rates are biting around the world and here as well. So for all of those reasons, people are still expecting it to be a difficult year in the global economy but how China plays out will obviously have big consequences for us. If you think about people's expectations for the global economy, a lot of people are now expecting a downturn, but not a disaster ‑ we'll see if that plays out in that way. But because of the expectations for China, that's what's making people recalibrate some of their expectations for the global economy. I think there is a chance after an incredibly flat December quarter in China, after all of the pressure that's being put on supply chains by that big COVID wave that they're experiencing right now, I think there is a chance that the Chinese economy recovers relatively strongly and relatively quickly. That is the expectation of a lot of analysts and economists from around the world. We want that to be the case because that would be very good for us. But our policy is not to cross our fingers and hope for the best, our policy is to make our budget more responsible and our economy more resilient. A big part of both of those things is making sure that we can provide that responsible cost‑of‑living relief to get people through what is likely to be a difficult year ahead.
GILBERT:
The latest inflation figures are due out this Wednesday. A lot of Australians will be hoping that we've seen the peak in that rate rise cycle. When you look at the recent jobs numbers ‑ thousands of jobs lost ‑ do you think that we could well have passed the peak?
CHALMERS:
Certainly the expectation of the Treasury and the Reserve Bank was that the peak would happen in the December quarter, and we'll get those December quarter figures through in the week ahead and obviously they will be closely watched. We've still got a big inflation challenge in our economy even as we get to the other side of the peak, inflation will be higher than we'd like for longer than we'd like ‑ that is just the reality and people are doing it especially tough. Energy prices, as we were talking about before, are a big part of the story. But there's been some other welcome developments when it comes to expectations for inflation. Shipping costs came off a bit quicker than we anticipated, housing costs similarly, and some of the other indicators as well. So we'll see what it says on Wednesday, we obviously want to get to the other side of this peak as soon as possible. We want inflation to moderate as soon as it can. A big part of our focus in our budget and in our economic plan is how we provide responsible cost‑of‑living relief and grow the economy without adding to these inflationary pressures, which are putting such pressure on households and families and businesses around the country.
GILBERT:
A couple of ones before you go: we've got Peter Dutton joining Andrew shortly. Madeleine King, your colleague, is calling on the resources sector to support the Voice. Mr Dutton says the Government needs to provide more detail. Have you dropped the ball on this as you try and mount the case for the Voice to Parliament?
CHALMERS:
Of course not. This is Australia's big chance to move forward together in a spirit of unity and respect, and to give First Nations people a say in the issues that affect their communities. And I think the business community, certainly the resources sector has an opportunity, and many leaders in those parts of our economy have expressed a very positive view about the Voice ‑ and that's a good thing. This should be a unifying moment. It should be something which is decided by the people, not the politicians. I think some of the language from Peter Dutton has been disappointing. I think people understand that Peter Dutton is not actually looking for more detail here, he's looking for more division. He's reached for the Tony Abbott and Scott Morrison playbook, which says that the best chances for him to be successful politically is if the nation fails to grab this terrific opportunity to do the right thing and to move forward together in that spirit of unity and respect.
GILBERT:
Almost out of time, just quickly, the new New Zealand Prime Minister to be confirmed this morning, Chris Hipkins. He's your age, he's 44 years. Does it change anything in the bilateral relationship?
CHALMERS:
We look forward to working together closely with Chris Hipkins, and with his cabinet when he names one. This is a huge year for Australia‑New Zealand relations. It's the 40th anniversary of Closer Economic Relations, the agreement that governs the approach to this relationship. Chris Hipkins is someone of immense experience and depth and intelligence. He's a very worthy successor to Prime Minister Ardern, and we look forward to working with him really closely. We've got a big trans‑Tasman agenda in a really important year. I know the Prime Minister is looking forward to working with Chris Hipkins and we're all looking forward to working with his cabinet.
GILBERT:
Jim Chalmers, thanks for your time.
CHALMERS:
Thanks, Kieran.