Melissa Clarke:
The Reserve Bank is meeting today for the sixth time this year and financial markets and economists think it is almost certain it will raise interest rates for the fourth time. A quarter‑percentage‑point hike would take the official cash rate to 4.6 per cent, the highest level in 15 years. Jim Chalmers is the federal Treasurer and joins the program now. Welcome to Radio National Breakfast.
Jim Chalmers:
Thanks for having me on, Mel.
Clarke:
Now, the Reserve Bank is expected to raise rates today. I know you don’t want to pre-empt that outcome. Markets are though almost universally expecting it. Is inflation out of control?
Chalmers:
No, I don’t think so. And obviously I’m not going to make a prediction about the decision that the independent Reserve Bank will take and announce today. There are good reasons why Treasurers don’t do that, but obviously a lot of Australians, I think, right around the country are bracing for that outcome today because, as you rightly point out, it is the universal or near‑universal expectation of economists and markets that we would see rates go up today. We’ll see when they make that announcement.
Inflation has come down over the last 4 months. It is actually at the moment much lower than was anticipated in the budget forecast, but it is still too high. I think that’s self‑evident. We do have an inflation challenge in our economy. It’s made much worse by the war in the Middle East, pushing up global oil prices and being felt not just at the petrol bowser, but right around the world and right around the country. And so that inflation challenge is obviously a primary consideration of the government. It’s why we take responsibility for managing the budget in a more responsible way, providing cost‑of‑living relief at the same time as we deal with some of these longer‑term economic challenges.
Clarke:
Is it the primary focus of the government, to the extent you’re willing to put taming inflation above other objectives like maintaining low unemployment?
Chalmers:
Well, we see them as 2 important objectives and that’s –
Clarke:
Are they equally important?
Chalmers:
Well, they’re equally important in the Reserve Bank’s mandate, dual mandate, which talks about maintaining full employment at the same time as they go for price stability, which means, you know, inflation in the target band. So, in that regard, whether it’s the government or the Reserve Bank, we want to see unemployment as low as possible, consistent with inflation at more normal levels. And obviously right now inflation is higher than anyone would like. That is putting more pressure on Australians right around the country. It’s a key focus of the government and no doubt it’s a key focus of the Reserve Bank meeting yesterday and today.
Clarke:
If the unemployment rate rises, but it helps tame inflation, would that be an acceptable outcome for your government?
Chalmers:
Well, we’re not for higher unemployment. I think that’s pretty clear. And what we’ve seen in recent years is that it’s possible to have low and steady unemployment at the same time as we see inflation moderate to more normal levels. I don’t want to see Australian workers, whether it’s thinking through the lens of unemployment or whether it’s thinking through the lens of wages, I don’t want to see Australian workers carry the can for decisions which are being taken on the other side of the world to prolong a war which has been absolutely disastrous from a cost of living point of view and from an economic point of view. There are a whole range of considerations here for the Reserve Bank, not just the unemployment levels, but what’s happening around the world. We’re seeing inflation going up around the world, we’re seeing interest rates going up around the world. And unfortunately, Australia’s not immune from the same pressures.
Clarke:
Yesterday you released the Final Budget Outcome for the last financial year. The deficit, $6 billion better than forecast. Where were those improvements made?
Chalmers:
Well, payments were down. Government spending was down almost $1.5 billion. And on the receipt side of the budget, stronger investor returns meant that taxes on investments were a little bit higher. And also we saw some better outcomes in the superannuation system. So, the combination of both of those things means that the budget got even stronger over the course of the –
Clarke:
– So, spending is down 1.4 billion, but those revenues are up by 4.6 billion. So, most of those savings are improvements thanks to the booming markets.
Chalmers:
Because of investor returns and stronger outcomes for super members. We made that clear when we announced the figures yesterday. And what it means is the deficit is smaller again than we anticipated in May. It’s about half of what we inherited. It’s part of about a $230 billion improvement to the budget bottom line since we came to office.
Clarke:
But to be clear, the vast majority of that is because you’re raking in more in tax revenue, because the markets are doing very well. Only a smaller amount of that is due to lower government spending.
Chalmers:
Well, a substantial part of it is because of lower government spending. But again, that’s just the change since May. If you look at the change since we came to office, we found almost $180 billion in savings, which has meant that we can improve the budget bottom line. It meant we can make room for investments in Medicare and bulk billing and public hospitals and cost of living help. So, the budget is very considerably stronger than when we came to office. We’ve got spending as a share of GDP down. We found savings, we banked additions to revenue, we’ve delivered 2 surpluses. We’ve got the deficits down much smaller.
And if you look at those tax to GDP numbers, what you can see is that tax to GDP is still lower than it was under Peter Costello. And if we had done what our opponents wanted us to do and not cut income taxes, it would be higher still. But we’re cutting income taxes 5 times in 3 different ways, and that’s because we recognise those tax cuts are an important ongoing way to help people with the cost of living.
Clarke:
The clearest way to look at the level of government spending as a share of the economy, I think, that’s been accepted across both sides of Australian politics for a long time: tax is a proportion of GDP. You say it’s below the Howard government levels. That was at 24.2 per cent, but it’s come through for 25/26 financial year at 24.1 per cent. You’ve barely squeaked under that record level of the Howard era. That is a significant increase in the proportion of taxation compared to GDP that has grown over many years now. Is that really an acceptable level for you to have tax as a proportion of GDP over 24 per cent?
Chalmers:
Well, it’s still lower than what we saw under Howard and Costello. That’s the first point. The second point is that we’re cutting taxes and there are more tax cuts already in the Budget on the way. So, we’re cutting income taxes because we recognise that’s a good way to help people with the cost of living. If we weren’t doing that, tax to GDP would be higher.
Clarke:
You’re listening to Radio National Breakfast, where the federal Treasurer, Jim Chalmers, is my guest. We’ve seen the US President, Donald Trump, say that the White House is still very seriously considering a diesel export ban. We see fuel prices soaring in the US as we are here. What would it mean for the Australian economy if the US were to stop exporting diesel?
Chalmers:
Well, it would be a very concerning development for the global economy broadly. We have imported some diesel, as I understand it, from the US, but we’re not currently relying for the time being on those exports, as I’m briefed. But broadly, as another development in the global economy, it would be a very concerning one. We can see already the very severe pressure being put on fuel supply and fuel prices by this prolonged war in the Middle East. And it would be concerning to, I think, most people around the world to see that made worse by those sorts of decisions.
Clarke:
Jim Chalmers, thanks very much for joining me on Radio National Breakfast this morning. I appreciate it.
Chalmers:
Thanks very much, Mel.
Clarke:
That’s the federal Treasurer, Jim Chalmers there.