MICHELLE GRATTAN:
Jim Chalmers, your mid‑year Budget update shows the budget projecting a string of deficits, and we won’t be back in balance until the mid‑2030s. That’s a hell of a long way away. Don’t you think we need to do better than this?
JIM CHALMERS:
There are pressures on the budget, there’s no denying that, and we saw that in the mid‑year update, but I also think we shouldn’t deny the really, very substantial progress that we’ve made on the budget since we came to office.
I mean don’t forget when we came to office there wasn’t just a deficit in every year, there were enormous deficits planned for in our predecessors’ last budget, and we’ve been turning that around.
Yes, there’s pressures on the budget, yes, some of those pressures are intensifying, but don’t forget the budget is $200 billion stronger because of our efforts. That means we avoid $177 billion in the debt that we inherited, and that saves us $70 billion in interest costs.
I understand that people are focused on the fact that the budget position remains difficult, but it is much, much stronger than it was 2 and a half years ago.
GRATTAN:
The government this year, nevertheless, is spending a lot: 5.7 per cent increase in real spending, and this – sorry, I’ll start that again – the government is at the moment spending a lot. There’s a 5.7 per cent real growth in spending this financial year. Now you’d say that’s all on good things or necessary things. But isn’t that too much?
CHALMERS:
If you take a slightly longer view of it and you look at the 6 budget years that we’re responsible for, and you ask me about real spending growth, real spending growth is about 1.5 per cent on average over those 6 years. It was about 4.1 per cent under the former government.
So even in that respect, we’ve been very focused on real spending growth. Yes, there are some pressures, yes, there is a difference between the year we’re in and next year, partly because of unavoidable spending, terminating programs and the like.
But overwhelmingly the story about real spending growth has been a responsible one, and that’s part of the story, it’s part of the reason we’ve had those 2 surpluses, part of the reason why the deficit this year is much smaller than anticipated a few years ago, is because we’ve shown that spending restraint, we’ve found modest but meaningful tax changes, and we’ve found a lot of savings as well, and this has been ignored, I think, in the course of the last few days.
We found almost $15 billion in savings in this mid‑year Budget update, $92 billion since we came to office, our predecessors had precisely zero savings in their budget. So, the combination of savings, spending restraint and being as responsible as we can with the budget has driven what is actually the biggest nominal positive turnaround in the budget ever on our watch.
GRATTAN:
Perhaps one could say that the most important person in your work life at the moment is Michelle Bullock at the Reserve Bank.
CHALMERS:
That would be news to Katy Gallagher, I reckon, Michelle, because I thought you were about to ask me about Katy.
GRATTAN:
What do you think would be the reaction, or do you think that Governor Bullock will be happy with what this Budget update shows?
CHALMERS:
I don’t want to put words in Governor Bullock’s mouth, you know how much respect and regard I have for her and how close our working relationship is. But I have obviously briefed her in detail in advance of the numbers being released, and more than that, I asked the Treasury Secretary to brief the Reserve Bank Board at the start of last week, and then earlier this week I talked the Governor through the numbers very specifically once they had been finalised.
That’s a pretty regular occurrence. While I’ve been Treasurer, whether it’s a Budget or a Budget update, I typically brief the Governor, and that’s because I want to make sure that the Governor is comfortable. I want to make sure that the Governor is aware of the various figures that we are releasing, and we typically have a very good discussion about them, and that’s because we recognise, and we’ve said this different ways publicly and we say it privately as well, we’ve got the same interest here, the same objective. We’ve got to get on top of this inflation challenge in our economy, we’ve got to do that without ignoring what are very substantial risks to growth, and so we compare notes pretty frequently, and when it comes to the Budget update, I was able to brief her in detail earlier this week.
GRATTAN:
So do you think the Governor’s comfortable?
CHALMERS:
Again, I don’t want to put words in her mouth, but she said publicly that public demand isn’t the main game when it comes to inflation, and she’s also said publicly that the 2 surpluses that we delivered, the first back‑to‑back surpluses in almost 2 decades are helping in the fight against inflation, and also that we’ve got the right instincts here, we’ve got the right interests here, which is to get on top inflation, still our primary challenge in the economy, but to do that in a way that doesn’t send the economy backwards.
GRATTAN:
Now, we’re heading into the election year, of course, and the Coalition is arguing and will argue through these coming months that people were better off 3 years ago than they are now. How do you reply to this claim?
CHALMERS:
First of all, I mean it’s difficult to take our political opponents seriously on the budget or on inflation or on wages. Any objective summary of the situation we inherited in 2022 says that it was much bigger deficits, much more debt, inflation much higher and rising, real wages were falling, living standards were falling.
When we came to office people were already going backwards, and what we’ve been very focused on and very upfront about is we understand people have got a lot of ground to make up in their household budgets – that’s why that’s been our primary focus, whether it’s the tax cuts, the energy bill relief, early childhood education, making that cheaper, cheaper medicines, rent assistance, student debt relief, getting wages moving again.
These are the key reasons why in that last National Accounts figure we saw real disposable incomes were rising, and that’s because we’ve got inflation down, we’ve got wages up, we’ve got tax cuts flowing, we’ve got cost‑of‑living relief flowing as well, and that’s because we’re trying to turn around that situation that existed when we came to office.
Now we know that even when the national data, the aggregate data, is improving in very encouraging ways with inflation and real wages growing, we know that that doesn’t always translate into how people are feeling and faring in real communities like the one that I represent, and that’s why rolling out this cost‑of‑living relief, being attentive to the pressures that people are under, that is still the primary focus of this government.
GRATTAN:
Do you find as you move around the community that people just haven’t felt that this relief has hit the sides, or they’re not listening, or interest rates are dominating everything? Why is it that those things that you just listed haven’t had more impact in suburbs?
CHALMERS:
People are still under pressure, and even with all of the cost‑of‑living relief we’re providing, even with the quite substantial progress we’ve made on wages, people are still under the pump, we acknowledge that, and we recognise that. They would be much worse off were it not for the cost‑of‑living help that we’ve been providing.
I have a lot of conversations right around Australia and right around my community to try and be as accessible as I can. I’ve just come back from a big swing through regional Queensland with Senators Chisholm and Green and McAllister, and the feedback that we get is that people are still under pressure – they acknowledge that we are doing what we can to help, but I don’t think people genuinely or generally see things in kind of political terms, they’re focused on their household budgets, that’s understandable and appropriate, and we’re focused on helping where we can.
GRATTAN:
Now, we had some figures on business insolvency the other day, and they’ve hit a 4‑year high. Why do you think so many businesses are going bust at the moment, and what can be done?
CHALMERS:
First of all, business conditions are difficult for the same reasons that household budgets are under pressure; interest rates, cost pressures, global uncertainty, all of these things are playing out in our own business environment, so business conditions are difficult.
But we need a bit of perspective here on these numbers, and there’s a little bit of dishonesty in some of the stories being written about these numbers, because one of the reasons why the number is higher is because the base of bases is much higher.
As a proportion of businesses insolvencies are actually down on the pre‑COVID average; they’re actually around half what they were under John Howard, and we keep pointing this out to people who write these stories, and it doesn’t appear in the stories, but that’s the case.
We don’t dismiss the very real pressures that businesses are under, that’s why we’re helping them with energy bills, energy bill relief and also with tax breaks for investment. But we also need a bit of perspective. There are more insolvencies because there are more businesses, as a proportion of the base of businesses in Australia, and the Reserve Bank Governor has made this point as well, we’re actually down on what was the norm pre‑COVID.
GRATTAN:
Now you have signalled that there will be more cost‑of‑living relief in coming months, but you’re coy about the details. However, can we at least assume, do you think it’s fair for us to assume that more relief on energy bills is very much on the table?
CHALMERS:
Well, I don’t do coy, but I have said on a number of occasions –
GRATTAN:
There’s a headline.
CHALMERS:
That’s right. It writes itself. I have said on a number of occasions that in every budget, in our first 3, and people should expect in the fourth, that what we do is we weigh up the pressures that people are under, we weigh up the economic circumstances and the budget constraints, and when there’s more that we can do to help people, we try and do that, we try and do it in a substantial way, but also a responsible way, and we weigh all of that up. We’ll weigh all of that up for the government’s fourth Budget, just like we did in the first 3.
It’s quite remarkable in those first couple of years that even when we were delivering surpluses, even when we were getting the debt down, we were still providing quite substantial cost‑of‑living relief, weighing up all of those considerations, and that’s what we’ll do again.
GRATTAN:
Now your mention of the fourth Budget brings to mind, of course, the March Budget, which may turn into a ghost. If that Budget does turn into a ghost and we don’t have it, but we are in the middle of an election campaign, would you deliver some sort of economic statement in its place?
CHALMERS:
I mean that’s a bit of a hypothetical – all of our work, Katy Gallagher and I and the team, we’re working towards a March Budget, we’re taking that deadline very seriously.
GRATTAN:
You wouldn’t want to waste all that work though.
CHALMERS:
No work is wasted, and we work around the year, and generally around the clock on putting together whatever the next budget or budget update is, and that wouldn’t be wasted work, but our anticipation and our expectation is that we deliver a Budget towards the end of March, and because that means a little bit less distance between this mid‑year update and the March Budget, we’ve actually been working simultaneously on both.
We haven’t seen it as ‘let’s get the MYEFO out the door and then focus on the Budget’, we’ve been meeting the Expenditure Review Committee colleagues very frequently on 2 parallel tracks, and that’s because there’s only a few months in between them.
GRATTAN:
Now just turning to the overall economy, you cited international pressures, China’s slowing economy as factors in the economic downturn. What do you see as the outlook for China, and you were there not long ago, and how prepared is Australia on another front if Donald Trump goes ahead and starts a trade war?
CHALMERS:
Look, those are the 2 key questions in the international economy right now, but not the only ones. You add to that list conflict in the Middle East and in Eastern Europe, and you add to that some pretty substantial political turbulence in places like South Korea and France and elsewhere, and you can see that the global environment is tricky.
When it comes to China, we’re concerned about China. We welcome the steps that the administration has flagged to revive growth in the Chinese economy, it is quite slow, and that has big implications for our economy and for our budget.
We’ve just written down, for example, mining exports in the budget by about $100 billion, we’ve just written down company tax –
GRATTAN:
That’s mostly volume rather than price, is that right?
CHALMERS:
Yeah, it is mostly volume rather than price. We used the same assumptions about price, but we had to tweak our assumptions about volume, about demand out of China; that’s quite concerning.
So, the steps the administration’s taking are welcome, but the structural issues in the Chinese economy are real and substantial. In the nearer term in property, that’s an ongoing concern, in the medium term, the demographics are running against them, and that’s why they’re making such a big play on automation and tech.
And so, I spend a lot of time thinking about China, a huge amount of time thinking about China. In the US obviously there’s an element of policy uncertainty, seeing how some of the steps flagged in the election campaign will play out in the course of next year and beyond.
But I feel relatively confident that Australia’s well placed and well prepared for a new administration in the US. Obviously we don’t want to see a big escalation of a big trade war in our region between China and the US, but I feel like we can, not just manage the political change in the US but really maximise our case in the global economy in a world where there is all of this global economic uncertainty.
GRATTAN:
Will you be reaching out pretty early to the new administration personally, trying to establish relationships, trying to find out what’s happening on things like trade?
CHALMERS:
Absolutely, and –
GRATTAN:
Have you done anything yet?
CHALMERS:
I have, and so even before the election, and this is a tribute to Kevin Rudd, when I was in DC, I met late in the evening, as it turns out with Scott Bessent, who was subsequently appointed by President Trump as the Treasury Secretary, and so I had a good hour or more with Kevin and with Scott Bessent in DC before the election.
We did a lot of planning for either scenario, but the expectation, I think, in official circles was that President Trump was likely to be re‑elected, or elected again, and so we did a lot of work, and I’m very grateful to Ambassador Rudd for the opportunity to spend time with Scott Bessent, and I’ll obviously be reaching out soon after the inauguration and frequently.
I had a great working with relationship with Secretary Janet Yellen, just a terrific working relationship with her, and I hope to be able to have the same with the new Treasury Secretary, Scott Bessent, when he’s confirmed.
GRATTAN:
While the economy is, of course, driven in part by these various international factors, it’s also driven obviously by a lot of local factors, and one is low productivity growth.
Now I noticed the other day that the Productivity Commission is asking ordinary people to write in with their ideas on how we can be more productive, more efficient. Presumably you’re preparing your letter. What sort of suggestions will you be making?
CHALMERS:
I had a good chat with Danielle Wood about this. I think it’s terrific. This is one of the things I’m really pleased with out of the PC. I have now formally tasked them with 5 inquiries on the main drivers of productivity growth in our economy, and I’ve asked them to be as consultative as possible, and Danielle Wood I think is terrific.
She told me the other day – we have I think a monthly check‑in – and in the last check‑in she told me that the response to that call for views was overwhelming already. She was only sort of a few days in, and she got a lot of feedback, and that’s terrific.
And the reason why we want to include the broader Australian community in this conversation is because for too long productivity has been seen as how do we make ordinary people work longer for less, and that’s not the path to productivity in this country; the path to productivity in this country is investing in people and their ability to adapt and adopt technological change and the energy transformation and the care economy and to make our economy more competitive and dynamic at the same time.
We’ve actually got a big productivity agenda, not always recognised, huge competition policy reform, human capital, the energy transformation, the care economy, technology; these are the key parts of our agenda.
But we’ve asked the PC in the middle of next year in draft form, and towards the end of next year in final form, for reports on each of those 5 inquiries, and we’ve chosen that timing quite deliberately. That’s because whoever wins the next election in the first half of next year will get from the PC, in the second half of next year, some well‑considered thinking about Australia’s productivity challenge. We’ve got a huge agenda we’re rolling outright now, and this will be about the second wave.
GRATTAN:
As well as the Budget update, you also released this week the Tax Expenditure Statement which points to some very big tax breaks in various areas, which of course could be wound back. It says, for example, that Capital Gains Tax concessions cost about 22.7 billion annually. Is that something worth looking at after the election?
CHALMERS:
That’s not something we’re proposing to look at. I released that Tax Expenditure Statement because I like to provide more information where I can. You’ll see that in the Intergenerational Report and the White Paper on Full Employment, I try to provide as much information and analysis as I can, but it’s not a statement of policy intent, it’s an analytical piece, and I’m obligated to release it as well under the Charter of Budget Honesty.
So it was ready to go a bit earlier. I got it out the door this week so that you could all pore over it, but people shouldn’t read into it that it is a series of hints or anything about future policy direction. We still haven’t completed the tax reforms that I’ve announced in the course of this term, and so our focus is on there, rather than on new things.
GRATTAN:
Now if Labor wins the election, what are your 3 big ambitions as Treasurer in a second term?
CHALMERS:
The energy transformation for me is the most important thing. If you think about the earlier reform periods in our economy and in our politics, I think the thing that comes closest to the magnitude and the importance of those earlier waves of reforms, the energy transformation, I genuinely feel that people in the future will look back on the 2020s and they’ll judge us on whether we succeeded or failed to get this energy transformation right, and obviously that’s a big political contest now because of this nuclear insanity from the Opposition.
So the energy transformation, a huge priority. I’m very interested in the intersection of technology and human capital and the way our industrial base is changing, so that’s a big part of the story. And then thirdly, where competition policy and productivity policy intersect, trying to make our economy more productive, more competitive and more dynamic.
Those are the 3 things, in addition to all the things you’d expect me to say: ongoing budget repair, cost‑of‑living relief, getting on top of inflation.
GRATTAN:
Well, presumably you’ll get a little bit of time off over the holidays, unless you’ve got another big essay coming. What will you be reading?
CHALMERS:
I’ve got this beautiful big book about the French Revolution called A New World Begins. I’m looking forward to reading that. But I’m also looking forward to reading Don Watson’s book called The Bush. It’s a bit older now, maybe about 10 years ago, but when I was travelling through regional Queensland, in a few days I went Hervey Bay, Rocky, Longreach, Cloncurry, Cairns, and I was thinking I might dig out Don’s book about the bush and read that as well. I’m looking forward to it.
GRATTAN:
Keep you busy. Jim Chalmers, thanks very much.
CHALMERS:
Thanks so much, Michelle.