Patricia Karvelas:
The Treasurer, Jim Chalmers, is my guest on the desk this afternoon. Welcome.
Jim Chalmers:
Thanks very much, Patricia.
Karvelas:
Treasurer, the government supported the war at the outset but as it goes on, it’s clearly hurting Australians materially. We know that with fuel prices, with inflation. Could the economic cost outweigh your support for the war?
Chalmers:
Well, the economic costs are already substantial, and the key consideration there is how long the conflict in the Middle East drags on for and also a realistic expectation of how long it would take for the global economy to recover, even after the hostilities in the Middle East end, and so we spend a lot of time analysing this.
Obviously, I’ve got the Treasury modelling a whole range of different scenarios that I’ll outline in a speech I’m giving in Melbourne tomorrow but that really is our big focus, the economic consequences, making Australians more resilient in the face of all this global economic uncertainty and also working with the states and territories by convening this National Cabinet meeting.
Karvelas:
But is it your view now that the war should end given the economic consequences on ordinary Australians?
Chalmers:
Well, obviously, there’s a whole bunch of considerations there, and I’m not going to give free advice to the Americans and others about the prosecution of this conflict.
Karvelas:
But it is hurting your own voters, your own taxpayers in this country now.
Chalmers:
The economic consequences of this conflict are very serious, extremely serious, and potentially enduring. I’ve been chairing the Expenditure Review Committee of the Cabinet today, working around the clock on this Budget, and the big consideration is not just how substantial the economic consequences of the conflict in the Middle East are, but how enduring they are because that will play a big part in determining just how difficult this is for Australians.
Karvelas:
So your point essentially today has been, even if the war were to end, and of course that would be good for a lot of people who are suffering immensely, that the economic consequences would go on. What are you going to tell us tomorrow about how long they will go on?
Chalmers:
I’m going to make a similar point to what the Prime Minister made today about the long tail. I think we have to be careful about an assumption that says that if the hostilities were to end tomorrow, then somehow the day after the global economy would normalise quickly.
Karvelas:
Okay, so it’s not the day after, but how long realistically?
Chalmers:
There are a number of considerations there – how long it would take to make the Strait of Hormuz accessible, how long it would take to get some of this oil and gas infrastructure up and running again in sensitive parts of the Middle East, whether there is any enduring damage done to markets, including energy markets, so all of the considerations you would expect us to be very focused on. My speech tomorrow at the Australian Business Economists in Melbourne will set out the Treasury’s expectations for a couple of different scenarios and how this might play out, what that means for the pressures on Australians and what our plan is to respond to that in the Budget.
Karvelas:
Okay. So given you don’t know if the war’s going to end tomorrow, do you have like 3 budgets, like you just pull out one based on the circumstances?
Chalmers:
Not 3 budgets, but –
Karvelas:
You know what I’m saying –
Chalmers:
Yes.
Karvelas:
– like do you have different things you do based on the circumstances?
Chalmers:
Yes, we have a lot of contingency planning and we model a number of different scenarios, we’ve modelled 2 already, and we will model a more substantial, a more concerning scenario as well. That work is ongoing, and we ask the Treasury to brief the Cabinet colleagues from time to time on how that modelling evolves, and that will have big implications for how we think about the Budget. But also it’s important to remember that our focus in the Budget on inflation, productivity and global uncertainty, that is made more important by what we’re seeing in the Middle East, not less, and so I’ll say a bit more about that tomorrow as well.
Karvelas:
Are Australians worse off now than they were at the election last year?
Chalmers:
When it comes to the petrol bowser, obviously petrol prices are higher, so in that regard people are doing it tough.
Karvelas:
And interest rates are up too, right?
Chalmers:
Interest rates came down 3 times last year, and –
Karvelas:
But they’re back at the same levels.
Chalmers:
There have been 2 increases this year, and I acknowledge that that is putting people under additional pressure, as are developments at petrol stations, obviously. We’re also rolling out cost‑of‑living help though student debt relief, cheaper medicines, bulk billing, we’ve got 2 more tax cuts on the way as well, we’ve had another quarter of wages growth higher than 3 per cent, and so all of these things are important, but we acknowledge, we’ve acknowledged even before yesterday’s interest rate increase that Australians are under pressure. That’s why we’re focused on 3 things above all – one, action in the fuel market, secondly, rolling out cost‑of‑living help, including tax cuts, and thirdly, managing the budget in the most responsible way we can.
Karvelas:
Today, you conceded that government funding is contributing to fuelling inflation. Everyone’s been reporting that that is a shift in your language.
Chalmers:
No, it’s not, it’s the same language I’ve been using for some time.
Karvelas:
But –
Chalmers:
Let me explain.
Karvelas:
– government funding, like the money that you’re pumping in –
Chalmers:
Same language I’ve been using for some time, including in the parliament, including in interviews like this one, and what I’ve been doing is not conflating 2 issues that our political opponents want you to conflate.
The first one, the fact that government demand is part of aggregate demand, has not been contested by me. I’ve said it in exactly those terms a number of times for weeks now.
But the second issue, the issue that I think our opponents and critics too easily ignore is that the Reserve Bank themselves have said that the reason we had higher than expected inflation at the end of last year was because we had a faster than expected rebound in private sector growth, business investment, dwelling investment and the like. They made that point in their statement yesterday when they announced their decision.
Karvelas:
Okay. But you think there’s a case to essentially pull money out of the economy, you think that you have the big responsibility in framing this Budget to try and take the heat out of the economy.
Chalmers:
Well, again, something that I’ve said on a number of occasions is that we’ve made a lot of progress on the budget, delivered a couple of surpluses, got real spending growth down, got the deficits down, got the debt down, but there is more work to do, and people –
Karvelas:
But what I’m trying to get at is it’s not just a tinkering case, like for this Budget, it has to be pretty dramatic to have the kind of impact you need to deal with what is a really wicked problem in inflation.
Chalmers:
Well, let me put it this way, Patricia, we found $114 billion in savings already, and there will be more in the May Budget. We’ve got the debt down, the deficits down, delivered those surpluses, and so the budget is more than $200 billion stronger than when we came to office. That’s important. But again, there is more work to do, and one of the packages that we’re working up for the consideration of my Cabinet colleagues is a savings package for the Budget, and that’s because we recognise that even though public spending was not the cause of the additional inflation that we saw at the end of last year, we take responsibility for playing a helpful role in the fight against inflation. That means managing the budget in the most responsible way that we can, and people can expect to see more of that in May.
Karvelas:
And can they expect you to do even more heavy lifting on that inflation challenge when it comes to spending?
Chalmers:
Well, there will be heavy lifting in the Budget, there will be difficult decisions in the Budget.
Karvelas:
How difficult? I mean, people are watching this, very ordinary people watch this, what does that mean for them? Can they expect cuts to the sorts of things that they’re used to?
Chalmers:
We haven’t taken decisions yet, we’re only in the middle of March, the Budget is in the middle of May. Usually, the big decisions are taken in the course of April, and so we haven’t taken decisions. But we’ve made it clear through our record over the first 3 and a half years that we’re prepared to make difficult decisions to make room in the Budget for other priorities or to get some of that debt down that we inherited from our predecessors, and so people should expect to see more of that.
Karvelas:
National Cabinet’s on tomorrow, there’s reporting that there will be a sort of national tsar‑type figure that deals with the distribution of fuel. Can you just talk to me about that idea?
Chalmers:
I don’t want to front‑run the discussions that the Prime Minister will lead with the state and territory colleagues. I think this is a really good development because this government is a government that works with other governments of all levels to try and get the best outcomes that we can, in this case, to make our economy and our people as resilient as they can be in the face of all this global economic uncertainty. So I think it’s a very good thing.
Karvelas:
So, what sort of – I know you don’t want to front-run it, but it’s all out there, we just want some detail, as much as you can. Is this person a bit like we had a national coordinator I think during COVID that played a role; is it a similar idea?
Chalmers:
I think it’s a similar idea, but again, it’s for the Prime Minister to make announcements and to flesh that out. The important thing is that whether it comes to fuel security or supply chains more broadly, there is a role for the states and territories, and so I think it’s a very good thing. The Prime Minister’s bringing them together and leading in this fashion.
Karvelas:
What about rationing of fuel? Could you see a scenario where a compulsory rationing of fuel may happen?
Chalmers:
Look, it’s not something we’re anticipating, not something that we are expecting to have to do. Obviously, we keep every development under pretty close review. We’ve got all of this surveillance in supply chains, including supply chains for fuel, but it’s not something that we’re expecting to have to do.
Karvelas:
Okay. And so, in terms of tomorrow and trying to come up with a plan, there’s also talk about extending the 2 fuel refineries we do have in this country beyond their life of 2027. Is that on the cards?
Chalmers:
Oh, certainly, this is something that Chris Bowen and the Prime Minister and others have been discussing. Again, I don’t want to put words in their mouth, but I think people could rightly assume that these refineries – we had 6 when Angus Taylor was the Energy Minister, 2 by the time that he left office as the Energy Minister, and 2 is not a lot, particularly in the context of all of these pressures, and so whatever we can responsibly do to do the right thing by those refineries, obviously we will consider.
Karvelas:
Do we need more than 2?
Chalmers:
Well, you need to have resilience in the system. I think most countries are discovering in one way or another that this oil shock is putting extreme pressure on supply chains. We’ve got a lot of stockpiles, we’ve got a lot of supplies. We’re working closely with industry to get that supply where it’s needed. Chris Bowen’s taken some important steps to release more fuel into the system and relax the standards temporarily. All of those things are very good things, but we’ve got 2 refineries, we will work closely with them to make sure that we can deliver the kind of reliable supply that people need and deserve.
Karvelas:
The Prime Minister this morning gave an interesting speech. He talked about a new economic model that we need, which is a big statement that we need an entire new economic model for a changed world. He talks a lot about this idea of resilience and sovereignty. You just alluded to it, Labor’s been talking about it for a while, but can we expect more interventionist measures to ensure that we actually deliver that, beyond what we already know you’ve done?
Chalmers:
I think what you can expect is, it springs from our understanding that national security and economic security are now pretty much the same thing, and I think that’s what he’s referring to when he talks about this model, and we’ve all made speeches and contributions along these lines in recent years. Our Future Made in Australia agenda is more or less about making our economy more resilient in the face of all of these shocks.
And when it comes to a new model, the way I come at it, the way that I’ll describe it tomorrow in my speech in Melbourne is, in the last 2 decades we’ve had at least 4, and this might be the fifth major economic shock, GFC –
Karvelas:
[Indistinct] normal.
Chalmers:
Yes, and so it used to be that we’d have these long periods of calm punctuated by economic shocks, now we’ve got this long period which is effectively one economic shock after another, and responsible governments respond to that, and that’s what we’re doing, making our economy more resilient. From my point of view in the budget, it’s about getting the budget in as good a condition as we can, making our economy more productive and doing the sorts of things which are necessary to make sure that our people are not victims of all of these rolling shocks that we’re seeing around the world.
Karvelas:
Final question, on your tax changes, particularly housing, you’re looking at tax changes. Will you guarantee to our viewers that if you change taxes around housing, and you’ve been pretty explicit that you’re modelling different options, you will return it to people in tax cuts, individual taxpayers?
Chalmers:
Well, I can assure your viewers that we’re already delivering 2 more tax cuts.
Karvelas:
Yeah, but I mean, if you take more revenue through changing taxation, that you’ll deliver it back to workers?
Chalmers:
But the assumption in your question is that a tax hike is followed by an income tax cut. What I’m saying to you is that we did the income tax cuts first. We’ve already delivered one, there’s another one to come in July and another one to come in the July after that, it means about 50 bucks a week for the average worker all added up together. And that’s because it is a big priority for this government to ensure that people can earn more and keep more of what they earn, that’s what the tax cuts are about.
Haven’t taken any decisions about any other tax changes, our tax policy hasn’t changed. It is focused on those income tax cuts, but we are already delivering tax relief for every single one of the 14 million taxpayers who work hard for a living in this country.
Karvelas:
Treasurer, thanks for coming in.
Chalmers:
Thanks Patricia.