PATRICIA KARVELAS:
The Treasurer, Jim Chalmers, is our guest just before his trip to Washington. Treasurer, welcome.
JIM CHALMERS:
Thanks very much, Patricia.
KARVELAS:
Treasurer, the IMF says the chances of a hard landing for the global economy have risen sharply with inflation predicted to stay higher for longer and risks to the financial sector elevated. What does that mean for our economy? Are we now at increased risk of a recession?
CHALMERS:
In the view of the International Monetary Fund, the global economy is on an increasingly perilous path. The situation in the world has become more complex and more challenging even over the course of the last few months, and so we won't be completely immune from that. We do expect or the Treasury does expect our own economy to slow considerably later this year because of that combination of a slowing global economy and the impact of higher interest rates here at home as well. So we've got a lot coming at us from around the world but we've got a lot going for us as well. We've got low unemployment, we're getting good prices for our exports, we're seeing the beginnings of wages growth, which is really important. So we've got some advantages, we're optimistic about the future, but we need to be realistic about these global conditions and what it means for us, particularly when we see these gloomy forecasts from the International Monetary Fund.
KARVELAS:
So is it your view that avoiding a recession is still possible, but a lot harder now?
CHALMERS:
Of course, it's still possible and it's still the expectation of the Treasury and the Reserve Bank, and a number of other economic forecasters here in Australia. But we need to be upfront with your listeners, Patricia, and say that a slowing global economy matters to us a great deal and we do expect our own economy to slow considerably. The Treasury and the Reserve Bank are not currently expecting a recession here at home, but the economy will slow and that's why this Budget is so important in a little under four weeks' time because what we need to do is provide some responsible cost‑of‑living relief without adding to inflation; we need to lay the foundations for future growth in our economy, at the same time as we try and make ourselves more resilient to these sorts of international shocks.
KARVELAS:
Australia's growth is also predicted to be lower than other countries in the Asian region. Why?
CHALMERS:
Every country has got its own combination of challenges but we are better placed than most countries because of that lower unemployment, because of the prices we're getting for our exports, and some of the other advantages that we have, including banks, which are well regulated, well capitalised and well placed to deal with some of this market turbulence. So we've actually got a lot going for us. But as I said earlier, and as the IMF points out, we won't be immune from a global slowdown. There have been some troubling developments in the global economy and that's why it's so important that I confer with my colleagues and the G20 for the rest of this week so that we can take the temperature of the global economy in advance of our own Budget.
KARVELAS:
We spoke to an expert earlier about those meetings and how key they will be. Treasurer, what do you hope to learn and what kind of impact will that have on the framing of the Budget that you are currently constructing in four weeks' time?
CHALMERS:
I think this Budget in particular is going to need to strike some pretty fine balances between, for example, providing a bit of assistance to people to get them through a tough time without adding to inflation, between investing in the kind of drivers of long‑term growth in our economy, while we still deal with these near‑term challenges. You give yourself a much better chance of getting those balances right if you've got a proper understanding of what's happening in the global economy. And so talking to US Treasury Secretary Yellen, for example, colleagues from Indonesia, the UK, Canada, New Zealand and other countries will give us the opportunity to really carefully calibrate our Budget settings. There couldn't be a more important time to do that. We are in the home stretch now when it comes to putting this Budget together and because the global economy will be a defining influence on that Budget, getting those understandings right is absolutely crucial to landing it.
KARVELAS:
You say the shift in the global outlook will be reflected in the government's fiscal strategy in the May Budget, and you talk about providing cost‑of‑living relief, is there evidence that there needs to be more cost‑of‑living relief in this Budget as we see these forecasts about a decline in the economy?
CHALMERS:
Because these cost‑of‑living pressures, which are hurting families and pensioners and people right around Australia, because they are expected to be persistent, because we expect inflation to be a bit higher than we'd like for longer than we'd like, then we do need to deal with in a responsible and methodical way those cost‑of‑living pressures. And so we need to do that in a way that doesn't make inflation worse, we can't just throw endless amounts of cash at problems in our economy but we can make a meaningful difference in areas, like for example, giving people a little bit of help with their energy bills in a responsible way. That's one way that we can take some of the edge off these cost‑of‑living pressures without going overboard.
KARVELAS:
And are there more options that you're currently considering beyond what we already know?
CHALMERS:
We will always try and do what we can within the kind of Budget constraints that we have, and within those constraints from this inflation that we have in our economy, so we would consider doing more if we could afford to do that -
KARVELAS:
And can you? What can you tell people who are looking at today's IMF forecasts - persistent inflation for a very long time. I think there's a lot of despair in the community. What can you tell those people about what you're doing, what you will do in this Budget to relieve the cost of living on their households?
CHALMERS:
First of all, we do understand that people are under the pump. That's why there will be help in this Budget with energy bills, for example, it's why we made medicines cheaper, it's why we're going to make early childhood education cheaper from the 1st of July and a number of other measures as well. We haven't finalised all the decisions for this Budget – that will happen over the course of the next fortnight or so but people can expect to see some help with their energy bills and I think that's an example of where we can provide a little bit of cost‑of‑living relief without blowing the Budget, doing it in a responsible way that doesn't add to inflation.
KARVELAS:
The Grattan Institute says there are 15 policy options either to reduce spending or increase revenue. Out of those - and I know you're across them, are there any that you consider appealing?
CHALMERS:
First of all, the Grattan Institute under Danielle Wood's leadership is, in my view, a first‑class institution. And so obviously, we listen carefully when they put forward proposals like those that they've put forward overnight. There's obviously some that we won't be coming at. But for example, they mentioned the PRRT and as you know, we've spoken about that before - the Treasury is working through options when it comes to the PRRT tax on gas, you know that we've got modest but meaningful changes in the works for superannuation tax breaks, so there is some common ground in that report, there are some things that we wouldn’t come at, but I think the overall point that the Grattan Institute's making in that report is that we do have a structural issue in the Budget. Even as the Budget gets a bit better in the near‑term because of high commodity prices and low unemployment, we've got structural challenges that come from the cost of servicing that trillion dollars in Liberal debt combined with the NDIS and aged care and health care and national security. All of these costs are putting pressure on the Budget. There is a structural problem and we need to deal with it.
KARVELAS:
Huge costs. Massive. Okay, so you said there are some you won't come at. What will you rule out? Is it the stage three tax cuts that you won't come at? That's one of their proposals. Is everything else potentially on the table?
CHALMERS:
Well, I don't really want to go through all of the recommendations and give -
KARVELAS:
There's one I find interesting for instance, like abolishing Family Tax Benefit part B for couples, but keeping it for the single parents.
CHALMERS:
That's not something that we've been contemplating or considering. But what I'm trying to do Patricia, rather than go through them all, is to say that we welcome contributions like these. We agree that there's a structural problem in the Budget. We agree that there's an opportunity for modest but meaningful changes to superannuation. We said we will be receiving some advice on the PRRT. What we will try and do in this Budget, just like we did in October is find the best combination of trimming spending and redirecting it to areas which are more important to us, some sensible tax changes, whether it's multinationals or superannuation, and spending restraint so that we can make our Budget as resilient as it can be at the same time as we invest in our priorities, whether it's cost‑of‑living relief, or laying the foundations for future growth.
KARVELAS:
The Chinese Government has said it will work constructively with Australia to resolve your respective concerns on trade and economic issues in a balanced way. Is that now thawing going to lead to the removal of those tariffs on our barley for instance, do you think that is inevitable now?
CHALMERS:
I think it was a really welcome statement made by the Chinese Government that they are reviewing those trade restrictions. We've made no secret of the fact that we want to see them lifted and that we think it would be good for both countries to see those trade restrictions lifted. But I thought it was a really important development yesterday. I pay tribute to Penny Wong and Don Farrell for the progress that they have been able to make here. This is really important progress and what we have tried to do all along is to stabilise this really important economic relationship and I think what we saw yesterday is part of that effort, an important part of that effort. We want to see those trade restrictions lifted in the interests of both countries.
KARVELAS:
You've said that all options are on the table on vaping and revenue. What are you talking about here?
CHALMERS:
I think this explosion in vaping is deeply, deeply troubling and I was asked yesterday from a Budget point of view whether I was worried about it and the point I made and the point I make again today is I'm worried about it as an Australian and as a parent. I’ve seen this explosion in vaping in my own community, particularly amongst our young people and I think it is completely unacceptable. The status quo when it comes to vaping, in my view, is completely unacceptable. And this is primarily a health challenge rather than a Budget challenge and that's why Mark Butler, to his credit, is working with his state colleagues and with the health experts to see what could be done here for everybody who recognises that this is a problem. One of the really encouraging things yesterday when I was asked about this - a lot of people got in touch and said as parents in particular they see in their schools this explosion in vaping. It is deeply troubling, I believe. It's an issue for the Budget but much, much more importantly than that, it's an issue for our society and for the health of our people.
KARVELAS:
Treasurer. I look forward to speaking to you when you're back from this trip. Thank you.
CHALMERS:
Thanks Patricia.