PATRICIA KARVELAS:
This week we've had a glimpse into the future. An ageing population, fewer births and rapid climate change – they're at the heart of the challenges flagged in the Intergenerational Report that we've been talking about on the show this week. The Treasurer Jim Chalmers is my guest this morning earlier than we usually speak to him. Treasurer, welcome.
JIM CHALMERS:
Thanks very much, Patricia. It's so that I can speak to the good small business people of Morayfield in southeast Queensland.
KARVELAS:
Very specific. By 2063 we'll have a much older population propped up largely by the taxes of this younger generation. Is that fair?
CHALMERS:
Well, it's certainly one of the pressures that are identified in this Intergenerational Report and one of the reasons why we put so much effort into putting this out and helping people to understand not just the pressures on the budget and the economy but the opportunities before us is because none of this is preordained, none of this is predetermined and we have choices and governments will have choices over the course of the next 40 years to change course if they want to.
For us, the most important way that we can respond to the sorts of issues raised in the Intergenerational Report are to get this energy transformation right, to make sure our industry is broader and deeper, to make sure that we've got the kind of workers that can support a population which is getting older – these are the sorts of opportunities that we're focused on. We are optimistic about the future but we're not complacent about it and the good reason to put this IGR out is to focus the national mind on these sorts of challenges.
KARVELAS:
Personal income tax will make up almost 60 per cent of total tax receipts by 2063. Are you comfortable with individuals rather than companies shouldering that burden? Do you think that's a fair place to get to?
CHALMERS:
Well, I think it assumes that over the next 40 years that there won't be changes to taxes because – as other governments have in earlier Intergenerational Reports – we apply an assumption about the total tax take in the economy and because some of the other taxes are obviously trailing away, things like fuel excise will trail away as people drive more EVs, I hope that excise on cigarettes trails away substantially over the course of that period, and so the difference is made up in that assumption by other kinds of taxes, but again – not predetermined. There are, for example, tax cuts coming in and legislated for the middle of next year – part of that is giving back some of this bracket creep and governments into the future will make those sorts of decisions as well.
KARVELAS:
As you look at that 60 per cent, does it make you more certain that the stage three tax cuts shouldn't be touched?
CHALMERS:
Well, it convinces us I think and it encourages us to make sure that when we can provide tax relief, we should try and do that and there are legislated tax cuts coming in as you rightly identify in the middle of next year – they start at $45,000 and go right up the income scale. People have views about the design of those tax cuts and that feedback is always respected and welcomed but governments of both political persuasions over the years have tried to give back some of that bracket creep. I think for us, the big focus is on making sure that the revenue base is more robust and more reliable – that means multinational tax reform, the PRRT, high end superannuation balances and all of these other meaningful tax reforms that we're engaged in.
KARVELAS:
Yesterday, I spoke to Jane Hume who's the Shadow Finance spokesperson obviously for the Coalition and she said you need to do more work on the spending side, actually reining in some of your spending – NDIS, health. Are you prepared to do that?
CHALMERS:
I wasn't able to catch Jane's chat with you but I've heard this argument before from the Liberals. We found $40 billion of savings in the last two budgets, they found precisely $0 of savings in their last budget so they're not drawing on deep reserves of credibility here when they talk about –
KARVELAS:
But the substantive point about spending – do you think there has to be more heavy lifting on reining in spending?
CHALMERS:
Of course and the substantive point that I'm making is that we've already shown it two budgets – finding $40 billion of savings, 40 billion more than in the last Coalition budget – that we are serious about that. We are reining in spending where we can, we are reprioritising spending, we're showing spending restraint, we've got these meaningful tax changes and the benefit of our responsible economic management is over the course of the Intergenerational Report, we will save almost half a trillion dollars in interest on our debt because of the welcome progress we've been able to make on the budget already.
KARVELAS:
Treasurer, I want to turn to the Chinese economy. How would you describe what's going on there right now?
CHALMERS:
I think a lot of economists around the world are concerned about the Chinese economy right now and we share that concern, I share that concern. What we're seeing in China right now is a very different combination of challenges compared with most of the rest of the world. Their economy is slowing quite considerably, they've actually got deflation, they've got a weak retail sector, there are particular concerns about the property sector, there's some uncertainty around the way that their debt is set up, particularly their local government debt and their exports have been a bit weaker – so all of those things together paint a pretty concerning picture about China. We monitor these developments very closely as you would expect because in our economy which we already expect to slow fairly considerably over the next 12 months or so, the two things that will probably matter most to that trajectory will be developments in China but also the impact of these rate rises which are in the system and so both of those things are things we monitor closely.
KARVELAS:
Is it the perfect storm? I mean, talk to me about the impacts for Australia, what's our exposure? Does it risk us going into recession?
CHALMERS:
Well, obviously we are exposed to developments in the Chinese economy, we're not quite hostage to developments in the Chinese economy but we are very exposed to them and that's why I do share the concern that has been expressed about developments in China and as you would expect, when it comes to our budget, when it comes to our economy, prospects in China matter a great deal.
We are expecting the Australian economy to continue to grow – the Treasury forecasts are for continued growth but really quite flat growth and the two biggest challenges to that outlook, the two biggest challenges to those forecasts, I think are developments in China but also the impact on consumption of these rate rises that are in the system.
KARVELAS:
Do you think those rate rises have gone so far now that they are doing damage to the economy, Treasurer?
CHALMERS:
I think it's pretty clear now that they're slowing the economy. We've seen in some weaker retail data, for example, we've seen in the consumption data, even in the last national accounts in the March quarter had some of these indicators coming off quite substantially and we expect that to continue.
Consumption in our economy is about 60 per cent of the Australian economy and so when our central bank – and the same way that central banks around the world tighten interest rates – that has an impact on consumption. We see that impact on consumption with a bit of a lag and so one of the uncertainties in our own economy combined with this China challenge is the lagged impact of these interest rate rises.
KARVELAS:
Yesterday Qantas posted a $2.5 billion pre-tax profit. During the pandemic they received $2.7 billion in money from the taxpayer. Why aren't they being asked to return some of those funds? Because yesterday, Alan Joyce said no, he doesn't think there's a case to return them.
CHALMERS:
I think when those funds were provided by the previous government, there wasn't an understanding or an agreement that they would be repaid in some form. Obviously, I saw the reports yesterday about Qantas profits and I think what it reflects is the fact that the Australian tourism industry is making a big contribution to our economy and that's a good thing. It's a big employer in our economy, we have seen tourism make a very welcome and significant contribution to our economy when growth is not exactly thick on the ground. Tourism is one of the things that is helping us – the fact that we are an attractive destination, we're seeing that in the way that aviation has recovered pretty strongly and you see that in the numbers released yesterday.
KARVELAS:
Treasurer, you've spoken about why the government's banned Qatar from operating more flights but do you concede that directly benefits Qantas?
CHALMERS:
Well, we don't make those kinds of decisions –
KARVELAS:
Why did you make the decision then?
CHALMERS:
What we're asked to do whenever it comes to these bilateral agreements about flights and about capacity, is to judge it against the national interest and that's what the transport minister has done in this case. I think one of the big misconceptions about what's happening here is that somehow this is preventing extra capacity from being in the system. What we're seeing is Cathay Pacific, Singapore Airlines, China Southern – a whole bunch of these airlines are adding extra capacity, extra international opportunities, and that's a good thing, that's one of the benefits I think of the fact that our tourism sector is recovering so we're seeing more flights, we're seeing more routes, transport ministers make these kinds of decisions from time to time, they weigh up the national interest and they make the call.
KARVELAS:
Do you support the decision.
CHALMERS:
Of course I do and –
KARVELAS:
Is it anti-competitive?
CHALMERS:
I don't think so when you've got all of these extra routes being added. You've got to look at the aviation sector across the board, we are seeing extra routes being added, extra capacity being added – that's a good thing. We make these decisions on a case-by-case basis.
KARVELAS:
Treasurer, thanks for your time.
CHALMERS:
Thanks Patricia.