PATRICIA KARVELAS:
Jim Chalmers is the Treasurer and he joins us this morning. Treasurer, welcome back to the show.
JIM CHALMERS:
Thanks very much, Patricia and a big shout out to the mighty Brisbane Lions women playing in the Grand Final on the weekend.
KARVELAS:
Okay, definitely going for the Melbourne team. The OECD says interest rates could fall in the second half of next year, are you confident of that?
CHALMERS:
I don't make predictions about the future trajectory of interest rates, as you know, Patricia. My job is to focus on this fight against inflation. And we saw overnight from the OECD, we saw from Deloitte Access Economics, we saw in the Bureau of Statistics data which came out yesterday, that we are making some welcome progress in the fight against inflation and that will determine the future trajectory of interest rates.
KARVELAS:
The Commonwealth Bank this week suggested the government is on track to deliver a second Federal Budget surplus off the back of strong tax collections, is that what you're seeing?
CHALMERS:
Well, certainly our responsible economic management is paying dividends. We're seeing that in the fight against inflation but we're also seeing that when it comes to getting the budget in much better nick, which is also important to this fight against inflation. But it also rebuilds the budget and rebuilds our buffers at a time of substantial international uncertainty. And so what that report reflects, I think, and what other commentary reflects, including overnight, is that because we've taken such a responsible approach to the budget, we have started to turn the budget situation around. The first budget surplus in 15 years in the year just finished, substantial improvements in the budget position going forward as well. And that's because we've been disciplined, we've gone through these issues in a considered and a methodical way and as a consequence of that, the budget's in much better nick, at the same time as we roll out tens of billions of dollars in cost-of-living help for people who really need it.
KARVELAS:
But will you deliver a second surplus?
CHALMERS:
People shouldn't anticipate in the mid-year update that I release – at this stage, the week after next – people shouldn't anticipate that we will print a second surplus in that mid-year budget update. They should expect to see a really substantial improvement in the bottom line but we're not yet forecasting that second surplus. It will be a mid-year budget update, it won't be a mini budget – there won't be heaps of new initiatives like we saw in the May Budget or the October Budget before that. It will be more like a traditional mid-year update. And it will be defined by responsible economic management because that's how we continue to put downward pressure on inflation, which is our most important priority in the near term.
KARVELAS:
I spoke to Angus Taylor earlier – he's your counterpart, the Shadow Treasurer – who said the government shouldn't be congratulated for core inflation dropping from 5.4 per cent to only 5.3 per cent. Is that the number we should be looking at?
CHALMERS:
We should be looking across the board at all the indicators of inflation. Inflation, in quarterly terms, is almost half what it was when Angus Taylor was in government – that's come off substantially. It's also come off substantially in the monthly data that we saw yesterday – 4.9 versus, I think, 6.1 when Angus was sitting around the Cabinet table. So inflation is moderating, it peaked in quarterly terms before the last election, it's come off since then in welcome and encouraging ways. But I think it is important that we acknowledge that people still are under substantial pressure. We know that, we don't just acknowledge that, we're acting on that. We don't get too carried away by the monthly figures because we understand that inflation is still too high and those numbers bounce around a bit. But it remains the case that what we saw yesterday was a very substantial and a very welcome moderation in inflation. And one of the encouraging parts of that is that the ABS has made it very clear – as have Westpac, as have others who commented on this in the last 24 hours – is that the government's policies are putting downward pressure on inflation and that's really important.
KARVELAS:
Today you're meeting with a group of Labor MPs on cost-of-living pressures – they want you to deliver relief. What will you offer them?
CHALMERS:
First of all, the colleagues know that we are delivering relief already – tens of billions of dollars in cost-of-living relief to take some of the edge off these cost-of-living pressures without adding to inflation. But it's not unusual for me to confer with my parliamentary colleagues about our economic policies - I do that in all kinds of different ways, small groups, individually bigger groups. I do that all the time and I think it'd be stranger if I didn't do that, frankly. And I respect my colleagues, I value their input, I look forward to catching up with them today.
KARVELAS:
Sure, but are you willing to give them a guarantee that there will be more cost-of-living relief? That's what they're asking for.
CHALMERS:
Well, I think they are reflecting – as good members and good senators should – the very real pressure that people are under in our communities, the communities that we represent. I think it's a good thing that people are advocating on behalf of their communities and because of that, we've got this tens of billions of dollars of relief that we're rolling out right now. Electricity bill relief, cheaper early childhood education, increased rent assistance, cheaper medicines, boosting income support payments, and all of these things that we are doing, which are taking some of the edge off these cost-of-living pressures are a product of the way that people are deeply engaged with their communities and understanding their needs and concerns.
KARVELAS:
So if interest rates are cut for mid next year, does that mean that you can deliver cost-of-living relief mid year?
CHALMERS:
We are always trying to calibrate our budget settings, and particularly when it comes to cost-of-living relief but our other investments as well, to suit the economic conditions and cognisant of our budget constraints. And that's really been the secret to the success of the first couple of budgets that we have rolled out – really a textbook combination of targeted cost-of-living help, budget repair, and investing in housing and skills and energy on the supply side of the economy. And so at every budget, and you should expect this in May as well, we assess the economic conditions, we assess the economic needs and we apply the fiscal constraints, and we do the best that we can for people.
KARVELAS:
I know, but you've been pointing to the OECD report, if its predictions are correct, does it make that case for cost-of-living relief in a stronger way, at that point, because you won't be putting the same pressure on inflation?
CHALMERS:
Well, obviously, whether or not our policies put pressure on inflation is a really key concern and we'll evaluate that when we put the May budget together. There is still an element of uncertainty about how the next 12 or 18 months will play out, I heard Mathias Cormann on AM a moment ago talking about a soft landing in the global economy, that is now assumed but it's not assured. There's a lot of uncertainty in China, around the world, we've got two conflicts – one in the Middle East one in Europe, we've got uncertainty at home when it comes to the way that these interest rate rises are biting in our economy, so there's still a lot of uncertainty. The assurance I give to all of your listeners, Patricia, is that we will always carefully calibrate our economic policy and our budget strategy to make sure that we can deliver for people in a way that recognises that inflation is still the defining challenge in our economy and that's why it's pleasing and encouraging to see the ABS and Deloitte and the OECD and others saying that our policies are helping.
KARVELAS:
States wants you to extend the 2018 no worse off guarantee on the GST. It would cost almost $5 billion to extend. Will you do it?
CHALMERS:
Firstly, Patricia, I think states wanting more money from the Commonwealth is not exactly unprecedented or a big revelation and the story today is consistent with a number of private conversations I've been having with the state treasurers and I always work with them to do the best we can for the people that we represent but that means recognising that there's not just pressure on state budgets, there's pressure on the Commonwealth budget as well and we also need to recognise that the share of state revenue coming from the Commonwealth has gone up not down, payments have gone up not down, there are other GST top ups being paid, we've paid billions of extra dollars for housing and skills and the states have done really well out of us and that's a good thing if it means better services for the people that we represent.
KARVELAS:
You say the states have done well out of you. Are you willing to give them this $5 billion they're asking for?
CHALMERS:
This GST deal that you're referring to doesn't run out until 26-27 and there's a Productivity Commission review of it in 2026 but it is a live conversation right now and as I indicated a moment ago, my preference is to always try and work with people to do the best that we can for the people that we represent but we need to remember as well that when this deal was originally struck by Scott Morrison, it was expected to cost $6.7 billion between 2019 and 2027, now it's estimated to cost $33.9 billion dollars – it's blown out by $27.2 billion and that's not irrelevant to us, we need to factor that in, we can't pretend that way but these are the sorts of things we need to recognise as we work together.
It'll be an important part of the meeting tomorrow when we meet in Brisbane but not the only part of that meeting. We've got a big agenda and I look forward to engaging with them on it.
KARVELAS:
Well since we're still talking about the GST, the OECD report wasn't all just happy predictions for your government. It also called for you to do more on economic reform including on the GST on raising and broadening the GST. Isn't that your way of dealing with this conundrum that you're facing?
CHALMERS:
No, that's not something that we're interested in.
KARVELAS:
No, because it's politically difficult but isn't it time to consider politically difficult things given the state of the economy and the budget?
CHALMERS:
There's no shortage of issues that we've taken on Patricia that are politically difficult – the energy transformation, the legislation we're introducing today on superannuation tax concessions, the PRRT, the multinational tax agenda – we've got a pretty full book when it comes to difficult tax reform and we're trying to advance that through the Parliament as we speak. The focus for me with the state treasurers is having a yarn about this GST distribution, it's also making sure that in the long term, we get the settings right on things like electric vehicles, it's about making sure that the states are engaged in our competition reform process. There is a lot that we are working with the states on to the ultimate benefit of the people that we both represent but we need to recognise the pressures on both of our budgets, not just the pressures on their budgets.
KARVELAS:
On the stage three tax cuts, there are growing calls for you to change them, not necessarily scrap them, but change them. Are you worried they'll be inflationary?
CHALMERS:
I think when it comes to that, the impact of these tax cuts because they were legislated so long ago, they have been factored into the baseline of the Reserve Bank's inflation forecasts, indeed the Treasury's inflation forecasts as well so they are baked in because they were legislated some time ago when it comes to the Reserve Bank or the Treasury's assessment of inflation. As you heard the PM say yesterday, as I have said to you probably countless times by now, we haven't changed our position on stage three.
KARVELAS:
And you won't?
CHALMERS:
We do understand that people would like us to do that. One of the reasons they'd like us to do that is because they want to make sure that we're helping people on low and middle incomes as well and we are – people on low and middle incomes are the primary focus of our tens of billions of dollars in cost-of-living help, we have found better and sooner ways to help people who are doing it toughest.
KARVELAS:
So no change to this tax that's going to be delivered next year?
CHALMERS:
We haven't changed our position, we’ve found a better way and a sooner way to deliver cost-of-living help for people on low and middle incomes.
KARVELAS:
Very quickly – digital wallets. Today you’re introducing legislation to regulate digital wallets and payment services like Apple and Google Pay. Why do you need to do that?
CHALMERS:
Well, this is a really important reform, it helps make our economy more dynamic and competitive and productive by modernising our payment system and part of that is making sure that Apple Pay and Google Pay and others are treated in the same way that other payments are regulated so that our regulations keep up with the way that payments are changing and it's also part of a broader suite of economic reforms that guarantee a future for cash and phase out cheques over time, but which really maximise the opportunities that come from new technology in this really important part of the economy.
KARVELAS:
Treasurer, thanks for joining us.
CHALMERS:
Appreciate it, Patricia. All the best.