PATRICIA KARVELAS:
The Prime Minister has defended his government's decision to amend the controversial stage 3 tax cuts despite consistently and repeatedly promising he wouldn't.
The original legislated tax cuts, which have been criticised for overwhelmingly benefitting those on higher incomes, will be reshaped to put substantially more money in the pockets of low and middle income earners.
The Federal Treasurer is Jim Chalmers, and he joins us for the first time with me at least on RN Breakfast this year. Welcome to the programme.
JIM CHALMERS:
It's nice to be back, Patricia.
KARVELAS:
Well I'm glad I'm asking you now when you aren't going to use the formula any more. You've raised your concerns around the stage 3 tax cuts, they are well‑known. But the Prime Minister was reluctant to dump an election promise. How did you convince him?
CHALMERS:
I don't see it in those terms, Patricia. We as a government have come to a different view about these stage 3 tax cuts for a very simple reason, and that is that we found a better way to provide more relief to more people who are confronting these persistent and sustained cost‑of‑living pressures in our economy.
What we're proposing today is better for middle Australia, better for cost‑of‑living pressures, better for women and workforce participation, better for nurses and truckies and teachers. As the Treasury advice that I release will show, it's better for the economy as well.
So given the opportunity to provide around the same amount of tax relief but in a far more effective way which provides bigger tax cuts for more people to help with the cost‑of‑living, of course any responsible government should do that.
KARVELAS:
Okay. The Opposition has pointed out that Labor said there'd be no changes to superannuation and then there was. And now it's a similar story with these big tax cuts. How can your word be trusted?
CHALMERS:
Because you build trust by taking the right decisions for the right reasons in the interests of the people, even when those decisions might be politically contentious or politically difficult.
You know, we are not pretending, we haven't come to a different view here. We have. And we've come to a ‑‑
KARVELAS:
So do you accept that you've broken an election promise?
CHALMERS:
I accept that this is a different view than we have expressed ‑‑
KARVELAS:
You've broken an election promise, that's what it is, right?
CHALMERS:
Well it's different to what we have previously said and I'm explaining why and I think the important thing here is that we are upfront. We have come to a different view to one that we have expressed previously, but we've done that for the best possible reason. We are putting people before politics.
We understand people are under pressure right up and down the income scale, but even better than just acknowledging the pressure that people are under, we are doing something about it and we are doing that in a way where every taxpayer still gets a tax cut. More people get a tax cut under the proposal we put forward today compared to Scott Morrison's stage 3 tax cuts from five years ago and that's because we recognise the circumstances economically have changed since five years ago.
KARVELAS:
What's changed so substantially?
CHALMERS:
Well in addition to the pandemic and the recession under the Liberals and the two major conflicts, the higher interest rates and the spike in inflation which began before the election, in addition to that, I mean it's really clear to us, increasingly clear, that this sustained and persistent cost‑of‑living pressure that so many of your listeners would be confronting from day‑to‑day, warrants us to do even more than the cost‑of‑living relief that we already budgeted for and is already in the system.
So what we're doing today is providing the same amount of tax relief overall but doing it in a way where everyone still gets a tax cut, but more people get a bigger tax cut in recognition of these persistent and sustained cost‑of‑living pressures that people are confronting.
KARVELAS:
But is it right that more than one million households will be left with less money than they were promised by you at the election?
CHALMERS:
Well I think it's important when it comes to that group to recognise we are still lifting the top threshold from $180,000 to $190,000. The difference that you are rightly identifying is instead of taking it from $180,000 to $200,000 we’re taking it from $180,000 to $190,000. And that still means substantial tax relief for people on good incomes, higher incomes.
And our intention here ‑‑
KARVELAS:
But that's not what they were promised, right? They are going to get less than they were promised.
CHALMERS:
Well they are still going to get a substantial tax cut is the point that I'm making. Everybody gets a tax cut still. For somebody on ‑‑
KARVELAS:
Just not what they were promised.
CHALMERS:
Well for somebody on $200,000 they'll get a $4,500 tax cut on the 1st of July. And that means they will be better off next year in terms of tax than they were this year, and that's an important thing.
Our task here, our objective here, Patricia, is to not set people against each other. Everyone will still get a tax cut. There's a bigger emphasis on middle Australia, that is true. There will be bigger tax cuts for more people to deal with these pressures they're under, but everybody will still get a tax cut. We're still changing the top tax threshold, that's important.
KARVELAS:
Do you accept that this will add to demand and keep some upward pressure on domestically generated inflation?
CHALMERS:
Well that's not the view of the Treasury and it's not my view and it's not the view of the independent Reserve Bank either.
KARVELAS:
How do you know what the Reserve Bank thinks?
CHALMERS:
Well, obviously we have consulted the Reserve Bank Governor and Michelle Bullock can provide her own view about these tax cuts, but obviously in our usual diligent and methodical way I have consulted the Reserve Bank Governor, the Treasury Secretary has separately consulted the Reserve Bank Governor, and she has indicated to us that she does not expect what we're proposing today to alter the Reserve Bank's forecasts or expectations for inflation.
But Michelle Bullock can speak for herself. Obviously, we have consulted her and in addition to that ‑‑
KARVELAS:
So you've got the blessing of the RBA that this won't put pressure on inflation and therefore of course lead them to increase interest rates?
CHALMERS:
Well obviously we have an assurance from the Reserve Bank Governor around the implications of what we're proposing today in relation to the Reserve Bank's forecast. But I don't want to speak for the Governor, we have spoken to her, we have consulted her on a number of occasions.
In addition to that, Patricia, one of the things that people will see today, which is a bit unusual, is I'm going to release in full the Treasury advice that we were provided in coming to this decision. I've got it in front of me and it says very clearly the redesign of the stage 3 tax cuts will not add to inflationary pressures.
That's what's so important here – we've got a package which is broadly revenue neutral. Neither the Treasury nor the Reserve Bank expect it to put upward pressure on inflation. It has positive implications for labour supply, for example, which people often don't factor into their thinking about this question, but broadly revenue neutral. We’ve got the Treasury advice, we've spoken to the Reserve Bank Governor, and that's important.
KARVELAS:
So, will the overall cost of the revised tax cuts stay the same?
CHALMERS:
Yes, they will, it's broadly revenue neutral. The difference, Patricia, is only about a billion dollars in a package which now gets to $107 billion. It was going to be about 106 over the forward estimates. It will now be 107. So broadly revenue neutral.
The reason that number is a bit bigger than what you and I have talked about on other occasions is because there's an extra year of tax cuts in the forward estimates. Also the labour market's a bit stronger but largely it's that extra year in the forward estimates.
So the amount of tax cuts, the aggregate, is broadly the same as what it would have been under stage 3 but a much more effective way to do it, better for the economy but most importantly better for people confronting these cost‑of‑living pressures.
KARVELAS:
Treasurer, isn't there is a risk that this incentivises higher income earners to find other ways to minimise tax? Negative gearing is one of those approaches. I've had text messages from higher income earners – hello higher income earners listening to RN Breakfast – saying that that's what they're going to consider doing. Isn't that a risk?
CHALMERS:
I don't think so. I mean you'll find examples; no doubt people can point to examples like you just have, but I think in aggregate people will understand that everybody's still getting a tax cut, including people on higher incomes.
People will make their own decisions about their own family budgets but there is still a substantial tax cut for people on higher incomes, even as we've been able to place a much bigger emphasis on millions of taxpayers in middle Australia that we are providing a bigger tax cut to in order to deal with these cost‑of‑living pressures that people are confronting.
KARVELAS:
Okay. You've talked previously about wanting a bigger conversation around tax. Is this the beginning of that process or the end? Will you look at other things including, as I've just mentioned, negative gearing?
CHALMERS:
No, Patricia. What we're doing here is we are making an important change, an important tax reform, and I'll come back to that in a minute. But you and I have talked before about the changes to the PRRT, about changes to concessions in the superannuation system, we've talked about multinational tax reform, we've talked about compliance, we've talked about what we're doing in the aftermath of what happened at PwC, and so we've got a substantial tax reform agenda and this is part of it.
One of the frustrations I think, Patricia, if I can be blunt about it, is that some people think that it's only tax reform if it disproportionately benefits the people on the highest incomes, and that's a mistake.
This is not just tax reform. It's better tax reform than what it replaces. It's better for workforce participation, it's better for work incentives, it's better for aspiration. And that's an important part of our motivation here.
Our primary motivation is more cost‑of‑living help for middle Australia, but it ticks so many boxes when it comes to not just tax reform but economic reform more broadly.
We want to incentivise more people to work more and earn more if they can, and what the Treasury advice will say is that this is an important consequence of the tax proposal that we are putting forward today.
KARVELAS:
Is this the biggest gamble of your political career?
CHALMERS:
I don't know about that, Patricia, and frankly I don't think about it in those terms. You know, this is ‑‑
KARVELAS:
It's a big deal though to break a promise.
CHALMERS:
I think it is a big deal what we're proposing today. I don't pretend otherwise and it's not an easy decision. We don't take these sorts of decisions lightly, but we try and take the right decisions for the right reasons and explain them when we do.
I think most importantly, Patricia, is this is about putting people before politics, and we go into it knowing that the Opposition will play their usual mindless and nasty and negative political games. We know that there will be ‑‑
KARVELAS:
You've given them a lot of material.
CHALMERS:
It's not about politics fundamentally, it's about giving people more help with the cost‑of‑living. Our political opponents want to focus on the politics of it because they can't defend this outrageous position that Sussan Ley had this week, which is the Opposition's position to unwind these changes. That means jacking up taxes on middle Australia in order to fund an even bigger tax cut for people on higher incomes.
That is the Liberal and National Party's position as outlined by Sussan Ley earlier this week and that is a diabolical position. It's not about the politics. We need to have the people front and centre. We know that this is a big decision. We know that there are politics that will be played. We know that people will have a view. It's contentious, we understand that but we're doing it for the right reasons and we're explaining those reasons today.
KARVELAS:
Treasurer, you mentioned Sussan Ley, she's up next. I look forward to sparring with you again. Thank you.
CHALMERS: Thanks so much, Patricia.