PATRICIA KARVELAS:
Jim Chalmers is the Federal Treasurer and joins us this morning. Treasurer, welcome.
JIM CHALMERS:
Thanks very much, Patricia.
KARVELAS:
The RBA has held rates, but the board is not backing off. It says it is very alert to the cost of stubbornly high inflation, signalling interest rates will need to stay higher for longer. How much extra pressure is there now on you to ensure this Budget is contractionary?
CHALMERS:
Well, I think our responsibility here is to make sure that we maintain a primary focus on inflation in the near term in the Budget, and that’s what we will do. It will be a responsible budget, a restrained budget, and it will maintain our focus on that inflation fight. There will be help for people with the cost of living, but we’ll make sure that that cost‑of‑living help is part of the solution and not part of the problem when it comes to inflation. There will be spending restraint even as we make substantial investments in the future of our economy.
KARVELAS:
Okay. But this Budget, if you want to see interest rates cut by the end of the year, this Budget has to be playing the biggest role in trying to achieve that, right?
CHALMERS:
Well, the Budget’s got an important role to play and making sure that we get it into much better nick, and we’ve made some really good progress getting those debt levels down, delivering the first surplus in 15 years – all of this has been an important part of the inflation fight, one of the reasons why inflation has moderated so substantially in our economy. It’s almost half what we inherited. It’s more than halved since its peaks in 2022. But we know that it’s not mission accomplished because people are still under pressure. And that was the point that the Reserve Bank Governor was making yesterday, and it’s a view that I share.
KARVELAS:
You talk to the RBA Governor Michelle Bullock, I think you said it was yesterday that you compare notes. Are your notes the same?
CHALMERS:
More or less. We speak pretty regularly I think as people would expect us to. We have scheduled conversations and we speak from time to time when that’s necessary. And that’s something that I really appreciate. We do compare notes on the economy, on the inflation outlook, the outlook for growth, the global situation. We talk about the Reserve Bank Review and other things. And that’s because I really respect the difficult job that Governor Bullock has to do. I believe that she respects the difficult job that I have to do and that we have to do in the Budget. We don’t tell each other how to do each other’s jobs, but we are on the same page when it comes to getting inflation down, because it is inflation which is punishing people. And that’s why the progress we’ve made is so important and that’s why it’s so important that we shoot for this second surplus and that we design our cost‑of‑living policies in a way that put downward pressure on inflation rather upward pressure on inflation.
KARVELAS:
You’ve read the board’s statement. Do you read it as a kind of mild tightening bias that it’s revealing?
CHALMERS:
I don’t get into that kind of commentary. Obviously the statement is about ongoing vigilance in this fight against inflation. And, again, that’s a view that I share. What you’ll see in the Budget on Tuesday is we’ve maintained a near‑term focus on this inflation fight in all of the ways that I’ve described already this morning – a responsible budget, a restrained budget, a budget that gets in much better nick, certainly in the near term. Those are our priorities. Those are the priorities of the Reserve Bank as well. We all want inflation to moderate further and faster. It has come off substantially, but it’s not mission accomplished. And that’s a view that the Governor and I both share.
KARVELAS:
Michelle Bullock said yesterday migration is putting big pressure on the housing markets and rent. Has migration increased the demand for housing?
CHALMERS:
Certainly the way that students in particular have come back much quicker than might have been anticipated during Covid, that has put pressure I think on housing. And there are other pressures as well. But that’s not the only reason why we don’t have enough homes in our country. One of the reasons why we’ve got an ambitious but achievable target to build 1.2 million homes in the 5 years from July is because we recognise we started a long way back. The housing pipeline is not what it needs to be. That’s why we’ve got this ambitious but achievable target. That’s why we’re already investing something like $25 billion in 17 different housing policies. And it’s why housing will be a big focus and a big priority in the Budget as well.
KARVELAS:
Okay. You’ve promised these 1.2 million new homes by 2029, but the target is behind schedule already. Today you’re announcing construction apprentices are set to receive wage subsidies and skills assessments will be fast tracked for I think it’s nearly 2,000 British and foreign tradies. Is that it on housing, or should we expect more in the budget? Will housing be the focus of your Budget?
CHALMERS:
Well, 3 important things about that: first of all, I’m not giving up on a target that hasn’t begun yet. It’s a target for the 5 years from July this year. A lot of people want to raise the white flag. That is premature.
KARVELAS:
No, but housing construction has fallen. That surely concerns you?
CHALMERS:
The pipeline does concern me and that’s why we’re investing already $25 billion in 17 different ways to build more homes for Australians. We recognise that we won’t get those houses built unless we train the apprentices and the builders to build them. And that’s why these 20,000 fee‑free opportunities for builders is so important today, because we won’t build the 1.2 million homes without an increase in our skilled labour force, without more builders and construction workers. And that’s why we’re making this $90 million investment in the Budget.
The third part of your question was about whether or not housing will be a priority in the Budget. The short answer to that is yes. It will be a major focus of the Budget on Tuesday. We know that there’s not enough homes. We need to build much more housing in our communities and in our country. We’ve made some quite big investments already, and people should expect to see more on Tuesday night.
KARVELAS:
Okay. Some have criticised you for not being a reforming enough Treasurer. Is there tax reform in your Budget?
CHALMERS:
There is. And primarily the tax reform will come in the form of a tax cut for every Australian taxpayer –
KARVELAS:
Yeah, but we know about that. I mean beyond what we already know.
CHALMERS:
Well, it’s still tax reform, Patricia, to cut 2 rates and lift 2 thresholds –
KARVELAS:
I know, sure, you can say that, but that’s not my question, to be respectful in my tone. The question is: will there be more tax reform beyond what we already know?
CHALMERS:
There will be in the Budget, and what you’ll see is an emphasis on tax reform that will incentivise the kind of investment that we want to see in the future of our economy and in a Future Made in Australia. We have indicated that we are prepared to use the tax system in the service of our big national economic objectives. The Budget will balance the cost‑of‑living help in the here and now – a tax cut for every Australian taxpayer – with our responsibilities to the future. And the tax system does have a role to play there. And there’ll be some other tax changes as well. In all of the budgets we’ve done so far there has been modest but meaningful tax reform. And that’s because I believe in doing these things in a sequenced and orderly and methodical way, and people should expect to see more of that on Tuesday night.
KARVELAS:
You mentioned housing. Should we expect tax reform in the housing space?
CHALMERS:
Not the kind that some people have been calling for. There’s no changes, for example, to negative gearing or those kinds of changes that you and I have discussed probably many times –
KARVELAS:
Three thousand times, yeah.
CHALMERS:
– over the last decade or 2. People shouldn’t expect to see that. But there will be tax reform. There’ll be income tax reform and there’ll be some additional measures as well which recognise that the tax system can be a good way to incentivise the kind of private investment that we want to see in the future of our economy and in a Future Made in Australia.
KARVELAS:
Rental inflation was nearly 8 per cent over the last year to March. Can we expect more rent assistance in the Budget next week?
CHALMERS:
That’s not something I’m prepared to get into this week, Patricia. I think people recognise that because of the substantial increase in rent assistance that we budgeted for last year those rental figures that you cite, they’re still too high, but they are lower than they would have otherwise been had we not stepped in with that rent assistance. And so people know our bona fides here. They know that we’ve been prepared in the past to step in and help renters. We know that renters are under pressure. But I’m not prepared to go further than that on your program today.
KARVELAS:
How about the new housing agreement with the states? We’ve heard that there may be a one‑year extension only. Some states are worried they’ll go backwards. Are you just going to extend this by a year or are you doing something fundamental here?
CHALMERS:
We’ll have more to say about our housing changes in the context of the Budget. Obviously that does involve a lot of state and territory responsibility. You asked us about the housing target earlier on in this conversation. And in addition to making sure we’ve got the workforce that we need, we also need to make sure that the states and territories are bought in as well. They have been. They understand the magnitude of this challenge. Everybody has got an interest in building more homes. We won’t hit that target unless we play our role as a commonwealth and the states and territories play their role as well. There’s an ongoing negotiation. My colleague Julie Collins is doing that in her characteristic diligent and consultative way –
KARVELAS:
I know, but she has to consult you because, you know, you’re in charge ultimately.
CHALMERS:
Yeah, of course.
KARVELAS:
So how much more are you prepared to spend? I mean, some have called for you to double the amount that you’re prepared to invest in this. Given the housing crisis, are you?
CHALMERS:
Look, we’re prepared to do our bit. And we’ve made that clear already – $25 billion of investment, all of these different housing policies to build more homes. We need the states and territories to play a role as well. They are willing to do that. I commend them for the constructive way that they come at this. But I’m not going to front run or engage in a kind of a commentary of the negotiations that are underway.
KARVELAS:
There was another budget delivered yesterday in Victoria. Huge amounts of debt. There’s a lot of negotiations to still happen between you and the Victorian Government. What’s your message to the Victorian Government?
CHALMERS:
I’m not going to give free advice to the Victorian Government. I think I recognise –
KARVELAS:
Okay, but when they come and they say they need more money, what will you tell them? Because they’re obviously going to do that. That’s their intention.
CHALMERS:
Patricia, I say this respectfully to you and to the Victorian colleagues, every state and territory does that. They all ask for more money. That’s not unprecedented or unusual. That’s not a stop‑the‑press moment. We recognise the pressure that their budget is under. I ask them to recognise the pressure that our budget is under as well. The pressures on our budget are intensifying rather than easing. And so we’ve all got to work together. And we’ve been prepared I think, whether it’s housing, whether it’s health and in a whole range of other areas, infrastructure, we’ve been prepared to do our bit as a Commonwealth. But we know their budget is under pressure. We know everybody has got to take difficult decisions. That’s what part of the story of yesterday was in Tim Pallas’ budget. We’ll continue to work with states rather than against them.
KARVELAS:
Do you see this Budget as being a defining moment in terms of trying to deliver – I know you don’t make that announcement, but you have enormous impact on the ultimate announcement around interest rates. Are you trying to build a budget that you deliver on Tuesday night that leads to interest rate cuts this year?
CHALMERS:
I don’t see it precisely like that, but I do see a big part of our role here is to make sure, particularly at the front end of the budget, that we are doing what we can to take pressure off inflation. And I think it is too easily forgotten the really substantial progress we’ve made over 2 years. Inflation has come off really quite considerably, but we know that people are still under pressure. That’s what motivates us – the fact that we will provide this cost‑of‑living help in the Budget – primarily a tax cut for every taxpayer, but other help as well. The way that we will try and use the Budget at the front end to make sure that we are not adding to these inflationary pressures in the economy, I do see that as part of our role. But I don’t get into the commentary, particularly the political commentary but not the economic commentary either, about future movement in interest rates. I don’t think that’s helpful, genuinely. And it comes back to what we were talking about before – I respect the difficult job that Michelle Bullock has to do as the Governor.
KARVELAS:
And do you respect that she’s held in, you know, her back pocket the chance that interest rates may rise again this year?
CHALMERS:
Well, I respect and listen closely to the comments that the Governor makes publicly, and I speak with her privately, as I said, quite regularly. One of the good innovations of the last little while are those long press conferences that Governors give after interest rate decisions. And I think what Australia sees is the kind of clear communication and the upfront common sense that I see privately when I speak regularly with Governor Bullock. We both know we’ve got an inflation challenge in our economy. We both know substantial progress has been made. And she acknowledged that too. But it’s not mission accomplished yet. I’ve got a job to do. Michelle Bullock has got a job to do. We don’t tell each other how to do those jobs. But we are operating in the same direction rather than at cross‑purposes. That’s been acknowledged, I think, by the RBA in the past, but also by the international economic institutions and the ratings agencies.
KARVELAS:
Jim Chalmers, thank you for joining us.
CHALMERS:
Much appreciated, Patricia. All the best.