PATRICIA KARVELAS:
You might have heard of the so‑called well‑being Budget, which will be included for the first time in the Federal Budget, next week. It's not meditation or clean eating as some critics have suggested, but it does look at quality of life through education and health services, and the state of the environment, rather than GDP or employment numbers. Treasurer Jim Chalmers joins me now. Treasurer, welcome back to Breakfast.
JIM CHALMERS:
Thanks very much Patricia.
KARVELAS:
What can you tell us about the impact the latest flooding disaster has had on estimates of how high inflation will go?
CHALMERS:
We're working through that at the moment. This is one of the late‑breaking things that we want to try and include in the Budget if we can. We've spent a big chunk of the last couple of days working closely with Treasury colleagues, to get a handle on some preliminary assessment of what these natural disasters mean for the cost of living, what they mean for the economy and what they mean for the Budget. But we need to remember, our primary focus will always be on the human consequences of what's happening in these flood affected areas. But there will be consequences for the economy and the Budget as well.
KARVELAS:
The Nine papers are reporting, Treasurer, that preliminary work by the Government’s audited programs has uncovered $6.4 billion in extra spending that will have to be put into the Budget, that was unfunded but needs to still happen. Can you confirm that figure? Is that right?
CHALMERS:
It is right, and that's the consequence of some good work from Katy Gallagher getting to the bottom of a lot of these programs that our predecessors deliberately designed, in a way that didn't fund them in an ongoing way. A lot of them are health programs, COVID‑related programs and others, where our predecessors more or less booby trapped the Budget with a bunch of spending, some billions of dollars in spending which is unavoidable, which we've had to find room for and we have.
KARVELAS:
What shape is the budget in over the forward estimates and beyond ‑ are high iron ore prices going to keep us in good shape over the forward estimates?
CHALMERS:
First of all, the budget is being buffeted and the economy's being buffeted by a combination of four things ‑ natural disasters, rising inflation, deterioration in the global economy, and some pretty serious structural, persistent spending pressures on the Budget as well. So that's really in lots of ways the backdrop for the Budget. As people, as your listeners would understand ‑ we're getting pretty good prices for some of our exports at the moment, and that will be helpful in the near term. But it won't go anywhere near making up for some of those longer term spending pressures. And so what people can expect to see on Tuesday night is an improved Budget position over the next couple of years. But after that, when the Budget assumes that commodity prices go back to more normal levels, and when some of these structural pressures ‑ whether it be the NDIS, or the increasing borrowing costs on the trillion dollars of debt that we've inherited, whether it's health costs, aged care and defence ‑ these spending pressures, which are in the Budget make a big impact over the latter years of the forward estimates and into the medium term. And that is not covered by this temporary near term increase in commodity prices.
KARVELAS:
So it’s sunny for a couple of years, and then you're saying that we're going to see huge deficits?
CHALMERS:
I wouldn't necessarily use that language, but I think we've been pretty clear with people that, that combination of borrowing costs ‑ NDIS, aged care, health care, defence ‑ these are big, persistent structural spending pressures in the Budget. We are doing well, when it comes to our exports at the moment, that will be helpful. And we need to take a responsible approach to any revenue upgrades over the next couple of years. But I think we've been pretty up‑front for some time now, that one Budget can't fix a legacy which has got these spending pressures growing as quickly as they are, including the fastest growing one is the interest that we pay on the debt that's been accumulated. Not just during COVID, but before that as well. Because interest rates are going up, the costs of servicing that debt are going up quickly as well.
KARVELAS:
So you say the next couple of years, we see strong prices and then a decline again when those prices stabilise. 2024 is when those contentious stage three tax cuts kick in. Obviously there's a big debate in the community about whether they are a good idea. What's the new cost of the stage three tax cuts then given you've had to revise all of the spending in this Budget?
CHALMERS:
What happens in the Budget, is there are line items for new items in the Budget, and so because those tax cuts were legislated some time ago and introduced into a Budget some years ago, then people shouldn't expect to see a new kind of line item for the updated costs of those tax cuts.
KARVELAS:
Okay, but we do know that ‑ I think it was the Parliamentary Budget Office ‑ that estimated $243.5 billion over this sort of 10 year period. Is it still that number?
CHALMERS:
Again, there won't be a number like that in the Budget, but from the last time that we had a look at it, I think we're expecting that equivalent 10 year cost to be around 254 billion ‑
KARVELAS:
254 billion?
CHALMERS:
Yes, over 10 years. And I think the forward estimates cost, from memory, is a bit under $41 billion, which is just the update on those already legislated tax cuts. But so that people are clear, because that's already legislated policy, there's not a new section on the Budget in that, that has those numbers in it.
KARVELAS:
Okay. Are you alarmed by the increase there?
CHALMERS:
I think it's been pretty clear to everyone, including all sides of this conversation over the last few weeks, that these tax cuts make an impact on the Budget. But the point that we've been making, is that they come in in a couple of years’ time. We've got more pressing priorities, the Budget is not going to be about those tax cuts. It's going to be about really three things ‑ responsible cost‑of‑living relief, secondly targeted investments in a stronger, more resilient economy. And thirdly, starting to unwind this legacy of waste and rorts in the Budget, which has given us that trillion dollars of debt in the first place, which is becoming more and more expensive to service.
KARVELAS:
Treasurer, what exactly is in a well‑being Budget, and how will it be measured?
CHALMERS:
For some time now, and you and I have talked about it before, I've thought that there must be better, more hard‑headed ways to measure progress not just in our economy, but in our society. And not instead of the traditional ways that we measure the economy, but in addition to that as well. And that's because one of the key lessons that people drew from the pandemic ‑ but in some cases, things that some of us have believed all of our lives ‑ and that is that you can't have a more robust and resilient economy if you don't have more robust and resilient people. I've always seen economic strength, social mobility, and the well‑being of our people as complementary, not at odds with each other. And so what I would like to do, and I'll get the ball rolling with a detailed statement in the Budget next week, to get the ball rolling on a conversation about how we better measure progress in our economy. The Budget’s primary focus is this inflation challenge, but it's also about how do we make our economy stronger and broader and more inclusive and more sustainable. And so to do that, I think we can find better ways to measure what that means for people, so that we can have a stronger economy and a stronger society at the same time.
KARVELAS:
Okay, but it's currently National Poverty Week, Treasurer, and there are thousands of people for instance, on JobSeeker and other welfare payments below the poverty line ‑ as a welfare measure, that's the most obvious well‑being measure, isn't it? Will the government look at costing an increase to those payments to new staff?
CHALMERS:
I think the biggest threat to people on, whether it's on low incomes or fixed incomes, is this inflation challenge, eating away at people's living standards, their capacity to ‑
KARVELAS:
But it affects people ‑
CHALMERS:
To put food on the table ‑
KARVELAS:
On Newstart, on that payment more than anyone else.
CHALMERS:
I understand, and that's why the priority of the Budget, the first priority of the Budget, is to try and get a handle on this inflation problem. We've got indexation of payments for good reason, to try and be helpful when inflation is high as it is now. And when it comes to workers on low incomes, we've made them a priority in our wages policy, when it comes to minimum wages and workers in the care economy, particularly aged care. So we understand that when inflation is high and rising, as it is now, when there's pressure on family budgets, then some Australians are more vulnerable to that than others. We're doing what we can to provide some responsible cost‑of‑living relief, but we need to do that in a way that doesn't make inflation worse ‑ and that's our priority.
KARVELAS:
Would an increase ‑ I know it's not happening in this Budget ‑ but to payments like JobSeeker or Newstart ‑ be tied to a revenue raise from other places. If you are to go down the road of increasing in your first term in government, a payment like JobSeeker, do you need to offset that with changes that would bring in more revenue into your Budget?
CHALMERS:
I hope you understand Patricia, that the focus is on landing a Budget in five days’ time.
KARVELAS:
Oh I understand.
CHALMERS:
And so I'm happy to have a conversation about subsequent budgets, and I think we should see this October Budget as the beginning of something rather than the end of something. There will be three or four budgets in the life of this parliamentary term, ideally, and so these are all important considerations. But my focus is on this inflation challenge, it's about responsible cost‑of‑living relief, it's about getting wages moving again, so that people can deal with the primary challenge in their lives right now, which is the increasing cost of living made worse by uncertainty in the global economy and by these natural disasters.
KARVELAS:
Treasurer, we've seen another natural disaster with this flooding crisis going on. Currently, people today, living on the edge, worried about what will happen in their communities. Clearly, we're seeing more frequent events, weather events, which are clearly linked to climate change, will this Budget outline climate change risks to the Budget?
CHALMERS:
This will be the first time Patricia as I understand it, that a Budget will have a proper discussion of the risks to the economy and to the Budget posed by climate change. And I'm proud that we've included that, this is of a piece really with what we were just talking about, when it comes to measuring what matters. Climate change is a risk to our economy, it's a risk to our Budget, it's also a massive opportunity for us in economic terms, when it comes to investment, when it comes to jobs. The Prime Minister and the Climate Change Minister yesterday in sealing the deal on some of those really key transmission projects, I think was evidence of that. We've got a big opportunity here, a huge economic opportunity when it comes to cleaner and cheaper and more reliable energy, but there are risks associated with climate change, and there are costs of doing nothing.
KARVELAS:
What does it tell us about the risks associated with more frequent events?
CHALMERS:
What does the Budget tell us?
KARVELAS:
Yeah.
CHALMERS:
There will be a discussion of that in the Budget, but the primary discussion in the Budget, and I hope people engage with it, when I release it on Tuesday, is what are the costs of doing nothing? What are the risks of our economy and our Budget? Why is it so important that we engage in meaningful ways with climate change action, in ways that strengthen the economy and strengthen the Budget. Because the alternative, to put your head in the sand and to do nothing, is very damaging to our economy and our Budget. And I'm pleased and proud that we've been able to include for the first time, as I understand it, a proper discussion of that in a Commonwealth Budget.
KARVELAS:
Finally, Treasurer, I'm interested in what the COVID situation will look like and what estimates will be in the Budget in relation to absenteeism, which is a huge issue now, and perhaps long COVID as well. What can you tell me about what the Budget will tell us about the impact of absenteeism?
CHALMERS:
The Budget will acknowledge ‑ when it's talking about the labour market, about the jobs market ‑ that one of the issues, which has been impacting it, one of the reasons that we've had unemployment so low, is because employers have had to try and build a bigger workforce system to make up for what has been a lot of absenteeism ‑ COVID related and otherwise. The peak for that absenteeism, we think was around June, something like two per cent of the workforce was absent every day in June, around 260,000 workers a day, around 31,000 of them were defined as long COVID, which is when you've got symptoms for four or more weeks. So it has been a substantial challenge. It's come off a little bit, or it's come up a fair bit since the peak in the middle of the year, but it’s still a factor in our labour market, and the Budget will acknowledge that.
KARVELAS:
Treasurer, thank you for joining us this morning.
CHALMERS:
Thanks very much. Patricia.