3 February 2024

Interview with Paul Karp, The Guardian Podcast


Subjects: Stage three tax cuts

PAUL KARP: Thanks very much for joining us, Jim.

JIM CHALMERS: Thanks for having me back on your show, Paul.

KARP: Now, the government has justified changing its position on stage three tax cuts by saying it’s listened to low and middle-income earners who needed more cost of living relief, and circumstances have changed. Was there a particular moment that you realised that we can’t deliver stage three as is?

CHALMERS: No, not a particular moment, but I think it became increasingly clear to myself and to the Prime Minister and to the colleagues that if we were to provide substantial cost of living help in a way that was broader than some of the targeted measures that we were already rolling out, and if that cost of living help wasn’t to add extra pressure to inflation then this really became the best of the available options. And so not really a moment, but more a sense of it becoming increasingly clear that this was the best way to give more cost of living relief to more people by using the tax system, returning around the same amount of tax over the period of the budget but doing it in a way where there’s a bigger emphasis on people doing it toughest.

KARP: So there’s obviously the process of government about getting advice and the Cabinet decision, but there wasn’t, you know, an emotional inflection – meeting a voter in a shopping centre – or an intellectual one – doing sums at midnight – where you realised you could do it, it was the right way to go?

CHALMERS: Well, there were a lot of late nights and there were a lot of conversations with real people in real communities like the one that I represent but not really one moment. I think it became increasingly clear that the best recommendation that I could take to our colleagues in the Cabinet and in the party room was one where we’re not adding extra pressure to inflation but we are giving more help to more people and that’s really what this cost-of-living tax cut is all about – it’s about trying to work out how can we maximise cost-of-living relief and minimise the impact on inflation. And once you come at it in that way, I think the logic of it is really compelling. The policy logic of it is compelling.

Obviously, the politics of it are contested and our opponents want to focus on the politics rather than the tangible benefits for people but it became increasingly clear that this was the best way to go, I’m confident with what we’ve put forward and I maintain the view that once you apply that lens to it – inflation, cost of living – then this is the best thing we can do.

KARP: And you and the Prime Minister have been grilled 17 which ways about broken promises, and you’ve said circumstances changed, which is true. But if we’re being honest, was there an element of it that is more simply that stage three was never the Labor way, it was never a particularly fair or good way to give back bracket creep?

CHALMERS: Well, I think the history and context of this is pretty clear, pretty well established. When Scott Morrison first bowled up these changes about five years ago, what we tried to do was support the first two stages which were more focused on people on low and middle incomes. We tried to split off stage three some years ago, we were unsuccessful in the Senate – I think that history is pretty clear.

But what we’ve tried to do in government is to recognise that there are other ways that we can help people who need the most help. If you think about just in the last budget what we did in terms of cheaper medicines and boosting income support payments including JobSeeker, increasing rent assistance, the electricity bill relief, really, we found other ways to help people in a more targeted sense. But what became increasingly clear in more recent times was if we wanted to go bigger and broader without pushing up inflation then we needed to use the tax system, and that gave us an opportunity I think to come up with something which is not just more relief for people but better reform for the economy too.

KARP: Now, you’ve talked about future governments handing back bracket creep, particularly the context of the Coalition attack and this being $28 billion less generous over 10 years. Do you think you’ll ever abolish the 37 per cent tax rate when economic times are better, or should you be looking at indexing the brackets, all of the brackets, rather than abolishing them?

CHALMERS: Well, a couple of things about that. I mean, first of all, I believe in a progressive tax system, and we need to make sure that any changes that are made to the tax system into the future maintain a sense of progressivity. I think that’s really, really important. When it comes to the future, the point I have made as you rightly summarised in your question, is that when the Liberals are kind of clutching at straws and searching in vain for an economic justification for their political position, they pretend that the changes that we are making in this year will last forever. And what that ignores is a government of either political persuasion at some point in the future, including in the next 10 years, might want to provide further tax relief in a way that is consistent with their priorities. I think that’s a sort of a factual point – governments do that from time to time, and so they shouldn’t assume that the tax system that we will have on the 1st of July this year will be the tax system we have in 10 or 20 or 30 years’ time. I think that’s just a convenient way for them as they kind of lurch around and search around for an economic justification for a political position.

When it comes to the tax rates, what we’re doing here is we’re actually dropping two tax rates and we’re lifting two thresholds and that is genuine tax reform, not just any kind of tax reform but much, much better than the old stage three reform that it replaces.

KARP: The Labor tax plan gives more back to more taxpayers. But we know that people don’t always vote in their economic rational self-interest. What makes you confident that the dollars and cents of it will win out rather than the emotional appeal about broken promises and a liar in the Lodge, as Coalition figures are saying?

CHALMERS: Well, first of all, to be upfront with you, Paul, I don’t underestimate the politics that will be played with this. And one of the things that I admire most about the Prime Minister’s leadership here and the way that our government has come to this conclusion and this decision in a really considered and methodical way is we have genuinely decided to put tangible benefits for people before the politics of it. We knew that the politics would be contentious. We knew that Peter Dutton and Sussan Ley and Angusnbsp; Taylor – the Three Stooges of tax policy – we knew that they would try and find a way to make this about politics rather than people. We deliberately chose to put the interests of the people ahead of what will be a politically contentious change. And so we don’t underestimate that. We know that some of the headline writers and the Coalition will want to make this about politics. We want to make it about people. We’ve got an opportunity here to do the right thing by people – to give them more help with these cost-of-living pressures.

KARP: “Some of the headline writers”. Do you think that the media is acting like a player in that, that they’re lobbying or campaigning for the Coalition’s view of the world?

CHALMERS: I’m not necessarily making that point, Paul. You and I have known each other for a while and what I try to do is to take the good with the bad. I was asked about this after a couple of punchy interviews last week, and my view is the media and journalists are largely doing their job and I’m trying to do my job and if the price that we pay for that, for getting a bit more help out the door for more people, if the price we pay for that is some punchy headlines or some punchy questions, that’s a price that I’m personally willing to pay.

The broader point that I would make about some of the commentary is beware the commentator that tries to have you believe that it’s only tax reform if it disproportionately benefits people who are already on the highest incomes. I think there is an element of that, certainly in the Opposition and elsewhere. There’s an element, as I’ve said before, of people sort of desperately looking for some kind of economic justification for what is a political predisposition. There is more than one way to reform the tax system, there’s more than one way to reform income tax and so not only is what we’re doing relief, it’s also reform. And it’s not just any kind of reform, it’s superior reform to what it replaces.

KARP: Now, the Greens are out saying that you’ll have their vote on this if you raise JobSeeker. I know you won’t be in favour of horse trading, and you’ll say that the tax package stands on its own merits, so let’s ask it this way: have government payments kept up with basics like food and housing, and how affordable is it for the budget to do more for recipients of government payments?

CHALMERS: First of all, we acknowledge that people are under pressure, including people on fixed incomes and that’s why we’ve tried to do what we could for them, particularly in that last budget. You think about some of those initiatives I ran through a moment ago – permanent increase to JobSeeker, biggest increase in rent assistance for some decades and cheaper medicines, electricity bill relief targeted to people on modest and fixed incomes. And so, we are trying to do what we can for people.

The JobSeeker payment is up about $107 I think a fortnight since we came to office, but we understand people would like it to be more than that as well. Similarly, the max rate of Commonwealth Rent Assistance is up about I think it’s $52, youth assistance – youth allowance up I think $109 a fortnight since we came to office. Now, I know – and I don’t pretend otherwise – that people are still under pressure. But what we’ve tried to do in budgets already is to give people a bit more help. We understand people would like more help.

If you throw that forward, the emphasis right now is on the tax system. It’s on every taxpayer getting a tax cut. It is on the fact that we’ve lifted the Medicare levy low-income thresholds to provide some more help to people on modest incomes but we understand and appreciate that people will have a view about more cost-of-living help beyond that and obviously between now and May we consider what we can do in a responsible and affordable way.

KARP: Now, inflation is down to 4.1 per cent. Is inflation proving less sticky than Treasury expected, and why?

CHALMERS: Well, the Treasury still thinks we’ll get back to the inflation-targeting band next year but I think it is true to say that that number [on Wednesday] shows that we are making more progress, swifter progress and that’s really encouraging and it’s really welcome. But the reason we don’t get carried away by that encouraging number [on Wednesday] is because we know people are still under the pump. Inflation is still higher than we’d like. We want it to moderate further and faster, but that number yesterday I think was an important indicator of a few things – not only, but including – the fact that the government’s policies are working when it comes to electricity bill rebates, cheaper early childhood education, rent assistance, the way we’ve got the budget in much better nick. We’re helping in this fight against inflation, but it’s not mission accomplished yet because we know people are still under the pump.

KARP: Did the RBA clobber mortgage holders one too many times in November last year? And how soon should households expect interest rate cuts?

CHALMERS: Well, you know me Paul – you know the answer you’re going to get about decisions taken independently by the Reserve Bank. Either past decisions, I don’t second guess those, and future decisions, I don’t pre-empt those. I’ve got my own job to do. I take responsibility for the cost-of-living relief we’re rolling out, the way we’re repairing the budget – already delivered a surplus and another one in prospect. The way that we are putting downward pressure on inflation.

I was really encouraged – really, really encouraged – and really pleased to see inflation come off even more substantially in this week’s numbers but I know that there’s still some distance to travel. I’m just -encouraged that what we are doing as a government deliberately – cost-of-living help and responsible management – is having a positive impact on these numbers, which were even better than the market expected.

KARP: Well, I’ll ask one that squarely is your job: how does the inflation number impact your strategy in the budget? Is it pinch every penny, so you drive inflation down even more and aim for interest rate cuts sooner? Or is it pressure is off, RBA has done its job, no need to rub salt in the wound and you can afford to be a bit more generous to households?

CHALMERS: I think inflation is still the defining challenge in our economy but in every budget, not just this one – perhaps especially this one – you need to strike a series of fine balances. Putting together a budget – and we’ve done a couple already with my great mate Katy Gallagher – it’s always about trying to find the right balance, trying to make sure we’ve got the right balance between the near term and the longer term foundations of growth in areas like the energy transformation and technological change and human capital, but also trying to find that right balance in the budget itself. And one of the reasons why I’m really proud that we were able to deliver that first surplus in 15 years – and there’s another one in prospect – is not because that’s an end in itself but because it means that we have more flexibility, and we have more room to do what’s necessary in our economy and in our budget.

So, what people can expect in May in our third budget is to strike that right balance effectively. We’re encouraged, we think we’ve done that well in the first two budgets. But to get that balance right between helping people, keeping that downward pressure on inflation but also not losing sight of the longer term in areas like energy and technology and human capital too.

KARP: Now, you’ve said there’s no plans to change and there’s no change in position on negative gearing and capital gains tax. The Coalition says, “Well, that was the message on stage three as well until it wasn’t.” So why should voters trust that those things are genuinely off the table?

CHALMERS: Because what we’ve done here is when we’ve come to a different view we’ve been upfront about it. We’ve explained it, we’ve owned it, we’ve taken responsibility for it. And I think your listeners, they would understand what’s happening here – and that is the Coalition can’t defend or sustain their position that they will unwind these tax changes that we’re putting into the parliament. They can’t defend or sustain that, and so they want to make it about something else.

Let’s have a debate about what we are proposing, not a debate about what we’re not proposing. The fact that they have more or less vacated the field on our cost-of-living tax cuts for middle Australia I think speaks volumes about how indefensible and unsustainable their position is.

KARP: So, you think they’ll vote for it then?

CHALMERS: I’m not sure yet, is the answer to that. I mean, they’re all over the shop. Some days they say don’t do it, some days they say do it quicker, some days it’s too much, some days it’s too little – they are all over the shop, chasing their tail in this kind of fog of nasty, mindless, negative politics that they’re known for.

The only definitive that we know from them when it comes to their position is Sussan Ley was asked – will you unwind these tax changes – and she said “absolutely”. So that is the definitive position that they’ve put out there. They’ve tied themselves in knots ever since then.

My message to them really is – don’t stand in the way of a bigger tax cut for the workers and families of this country who are still doing it tough. I spent a big chunk of the week with steelworkers in northern Tasmania and early educators on the outskirts of Melbourne, plumbers, apprentices and health workers in Logan City. People desperately need a bit more help, and we’re trying to give it to them. And I say to Peter Dutton and Angus Taylor and Sussan Ley and all of these characters – don’t stand in the way of the cost-of-living help that people need and deserve.

KARP: Now the Coalition has taken aim at the fact that the new tax package is only $15 a week more generous than stage three and it hasn’t kept up with rising costs, particularly housing. Do you think that the rising interest rates and also rents is actually creating space for the government to do something more radical to try and improve housing affordability?

CHALMERS: Well, two parts to that. I mean, first of all, I think your question really exposes the absurdity of their position. They say don't do anything at all and then they say what we're doing is too little. You can't have both of those things simultaneously, just as you can’t be for middle Australia and against bigger tax cuts for middle Australia. So, I think that’s the kind of laughable absurdity of their position.

On the part of your question which goes to housing, I acknowledge, this is still one of the big challenges in our economy. I do acknowledge that. But more than acknowledge, there is a long list now of very serious and substantial measures that we’re putting in place when it comes to housing supply and also on top of that, extra Commonwealth Rent Assistance that we put in the last budget. I think this is one of the big defining challenges in our economy. Our housing market is not delivering for people. That’s why I’ve invested from the budget literally billions and billions of new dollars into social housing, into affordable housing and also into that Commonwealth Rent Assistance change but that’s because we don’t just acknowledge the housing market is tough; we’re doing something about it.

Unfortunately, you can’t click your fingers and build hundreds of thousands of new homes overnight, but we got cracking. We’ve got a heap of new initiatives. It’s a broad and ambitious agenda. Obviously in the usual way, if we need to consider additional steps in the future, we’ll do that in a methodical and considered and responsible way.

KARP: Now, the tax expenditure statement was out yesterday, which is an accounting of the value of various tax breaks and concessions, how much they’re costing the budget. Some of them may be, you know, socially useful. Some of them may be more like holes in a bucket. But the main takeaway from that is that superannuation tax concessions are now number one in terms of costing the budget. Did you go far enough in increasing the tax on earnings from mega super balances above $3 million, or does this indicate that there’s more trimming to be done?

CHALMERS: No, I think we struck a really effective balance there to make sure that people were still getting tax breaks to incentivise savings through super but for them to be a bit less generous for people with the biggest balances. We were quite careful and quite cautious to make sure we got that balance right, and I think we have. You would expect me to say that. And those changes are yet to be legislated. And so, I think there’s an opportunity for the parliament there to recognise for all these people who call for tax reform that that is an area that needs to be addressed. It is modest, but it is meaningful tax change, tax reform, when it comes to superannuation tax concessions. And so, I hope and expect the parliament to get behind it.

KARP: That statement always comes with a caveat, that it’s not a statement of government policy, but if you don’t intend to change any of the settings, don’t you have to own how much is leaking out of the various holes in the bucket?

CHALMERS: Well, I think to be fair to the government, Paul, that question kind of ignores all of the tax reforms that we are currently pursuing. Just think, before the parliament – superannuation tax concessions, the PRRT paying more tax sooner, multinational tax reform, we’ve made some good progress on compliance, we’ve got good tax breaks to incentivise the building of rental properties, we’ve got good tax breaks to incentivise EV take-up, and we’ve got these substantial changes to stage three tax cuts so that more people get a bigger tax cut. And so, one of the things I think that gets missed in this otherwise welcome conversation about tax reform is that the government already has those half a dozen or so things either in the can or before the parliament and that is by recent standards broad and ambitious tax reform, and we shouldn’t forget that in this conversation.

KARP: Given the first RBA board meeting is next week, are you close to naming who’s going to sit on the new monetary board?

CHALMERS: We’re starting to form a view about that. I work really closely with Michelle Bullock on that and with the Treasury Secretary Steven Kennedy to make sure we get the right mix there. So, we are doing that work to make sure we get some good people on both of those new boards and I think we will. I’m really quite confident we’ll get great people to serve on the governance board and the monetary policy board.

I try not to be too partisan about this RBA review, but one of the sort of disappointing developments at the end of last year which escaped a lot of people’s notice was the Coalition voting with the Greens to delay the implementation of the RBA review reforms and I’m worried about an element of uncertainty that that injects into this work that we’re doing to bed down the reforms. I was really disappointed, frankly, with the way that the Coalition behaved when it came to that. I’ve tried to be so bipartisan about this RBA review. I’ve tried to take seriously the many opportunities that Angus Taylor and others have had to feed into it but we need to bed down the changes. Part of that, but not all of it, is making sure we get the right people to serve on these boards and I’m confident we will.

KARP: There is a bit of a delay on a few legislative measures in your portfolio. You’ve got a second inquiry on multinational tax; you’ve got the Greens and Coalition not supporting the PRRT changes. You and the PM have given a view that the tax – the income tax cuts will pass parliament. Will these pass parliament?

CHALMERS: Well, I’ll give you the same answer, which is I hope so. I mean, they should. There’s no reason they shouldn’t. We’ve put a lot of work into those tax proposals. I think when it comes to multinationals, we acknowledge that part of it is making sure that we’re calibrating and keeping up with the international developments. But we’ve got some good, robust multinational tax proposals out there. The PRRT, similarly. I mean, voting against the PRRT changes would mean offshore gas companies pay less tax and pay it later and so I can’t imagine why the parliament would want that outcome.

KARP: I think that might be all we have time for. Thank you so much for joining us in a week where you’ve been very busy out selling the income tax package. Thank you, Jim.

CHALMERS: I really appreciate the opportunity, Paul. All the best. Thanks for that.