RAFAEL EPSTEIN:
The Treasurer of Australia, part of Anthony Albanese, the Prime Minister's team, thanks for joining us, Treasurer.
JIM CHALMERS:
Thanks for having me back on your show, Raf.
EPSTEIN:
Surely that's enough with the rate rises, do you think it's going to stop now?
CHALMERS:
I'm not going to make a prediction on the show, Raf. Obviously, these rate rises, which began before the election and continued afterwards are having a real impact on people. A lot of Australians are under the pump and today's rate rise will make life a bit harder. As you rightly said, in your introduction, the language has changed in the Reserve Bank statement, and people will pore over that for understandable reasons. I'm not going to make a prediction but I do know that today's decision will have an impact. It will have an almost immediate impact on people with a mortgage, and it will flow through to our economy as well.
EPSTEIN:
I'm glad you mentioned the language because I want to, I'll spell that out and I'll ask you about it. But the RBA puts out, the Reserve Bank board puts out a huge statement – it's very long. One of the things they said last time, was further increases in interest rates ‑ interest rates, plural, rises plural. They didn't say that this time, Treasurer. Is that a sign do you think that they're going to sit back and wait and see if it's all having an impact?
CHALMERS:
Well, they can explain that. I think as you appreciate, Raf, treasurers of both political persuasions have tried not to make predictions or to second guess the language. Certainly people reading that, in the markets and I think around the kitchen tables of this country, will draw the kinds of conclusions that you've drawn. Interest rates have gone up a number of times now since the first half of last year. That's obviously tightening the screws on household budgets. And so a lot of people are paying very close attention to the words of the Reserve Bank, Governor and the Board ‑ that's understandable, that's appropriate. I've got a different job, I'm not just an observer of the Reserve Bank decisions. I think there is a role for the Government in making sure we can provide a little bit of help where we can do that in a responsible and affordable way. We've also got to deal with these issues in our supply chains and in our labour market, pushing up interest rates when it comes to labour shortages, and some of these other issues. And we've also got to make sure that we're showing restraint in the budget, that we're making the budget as responsible as we can, that's my job. The Reserve Bank's got its own job, it's a difficult job, they've got to try and get on top of this inflation challenge without crunching the economy. And the language that they put out today is obviously interesting. It is obviously different language than we've seen in the preceding months, and people will pore over that for understandable reasons.
EPSTEIN:
Okay, I will highlight that for everybody listening. The Treasurer can say what he wants to say ‑ he's pointing to the language in that statement, and a lot of people are wondering if the RBA is going to take its foot off the accelerator. Are you worried, Treasurer, that the pain people feel in their mortgage, that you'll get blamed for that?
CHALMERS:
That's not front of mind for me, Raf.
EPSTEIN:
Really?
CHALMERS:
It's not because I think people understand. People have a more sophisticated understanding of the economy than a lot of times we give them credit for. And I think that they know that the war in Ukraine has pushed up energy prices around the world and in Australia. I think they know we've had these broken supply chains, which had been neglected for too long and sort of exacerbated by issues around COVID during the worst of the pandemic. And they know that the still newish Government in Canberra is doing our best to try and help out where we can, but recognising that if you overdo it, you can make the inflation challenge worse. And what I've really appreciated, what I've been grateful for – and it's not true universally, it's not a unanimous view – but people have been willing to engage with us on some of these big economic challenges that we're grappling with and some of the big challenges in the budget. That trillion dollars of debt we inherited from our predecessors, all of these things, I think people have a more sophisticated understanding than perhaps they're given credit for. And so what I've tried to do, the reason I like talking to yourself and to your colleagues and counterparts, is because we do need to explain what's happening. And what we're doing about it and what we're doing about it is the most responsible, most methodical combination of cost‑of‑living relief, repairing our supply chains, and trying to show some restraint in the budget.
EPSTEIN:
I wonder if you will continue to say people have got a sophisticated understanding. For the last 10 months every time there's been a rate rise, people call in or text and say look – if you want to hit inflation, a much better, broader way to do it, is just for a short time, to lift some taxes, GST or others – that is a constant refrain after every rate rise. Is there anything like that on the table for your Government?
CHALMERS:
No ‑
EPSTEIN:
Why not?
CHALMERS:
Obviously I listen respectfully when people put those sorts of ideas forward, but I don't think jacking up the GST is a solution to inflation. If anything, it makes the cost‑of‑living crisis in this country harder to deal with. I think the best thing that we can do, is firstly to recognise the independence of the Reserve Bank, they will take difficult decisions independently, to try and get on top of inflation without crunching the economy. That's their job. My job is to work out what is the best combination of making the cost‑of‑living pressures a little bit easier. Whether it's cheaper early childhood education, cheaper medicines, trying to give people a little bit of assistance with their energy bills, getting wages moving again. These are the sorts of ways that government can make a difference without adding to inflation. But on top of that, the Reserve Bank Governor has said before, that somewhere between half and three quarters of the inflation problem is because we've got these pressures on our supply chains. Building costs are going up, we've got labour shortages, all of those sorts of things. And so we need to address that in ways like our National Reconstruction Fund, which is about investing in manufacturing here in Australia – so there's that. And also, we've got to make sure that when we are investing in the budget, we're not wasting money. And we're trying to make the budget a little bit more sustainable. That's what the super changes we announced last week are all about, but also making sure when we get a bit of a lift in revenue from higher commodity prices, that we're letting most of that flow through the budget. So that we're trying to get on top of this debt that we inherited at the same time. That's the best combination of things that a national government can do, at the same time as the Reserve Bank is doing its thing.
EPSTEIN:
Jim Chalmers is the Treasurer, he's part of Anthony Albanese's Government. You mentioned those superannuation changes, Jim Chalmers, do you think people are using the superannuation system to dodge tax?
CHALMERS:
I'm not going to take a shot at anyone for relying on the tax breaks, which are currently in the system, that's an entirely legitimate thing that they're doing.
EPSTEIN:
Are they using it to pass the money on to their kids rather than their retirement?
CHALMERS:
Clearly, when you've got – as 17 people do – more than $100 million in super, clearly that's not just for a comfortable retirement. That is something beyond that. We recognise and we want people to have healthy superannuation balances. But the issue we've got in the context of that trillion dollars in Liberal debt is we've got to try and make the budget more sustainable and one of the ways we do that is we make these tax concessions more affordable, and we can do it ‑
EPSTEIN:
You mentioned the people with 100 million, are they dodging tax if they've got 100 million in their super?
CHALMERS:
They're just relying on the system as it’s currently designed and I'm not going to take a shot at them, but in the context of very severe budget constraints – deficits as far as the eye can see, intensifying pressures in areas like aged care, health care, defence and borrowing costs – then we found a way to still give generous tax concessions to everyone in the system but for half of 1 per cent of people who've got very high balances, we want to make those concessions a bit more affordable. It won't come in until after the election. It'll be prospective. It impacts a tiny sliver of the superannuation system and we think that's common sense, responsible. We think it's modest, but it's a pretty simple choice, because the alternative to doing something like that is to do what the Liberals did and go after people with Robodebt or go after Medicare, and we don't want to do that.
EPSTEIN:
Just one wrinkle on the super changes, there are accountants who say some of the people with say $3 million, they might be a farmer, they might be a small business, but they've got one big asset, like it's not a set of shares that they can sell. Are they going to be caught unfairly by this if they can't easily liquidate it, they can't find a way to pay the extra bit of tax?
CHALMERS:
There's a few things that are missed in that when people make that point and I do say this respectfully again. Under the current arrangements, people are supposed to maintain an element of diversity and liquidity in their fund. The act actually says there is a series of arrangements for institutional funds and there's a series of arrangements for self‑managed funds. And what both of them that call on people to do and require people to do is to maintain some of the liquidity and some diversity. That's the first point. Secondly, you don't have to pay the liability out of your fund, and so people might elect to pay the different tax arrangements out of different parts of their asset base. It doesn't have to be out of the super fund. Then thirdly, of course, the changes don't begin to come in until two years and most people won't be paying for three years. And so there's that as well as that ‑ it's prospective change. But the main thing to point out when people raise that with you, Raf, is that people are already supposed to have some liquidity in their fund and if they don't then that's not consistent with the requirements of the act.
EPSTEIN:
Just before I let you go, I think you've been saying a few times this week – Paul Keating was sworn in as treasurer. I think it's 40 years this Saturday. A non‑treasurer question for you, though. Paul Keating put out a statement today. There's a huge front page story in The Age and the Sydney Morning Herald – if I can just explain this for the listeners – the headline is `Australia faces the threat of war with China within three years, and we are not ready'. Paul Keating doesn't put out too many statements. He says that is the most egregious and provocative news story he has seen in 50 years of public life, and that it is wantonly biased and inflammatory. Is he right to be concerned by that story?
CHALMERS:
I haven't seen his statement, Raf, but I'm not surprised that that's his view. And we do need to make sure that we approach all of the challenges, whether it's in our economy or whether it's in our region with a level head. It's certainly true that managing relationships in the region are complex, it's a more complex task than it has been for some time.
EPSTEIN:
It's okay if you disagree. I think it's okay to maybe laud a former Labor treasurer but would you say you disagree with him when it comes to China or not?
CHALMERS:
I haven't seen his full statement but I think his views are pretty well known. And our view is, we've got an opportunity with a new government to try and stabilise that relationship but we do that recognising it's a complex and difficult relationship to manage. Our best interests are served by a peaceful, prosperous, secure and stable region, and that's our objective in our foreign policy. Now, that front page of the paper, I know Peter Hartcher, and I think he's been one of the better commentators over a long period of time. But that front page has got a lot of attention and a lot of commentary today, and there is a view that it is a bit too sensationalist. I'm not in the business of second guessing journalists. My job is to do what I can working with Penny Wong, Richard Marles, Anthony Albanese, Don Farrell, and others, to try and make the relationship with China the best that it can be. It's important to our economy, it's important to our society, it's important to our region.
EPSTEIN:
Just a final question, Jim Chalmers, I've been asking everyone if they want to, to call in tell me how much their mortgage is. I'm not going to ask you how much yours is but have you got one? Like, do you think you can see a little bit of how the pain might flow through to people?
CHALMERS:
Of course I can and I do but I don't expect anyone to get the little violin out for the Treasurer. There are people doing it much tougher than I am – I acknowledge that. And when rates go up as they have been, it does put people under additional pressure, and particularly the most vulnerable people with a mortgage and so I recognise that. I say to all of your listeners who are in that position that we understand the pressure that you are under, we're doing what we responsibly can in the most methodical way that we can, recognising that inflation is too high and it will be for too long but we need to get on top of it. And there's a role for government in that and we take responsibility for those things that we can do: cost of living relief, repairing our supply chains, restraint in the budget. I think people are realistic about how long this inflation challenge will be with us for and we know that they're under the pump. We understand that.
EPSTEIN:
Thanks for your time.