4 February 2024

Interview with Ross Greenwood, Sky News


Subjects: bigger tax cuts for more Australians, interest rates, labour market

ROSS GREENWOOD: Jim Chalmers, always good to have you on the program. I just want to start – the Reserve Bank this week starts a brave new world with its first interest rate decision under the reforms that you initiated, you know there'll be eight meetings a year, monetary policy committee, all that sort of stuff. Are you confident it will lead to better interest rate decisions for all Australians?

JIM CHALMERS: Well, I think so, Ross. I mean, one of the prime motivations really of the reform program that we've got underway at the Reserve Bank – and I pay tribute to the Governor Michele Bullock for the way that she's going about implementing these changes ahead of some of the legislative change later this year – is we want to make sure that we give the Reserve bank every chance to come to the most considered decisions that they can. That's what's behind the changes and I'm confident that they will improve what has been over our history, a really important economic institution.

GREENWOOD: When you changed the stage three tax cuts, you and the Treasury Secretary Steven Kennedy went to see the Reserve Bank Governor. Was that to really ensure that those changes were not seen to be inflationary, that the Reserve Bank would not change its position?

CHALMERS: Certainly the discussions that we had with Governor Bullock, both Secretary Kennedy and myself separately, they were all about understanding what, if any, impact the changes that we are proposing would have on their inflation forecasts. And what the Governor told both of us separately was that she didn't expect what we were proposing to make a difference to their inflation expectations or their inflation forecasts. Obviously, I want to be very careful about speaking on her behalf. The Reserve Bank is independent. I cherish and acknowledge that independence but of course, we did due diligence in advance of making this announcement to make sure that what we are announcing didn't make a difference to the Reserve Bank's inflation forecasts just as – and you referred to the Treasury advice that we sought – the Treasury also says that they don't expect what we announced to put upward pressure on inflation.

GREENWOOD: Okay and that would have been very important because you would have been delighted with this week's inflation numbers, both the quarterly and the monthly indicators, which has led many economists to suggest there could be as many as three interest rate cuts this year?

CHALMERS: Well first of all Ross, I was really pleased with the quite substantial moderation that we saw in inflation in the data that we got in the course of the last week but I'm not getting carried away about it because we still need inflation to moderate further in our economy. It has come off really quite substantially since its peaks in 2022 and the numbers that were released on Wednesday were even better than the market anticipated. All of that is good, we're making welcome and encouraging progress in this fight against inflation but it's not mission accomplished because people are still under pressure – we acknowledge that and that's why our cost of living tax cuts for middle Australia are so important.

GREENWOOD: But it is fair to say that if there were two or even three interest rate cuts this year as a result of moderating inflation, that that would have more of an impact on most families as compared with even the changes to the stage three tax cuts?

CHALMERS: I think you would appreciate Ross – you and I have known each other for a while now – that I try not to predict or pre-empt decisions taken independently by the Reserve Bank. I'm very careful not to do that. I know that there is speculation about interest rate cuts out there in the market and I've heard you report on those in the course of the last few days. I'm not going to get into that game of predicting or pre-empting movements in interest rates. I think what I need to do and what I am doing is focus on my job by getting the budget in better nick, by rolling out cost of living help in areas like early childhood education, electricity bill relief, rent assistance, and providing these tax cuts in a responsible way that doesn't push up inflation. I'm doing my bit. I'm doing my part of this. I'll leave the Reserve Bank to do their part independently.

GREENWOOD: I want to go to that point as to whether there is a cost-of-living crisis which actually precipitated your decision to change those stage three tax cuts. Now, I admit at the very margin there might be some hurt, but while most people have a job, they're still capable of cutting back, of managing and coping. That's the reason why banks in Australia have almost record lows of bad debts in arrears in their home mortgage books.

CHALMERS: The part of that that I agree with Ross is the part that says that keeping the labour market as resilient as we can and as robust as we can, that's a big part of the story. Last year was the first time since these monthly records started being kept in 1978 that every single month had the unemployment rate below 4 per cent – that's the first time that's happened every month in a calendar year. That's a good thing and that is an important part of the considerable economic strength that we've shown in recent years – I acknowledge that, but I don't think these cost-of-living pressures are on the margins.

I think this is still really the defining issue in our economy right now – this inflation challenge, these cost of living pressures that people are confronting. I acknowledge as we get inflation down, we get real wages growing in a sustained and a sustainable way, we get these tax cuts flowing – we've had some heavy weather at home and metaphorically heavy weather in the global economy – so, all of these things mean the balance of risks will shift over time but for the time being, I still think cost-of-living is the big pressure that we confront as a country, but also real people in real communities. And that's why these bigger tax cuts for middle Australia are so important.

GREENWOOD: And you would have seen the headlines this week saying that really those changes were also dictated by the Dunkley by-election and by the concern that cost of living has on voters. So, how much is this political and how much is this economic?

CHALMERS: It's economic, Ross. What we've tried to do here is to put people before politics, but also to acknowledge that this isn't just relief, this is relief and reform. This is more relief for middle Australia, but it's also a better reform for our economy and the Treasury advice makes that really clear. This is better for cost of living and better for middle Australia, but it's also better for workforce participation and working incentives and labour supply, it's better for women and young people and for all of these reasons, we think we will get more bang for buck from the tax cuts as we have structured them compared to the tax cuts that they replace. And I think we need to be really careful, Ross, and I'm not accusing you of this, but we should be very careful about the commentator that says it's only tax reform if it disproportionately benefits people who are already doing very well on the highest incomes. What we've shown is we can get economic reform, we can get cost of living relief, we can tick all of those boxes at the same time by returning bracket creep where it has the most impact and that's middle Australia.

GREENWOOD: Okay and middle Australia I recognise. But by keeping that 37 cents in one dollar tax bracket and not flattening out the tax scales between $45,000 and pick a number, $200,000 is where it was previously. You could have brought that in, but the reality was that doesn't that create the incentive to work an extra day, to take a second job, to have a woman go back into the workforce for five days, three days, whatever it might be, because you know that people tend to clump around wherever the tax scales are, wherever you set those tax scales.

CHALMERS: Well, first of all, I think we need to be careful with this assumption that aspiration only works at a certain end of the tax scales. And again, what the Treasury advice says is what we're proposing is actually better for work incentives, better for labour supply. It provides more incentive, not less, than the stage three tax cuts that Scott Morrison legislated something like five years ago, so, I think that's really important. The other thing to remember is we are actually lifting the top threshold for the first time since Labor was last in government. And not just that, we are cutting two rates and we are lifting two thresholds. And by doing that, we think we found the best balance to provide that relief that people need under these cost-of-living pressures, but also to provide that economic reform. And so I refuse to concede, Ross, that there's only one kind of way to reform the tax system. We've actually found a much superior way – superior when it comes to relief, superior when it comes to reform, and that's why we've put it forward.

GREENWOOD: Okay, so in 10 years’ time, when there's an extra $28 billion the Treasury says has come into the government's coffers as a result of bracket creep because of these changes, you may very well be the Prime Minister at that time. So, you've effectively almost set yourself a little bit of feather bedding for the future, perhaps?

CHALMERS: Well, I'm obviously not coming at that, Ross, but the broader point about 10 years down the track, I think, is an important one, because what that assumes and what frankly our political opponents have wrongly assumed, I think, is that nothing will change between now and 10 years down the track.

Of course, it's open to governments of either political persuasion to make further changes to the income tax system down the track. What we have put forward is $359 billion over those 10 years’ worth of tax cuts. Every taxpayer still gets a tax cut, but there is a bigger emphasis on middle Australia. That's why 84 per cent of Australian taxpayers will get a bigger tax cut under our model. And we've seen in the Treasury advice, and we've had a bit of a yak about it today Ross, the way that we've structured it is better for participation. That means it's better for the economy and we will see the benefits of that over that 10–year period as well.

GREENWOOD: So, what you're saying to me is that this is not the end of the tax reform that you aspire to. You want more, you want other changes to the tax system. Does it go along Ken Henry's lines then?

CHALMERS: No really the point that I'm making, Ross, is that at some point between now, 2024 and the end of that 10–year medium term estimates period, it is open to governments of either political persuasion to make further changes. And the other point that I'm making is that the fiscal considerations that you're asking me about are important, but they're not the only factor. Another important factor is what we are able to do with labour force participation and work incentives and labour supply and these will deliver a much superior economic dividend to our economy than the stage three tax cuts that they replace.

GREENWOOD: I just want to ask you a final one, and that is, are you getting any feedback from business groups right now that they perceive the government as being anti-business and in particular with its industrial relations reforms, that these are denting the prospect of improving productivity, that they are denting the prospects for keeping the unemployment rate as low as it has been over these past couple of years?

CHALMERS: Well, a couple of things about that, Ross, and I'll get through this as quickly as I can. First of all, I have a very respectful relationship with the business community and with the peak business groups and I take very seriously what they put to me as you know and I'm pretty sure that they understand and appreciate that as well. I'm not going to pretend that we have a unanimous view on things like industrial relations, but there is more that we are working on together with the same kinds of interests and objectives than areas where we might not have an identical view. When it comes to human capital, the energy transformation, the way we adapt and adopt technology, the way we make our economy more productive and more competitive and more dynamic, more competitive as well – all of these things are things that I work very closely with the business community on and the union movement and the community more broadly. We're trying to run a government which is as consultative and collaborative as possible. We don't pretend that means unanimity at all times but I think we've all got very similar objectives here – we want to grow the economy in a sustainable way, we want to stick this energy transformation, we want to make sure we get better at adapting and adopting technology and these are the sorts of really important areas that I'm working very closely with the business community on.

GREENWOOD: Treasurer Jim Chalmers, always good to have you in the program and many thanks for your time today.

CHALMERS: Appreciate it Ross. Thanks very much.