SARAH FERGUSON:
The world’s finance ministers are in Washington, DC for G20, World Bank and IMF meetings as the wars in the Middle East and Ukraine continue to cause global uncertainty. Treasurer Jim Chalmers joins me now from Washington, where it’s just after 4:30 in the morning. Treasurer, thank you for joining us, and especially so early.
JIM CHALMERS:
Thanks very much, Sarah.
FERGUSON:
You’re at these meetings at a dangerous time, as I just mentioned. What fears are being expressed to you about the risks to our economies?
CHALMERS:
The global economy is volatile and it’s vulnerable and we see that uncertainty in a lot of different ways. The escalating conflict in the Middle East is casting quite a dark shadow over the global economy. The pressures we see there, including recent volatility in the oil price, that compounds some of the other issues we have. A war in Ukraine, slower growth in China, political uncertainty in the US, all of this combines to create a sense of global economic uncertainty and that’ll be a key feature of these discussions here. There is always a premium on responsible economic management, there is always a premium on engaging with our friends around the world, but especially now when things are so uncertain in the global economic environment.
FERGUSON:
I want to talk to you a little bit about the IMF’s forecasts. They’re forecasting high inflation for Australia in 2025, predicting that ours will be the second highest inflation rate amongst advanced economies. Why is that the case?
CHALMERS:
A couple of things about that. First of all, that’s a forecast. We take the insights of the IMF seriously, that’s one of the reasons why I’m here, but that’s a forecast for the end of next year. We’ll get a really good read of the situation on inflation when we get the new figures out next week. Next Wednesday, we’ll get new data on inflation. What economists expect that to show is that we’re making really substantial progress in the fight against inflation. Remember when we came to office, inflation was much higher, twice as high as it is now, it was rising fast. It’s now much lower and it’s falling, and we expect to see that next Wednesday as well.
But the main difference between what we see in Australia and what we see around the world, and this is a point made by the Reserve Bank Governor and others, is that our inflation peaked later and lower than most other countries. When you compare us to some of the other countries as well, you need to make the full comparison. A lot of these countries have got much higher unemployment. A lot of them have had slower growth. In fact, most countries in the OECD have gone backwards in the last year, and we haven’t. We’ve had faster jobs growth than any major advanced economy, we’ve got unemployment in the low fours, so you need to make the whole comparison.
And the other comparison, which is really relevant right now, Sarah, is the IMF also put out a comparison this week that said that Australia has a top 3 budget in the whole world, and we were 14th in the world when we came to office. So we’re making really good progress on inflation, but we’re also striking the right balance to make sure that we can preserve the gains that we’ve made in the labour market, in the jobs market, at the same time.
FERGUSON:
Now, the IMF described your last budget, it’s true that they gave a very good overall rating, but the IMF describes your last budget as having had a positive impulse, i.e. that it did add to demand. Now, that was at the same time that the RBA was trying to dampen demand. Do you accept now that your last budget made the inflation task harder?
CHALMERS:
No, I don’t believe so and nor does the Governor of the Reserve Bank, who said that the 2 surpluses that we’ve delivered for the first time in almost 2 decades, that’s helping in the fight against inflation. The IMF has made the point that what countries around the world, including Australia, need to be doing is, in their jargon, repairing the fiscal buffers, which means in Australian parlance, getting the budget in much better nick.
And that’s what we have been doing with those 2 surpluses, they are making a meaningful difference, a positive difference in the fight against inflation. We have gone from 14th in the world, when it comes to our budget, under our predecessors, to a podium finish in just over a couple of years. And that’s a powerful demonstration of our responsible economic management doing what we can to help the Reserve Bank in this really important fight against inflation, but doing that in a way that doesn’t ignore the risks to growth in our own economy.
FERGUSON:
Yes, it’s true that the IMF said that they congratulated Australia for banking that surplus, a surplus that came from commodity prices and high tax revenue. But if you come back to my question, it was the observation that the budget added a positive impulse into the budget. So, how is it possible that that is not making the Reserve Bank jobs harder, notwithstanding the banking of the surplus?
CHALMERS:
Partly because the spending in the budget was dominated by unavoidable spending in areas like healthcare. That it’s not just the amount of spending that matters, it’s the nature of investment that matters as well and we’ve made that point as well. Those 2 surpluses, as I keep referring to, are an important part of it, but they’re not just because of the factors that you raise, the factors that you raise around commodity prices and a much stronger labour market. They are important issues. But we also found almost $80 billion in savings, we’ve also shown spending restraint unrecognisable to our predecessors. And so combined, this responsible economic management, without which there wouldn’t have been 2 surpluses, has been a really key part in the fight against inflation, and when it comes to those 2 surpluses, the Governor of the Reserve Bank herself has acknowledged that.
FERGUSON:
Now I want to talk about housing. Most housing experts say that you have to tackle the crisis from both sides. Obviously, this week, we’ve had a new policy from the Opposition, but experts say you have to tackle it from both sides, ensuring supply of extra homes and dampening demand for homes. Now, one way to do that is through tax incentives. What did the advice you say you got on negative gearing and capital gains tax tell you about the potential impact of changing those taxes?
CHALMERS:
I think it is primarily a supply challenge, and we’ve made that clear in a lot of different ways. And one of the reasons why we’re not going down the path of changing the negative gearing arrangements, abolishing negative gearing or abolishing the capital gains tax discount, is because we haven’t been convinced that that would have positive consequences for supply. And so we’re focused almost entirely on supply. There aren’t enough homes for Australians to live in. The housing pipeline is not anything near what we need it to be. We all need to do our bit when it comes to investing in building more homes, and that’s our focus, and that’s why we’re not going down the path that has been suggested to us by others when it comes to some of those tax arrangements.
FERGUSON:
You said you got the advice because it was a contentious issue. Did you not see any advantage in the advice that you were given on the demand side, on the possible impact on the demand side?
CHALMERS:
First of all, it’s important to remind your viewers that Treasurers get advice on these sorts of issues all the time. It’s not especially unusual to get advice on contentious issues or issues where there is a cost to the budget or where you have to provide a public report about the cost of some of these tax concessions. That’s the first point. But when it comes to the view of the Treasury and others, I think it’s pretty clear that when it comes to supply, which is our primary focus, building more homes for Australians to make it easier for people to buy and rent a home, that changing or abolishing negative gearing or the capital gains discount, in our view, would not make a meaningful difference there. And because our efforts and our focus is on supply, we’ve found other better ways to invest in building the homes that Australia desperately needs.
FERGUSON:
We started out this evening with a story about the Queensland election. Obviously, your state. Labor’s been in power there for 9 years. Is it time for a change?
CHALMERS:
Of course not. I think listening to Meaghan Scanlon a moment ago in the package that you ran, this is a terrific government. It’s full of wonderful ministers and local members, and they’re focused exclusively on helping people with the cost of living and their opponent will be all about savage cuts and that’s the choice at the election. I think one of the reasons why this election has tightened up a little bit, according to analysts like the one that you ran a moment ago, is because that choice is crystallising. Labor helps with the cost of living, the LNP is all about savage cuts. They’ve got all of these commitments, they’ve said they won’t raise taxes and they’ll still balance the budget and that can only mean one thing: savage secret cuts just like the last time they were in office under Campbell Newman.
FERGUSON:
Jim Chalmers, I think you’re meeting Janet Yellen today, so I won’t ask you about that meeting, but perhaps you can get some advice from her on how to achieve US levels of economic growth. In the meantime, thank you very much indeed for joining us.
CHALMERS:
Thanks so much, Sarah.