SARAH FERGUSON:
The Intergenerational Report sets out the scale of the funding challenge ahead – what you haven't provided yet is the solution. When are we going to see a clear path to explaining how we're going to meet this huge challenge?
JIM CHALMERS:
A big part of releasing the Intergenerational Report at the National Press Club tomorrow will be outlining in some detail, the steps that the Albanese Labor Government is taking, not just to respond to the pressures on the budget but to maximise the opportunities from a world of churn and change. We are seeing some quite fundamental foundational changes in our economy and in our society as we shift from hydrocarbons to renewables, from IT to AI, from globalisation to fragmentation, from a younger population to an older population. And then what all of that means for the composition of our industrial base, and particularly the care economy. So what I'm hoping to do with this Intergenerational Report is not just inform the sorts of choices that we need to make, but also to talk about the necessary reforms to our economy in particular, so that we can make these big shifts, these big trends and transitions in our economy and in our society work for us, not against us.
FERGUSON:
Can you reform the Australian economy without substantial tax change?
CHALMERS:
First of all, I think we are embarked on some substantial changes to the tax system, whether it's multinational taxes, the change to the PRRT –
FERGUSON:
I'm going to jump in there because you, yourself, have described those tax changes as ‘bite sized chunks’, really, they are morsels when you look at the scale of the challenge laid out in the Intergenerational Report that you commissioned out of cycle?
CHALMERS:
A few things about that, Sarah, these are meaningful changes that we're making to the tax base, which will deliver billions of dollars to the budget in the context of pressures on the budget intensifying rather than easing. We have to find ways to fund aged care, health and hospitals, the NDIS, defence and to pay the interest on the debt that we inherited, and so the pressures on the budget are intensifying rather than easing. And we've made or we are making some meaningful changes to the tax system –
FERGUSON:
But you, yourself, call them modest changes. Those changes that you're referring to are not going to make up the projected shortfall that we're seeing in the Intergenerational Report and elsewhere.
CHALMERS:
I've described them in the past as modest but meaningful. They are meaningful tax changes, they are helping us to get the budget in much better nick, that will save us in interest repayments over the course of the Intergenerational Report period. They will get the budget into better condition, rebuild our buffers against this global economic uncertainty that we are confronting. But we're doing that at the same time as we're rolling out billions of dollars in cost-of-living help. That is the Government's major priority and major focus in the near term, at the same time as we – not just confront the challenges of the future – but to try and maximise the opportunities that the coming decades will bring.
FERGUSON:
I want to talk about productivity, it's the key to prosperity. I think the Business Council described the current low road that Australia is on in relation to its low productivity as a 'time bomb.' Let's just get a few things clear for the audience. Do you accept the economic wisdom that you can't boost productivity without lifting foreign investment?
CHALMERS:
I think foreign investment has got an important role to play but it's not the only important lever when it comes to boosting productivity. We have – and the BCA has pointed this out in their own way – the ten years to 2020 were the worst ten years for productivity growth since World War Two – and so we've got a big productivity challenge. And what I've tried to do in the time that I'm Treasurer is to recognise that the productivity challenge has changed, and so our solutions need to change as well. We need a much bigger emphasis on adapting and adopting technology and getting the energy transformation right and skilling our people up. Because I believe that we will get the productivity gains that have been missing in our economy for too long, by investing in our people and their capacities, not by making people work harder and longer for less. Unfortunately, too often, this productivity debate gets artificially narrowed to industrial relations. I think there is a much broader frontier and I'm really pleased that the BCA has recognised that in their report.
FERGUSON:
But I want to stay with this idea of attracting foreign investment. As you know, there is an enormous competition worldwide for investment at the moment and a great deal of it is flowing towards the United States, given those mammoth subsidies that the Biden Administration has provided. The business community says that we are at a disadvantage, we are stymieing investment In Australia, because of our rate of corporate tax being out of whack with our competitors. Will you consider putting Australia's corporate tax at the same level as our competitors?
CHALMERS:
I'm not considering changes to the headline company tax rate, for a range of reasons. First of all, the pressures on the budget are intensifying rather than easing, as I said. I don't have an ideological aversion to changing headline company tax rates but it's not something that the budget can afford right now. And I know from spending a lot of time in the investor community, in Australia, and indeed the global investor community, that people make their decisions about investing in Australia, taking into account a whole range of factors, which aren't necessarily about tax. They care about the skills of our workforce, they care about our political stability, they care about our screening arrangements, as we safeguard our national interests. These are the sorts of things that investors weigh up. And there is a lot of interest in Australia, in the global investor community, for all of those reasons that I've just run through. There will always be an important role to play for foreign investment in our economy, so long as it's consistent with our national interest. We should guard that seriously, and I do via the Foreign Investment Review Board process. People, investors in particular, from around the world make their decisions on a whole range of factors which go beyond tax.
FERGUSON:
But you know that tax is also very important in that decision. Do I understand from what you're saying that you are open to looking at the corporate tax rate in the future? Yes, there are pressures at the moment, but you're open to that?
CHALMERS:
It's not something that I've been considering. It's not something that I've been working up. Who knows what future governments might contemplate when it comes to the headline company tax rate. It's not on my agenda and part of the reason for that is because I understand it hasn't been an impediment to investment in our economy for all of the reasons that I've run through.
FERGUSON:
But if that's the case, if it's not an impediment, why is investment in Australia running at a 30-year low?
CHALMERS:
There's a lot of interest in investing in Australia coming out of COVID. Most countries, if not all countries, are doing what we're doing. We're trying to work out how do we de-risk our supply chains without decoupling from the world. In a world where we're shifting from globalisation to fragmentation, where there's a premium on what's reliable and resilient and robust, at a time when critical minerals are the opportunity of the century, at a time when there's a premium on good skilled workers and political stability – in all of that context, Australia is an incredibly attractive proposition. You mentioned the Inflation Reduction Act in the US, obviously that changes the way that investors around the world see the various opportunities, and every country needs to lift its game in that context, and that's what we're doing. And one of the things I'd like to do tomorrow, when I release the Intergenerational Report in full is to show all of the different ways that we're trying to broaden and deepen our industrial base, invest in our people and their capacity to adapt and adopt technology, create the kind of workforce that we need for the future, be serious about this energy transformation. These are all the sorts of things that the big trends and transitions in our economy and our society compel us to do, and these are all of the things that the Albanese Government is doing.
FERGUSON:
You just mentioned critical minerals, how much is the evolution of that business in Australia going to shift the dial on productivity?
CHALMERS:
A couple of things about that. First of all, it will change the composition of our resources base and what we offer the world over the course of the coming decades. Obviously critical minerals will be a bigger and bigger part of the success story, which is the Australian resources sector. I met with a chair of one of our biggest resources companies a couple of hours ago. We were talking about – how do we make that sector more productive, how do we best combine the skills and talents of our workers with the opportunities of artificial intelligence and automation and all of these other changes which are available to us, how do we do that in a way that makes our economy more productive by making our businesses more productive, how do we make sure that we get the energy transformation right. These are all of the ways that we create a more productive, more dynamic, more competitive economy, which serves all of our interests and gets living standards rising in a way that our Australian people and particularly Australian workers deserve.
FERGUSON:
Let me just ask you a question about migration to finish. Using the Intergenerational Report, are you able to calculate what scale of migration will be needed to replace the ageing workforce?
CHALMERS:
One of the key conclusions that people will see in the Intergenerational Report is that our population growth is slowing at this same time as Australians are living longer and healthier lives. And so population growth is slowing and our population is ageing, and in that context, obviously migration has a role to play, but in the projections that I release tomorrow, it will contribute less as a proportion of population growth then it has to here. Our job – and Clare O'Neil will release the Migration Review before long as well, and we'll do that in conjunction with the Employment White Paper – is to try and make sure that we are creating a workforce which is big enough to support an ageing population, and well trained enough to adapt and adopt technology. That's a big part of the task before us. Migration has a role to play. But migration can't be a substitute for all of the other ways that we need to reform and deepen and strengthen our economy so that more people in more parts of Australia can access the opportunities of the future.
FERGUSON:
Why does Australia have a higher corporate tax rate than our 20 competitors, closest competitors?
CHALMERS:
Our tax settings apply to the sorts of services that we need to fund in our economy –
FERGUSON:
Sorry to interrupt, but that's not an answer to the question. The question is, why is it higher?
CHALMERS:
That's fine, Sarah, I guess the answer that I'm trying to give you is that you need to look right across the tax system, and your tax base needs to be robust enough to fund the kinds of services that people rely on, particularly as our population lives longer and healthier lives. We need to fund the care economy. We need to fund our national security interests, we need to pay the interest on the trillion dollars in debt that we inherited from our predecessors. All of these sorts of things require a robust tax base. We trade that off within the tax system, and we apply our values and our priorities and for the time being, getting our company tax rate lower in a headline sense is not our highest priority. There are other things that we can do to make our tax base more robust so that we can fund the things that we truly value in our society and that's what we're doing.
FERGUSON:
Jim Chalmers, Treasurer, thank you very much indeed for joining us.
CHALMERS:
Appreciate it, Sarah. Thank you.