JIM CHALMERS:
Good morning, everyone.
We’re obviously here to talk about the Mid‑Year Economic and Fiscal Outlook, but I wanted to cover off on some points about Vanuatu first. Then I’ll make some introductory comments and then Katy on the MYEFO and then a couple of other issues to cover off and then obviously happy to take your questions.
Australia stands with the people of Vanuatu following yesterday’s devastating earthquake. Our deepest sympathies go to the people of that wonderful, beautiful country, particularly following the tragic loss of life there. We know from earlier reports that quite significant damage has occurred there. On the request of the Vanuatu government, we are deploying immediate assistance today.
That assistance will be in the form of search and rescue teams and also medical assistance.
I wanted to let you know that in the coming hours a RAAF C‑17 will depart RAAF Base Amberley directly to Port Vila with an Urban Search and Rescue team from Queensland Fire and Rescue.
A RAAF C‑130 will depart from Fairbairn with additional urban search and rescue personnel from Fire and Rescue NSW, the Australian Federal Police and a DFAT Crisis response Team.
A flight will depart from Darwin with an Australian medical assistance team deployed through the National Critical Care and Trauma Response Centre.
These crews are going in to assist with the most pressing needs.
I really wanted to thank and acknowledge those Australian first responders who are leaving Australia today to help the people of Vanuatu after these tragic events.
The hospital in Port Vila is also under really substantial pressure and it’s also suffered damage. You can imagine that that is making the task that much harder. With so many buildings down, it’s really important that we get those search and rescue crews in as soon as we can.
I also wanted to make clear this is just our initial response. Our expectation is that more help will be requested and more help will be provided.
I wanted to acknowledge the characteristically tireless efforts of the Foreign Minister, Penny Wong, who has been speaking with her counterpart in the Vanuatu government and all of the people across the Australian Government who have been in touch with their counterparts to make sure that this assistance can be provided.
Australia and Vanuatu share a very deep, enduring partnership.
We are family and we will be there for them in their time of need.
Australians who are in need of emergency consular assistance should contact the Australian Government 24 hour Consular Emergency Centre.
It is +61 6261 3305 from overseas or 1300 555 135 if they are in Australia.
I’m happy to take questions about that or other issues in a moment.
The primary reason we’re here is to speak with you about the Mid‑Year Economic and Fiscal outlook.
This is a responsible set of books which reflects the very substantial progress that we have made cleaning up the budget. Two surpluses in the first 2 years, a smaller deficit this year, and then even with some slippage in subsequent years, a $200 billion improvement in the budget position since we were elected, which means much less debt for Australians to repay.
The deficit for this year is now $1.3 billion smaller since the Budget and it’s now almost half what we inherited for this year, which is about $20 billion smaller than what it was in the Pre‑election Fiscal Outlook. The Budget position over the 4 years is $27.1 billion better over the next 4 years compared to the outlook in the pre‑election document.
Despite all of the pressures in our budget, we are on track for a soft landing in our economy. You can see that right across the economic indicators that we are talking about today. The economy is growing, but slowly. Inflation is moderating. Real wages and real incomes are growing. Unemployment is low. A million jobs have been created. Participation is around record highs. The gender pay gap has narrowed. Tax cuts and cost‑of‑living help is rolling out. There’s now a $200 billion improvement in the budget and that means $177 billion less debt and $70 billion less interest repayments over the course of the next decade or so.
We’ve struck the right balances in our economic strategy and in the Budget update today. We’ve maintained a primary focus on inflation and the cost of living without ignoring our broader responsibilities to people when it comes to Medicare and medicines and pensions and the like. And also without ignoring the very substantial risks to growth.
We need to remember in the international context that most of the OECD has had a negative quarter of growth. We have escaped a negative quarter of growth to date. Our gross debt position is a fraction of what we see in comparable countries.
Our budget improvement since 2021 has been much faster than the average of advanced economies and the specific comparison with the economies that we usually refer to.
We have made a lot of progress and you can see that progress in the document today, even with a little bit of slippage in some of the years. A $200 billion turnaround since we were elected is the biggest nominal consolidation in the budget on record.
We’ve managed to get the deficit for this year a little bit smaller as well, but much smaller than was anticipated a couple of years ago.
We’ve made room for pressures and for priorities with all of the savings that we’ve made, $92 billion of them by banking revenue, by showing spending restraint.
Katy’s going to take us through some of those issues and then I’ll come back and cover off on a couple of other things. Thanks, Katy.
KATY GALLAGHER:
Thanks, Jim.
As Jim said, this budget continues the approach we’ve taken since coming to government. We’ve looked to find savings where we can. We’re dealing with those unavoidable spending pressures that we see, dealing with some of those terminating programs, showing restraint at the same time, and delivering the biggest budget turnaround in a parliamentary term due to our fiscal strategy.
Our spending restraint has seen real spending growth average 1.5 per cent over the 6 years to 27–28, which is less than half of the 30 year average, which is 3.2 per cent and around a third of the former government’s average at 4.1 per cent. We’ve identified those savings we talked about yesterday. Fourteen–point–six billion dollars in savings reprioritisations in this budget update, bringing to a total $92 billion since PEFO. We’ve banked 78 per cent of revenue upgrades since the election. When you compare that to the former governments of about 40 per cent, you can see the significant increase there.
And that, of course, has impacted on our ability to deliver 2 surpluses. This means that the budget position is $200 billion better off compared to what it was under the Liberal government at PEFO, despite having to find $48 billion on unavoidable spending pressures since the election and the need to provide that essential cost‑of‑living relief to Australians under pressure.
The better budget position means less debt, less interest costs, as Jim outlined, gross debt $177 billion less than what we inherited, helping avoid around $70 billion in interest costs over a decade.
Whilst the budget position is $1.3 billion better off than forecast at budget, the slippage across the forward estimates is really down to urgent, unavoidable or automatic spending.
Unavoidable spending is half of those net decisions in MYEFO, around 8.8 billion in medicines, infrastructure cost pressures, dealing with some of those terminating programs we talked about, and then $16.3 billion in payment variations.
So, pensions indexations, veterans accessing the payments that they deserve because of the investments that we’ve made under the leadership of Minister Keogh to get those claims being processed sooner. Natural disasters, schools, Medicare, more people claiming on the MBS, which is good when you consider people’s access to GP and primary care services, PBS, medicines, childcare.
So, again, our investments in childcare, early education and care, we can see running through this MYEFO as well, with more children in care.
I just want to make a few comments about women because we’ve really put women at the centre of our economic strategy since coming to government and I may not get a question about it during the press conference, but I really want to thank and acknowledge the leadership of the Prime Minister and the Treasurer in ensuring that we do have women at the city of our economic policy, that we’re thinking about that all the time and whether it be through appointments such as the ones the Treasurer made to the Reserve Bank boards this week, but also in women’s wages, to women’s safety and to the way we approach and value the care economy, which again is quite different to our predecessors.
You’ll see that continue in this budget update. And we’re also seeing the progress from making those investments. You’ll see more investments in women’s safety, in the significant additional investment into making childcare or early education and care universal, the investment in wages for those predominantly feminised industries.
Even if you look at Fee‑Free TAFE, where 62 per cent of the people using TAFE under that program are women, even the HECS arrangements where we know that women hold 61 per cent of the debts.
But if I could just briefly talk, we’ve got the lowest gender pay gap on record, again, predominantly down to the fact we’ve invested in wages in the aged care sector. And because of the investments in early education and care, we expect to see that trend continue.
Women’s participation in the labour market reached a record high in September and over half a million of the jobs that have been created during our term in government have gone to women.
And again, we’re seeing hundreds of thousands of more children in care, meaning that the early education and care system is working for both children and for parents, and predominantly women who picked up those caring responsibilities.
So, thank you for just letting me say that.
But just to conclude, whilst we’re getting the Budget in better shape, we’re delivering that cost‑of‑living relief and importantly, improving services to the community which you can see flow through in those parameter variations today. This has been an important and difficult balancing act in many ways. A lot of pressures, a lot of requests for additional support, and we’re trying to find room for all of those important investments while finding savings and reusing money where we can at the same time. Thanks, Jim.
CHALMERS:
Thanks, Katy. Just a couple of issues before we take a bunch of your questions.
The first one is about the outcome achieved by the Qantas workers. The government really welcomes the result and the outcome achieved by the Qantas workers and their union, the Transport Workers’ Union.
This will be a huge relief for all of those workers who are impacted by this, particularly as we get closer and closer to Christmas.
I did want to pay tribute to the TWU for the way that they have been dogged and determined to get this outcome for the workers that we all represent.
I wanted to remind you that the aviation sector is one of the main reasons, the main motivations for our Same Job, Same Pay policy.
We want to close the labour hire loophole because we want people working in aviation and in sectors like it to have job security and decent pay.
Our political opponents, Peter Dutton has said that he will wind back the Same Job, Same Pay arrangements. He will reopen the labour hire loophole. That means workers like these workers would be worse off, their jobs would be less secure and they’d be paid less to do them.
The last issue I wanted to touch on before your questions is around nuclear and the comments from the Deputy Premier of Queensland in the last little while.
The Deputy Premier of Queensland and I are from different sides of the political fence, but I think what he said in the last little while makes a lot of sense.
Queenslanders don’t want to be anywhere near Peter Dutton’s nuclear meltdown.
Queenslanders do not want a bar of the economic insanity which is Peter Dutton’s nuclear fantasy.
The fact that a state LNP government from the same political party and the same state as Peter Dutton has completely repudiated and completely rejected Peter Dutton’s nuclear fantasy shows just how mad it is what he is proposing.
If you think about the last day, 2 important things have happened.
The LNP in Queensland has said no way to nuclear in Queensland. That’s the first, that’s the most recent thing.
And before that, Peter Dutton either deliberately lied or he had absolutely no idea about his own modelling of his only policy.
He said yesterday that in the Frontier modelling, prices for electricity will go down by 44 per cent. That is a complete lie or it’s an absolutely humiliating mistake because the Frontier modelling doesn’t model prices. That’s one of the flaws.
The reason why he won’t come clean on the impact of nuclear on power prices is because Peter Dutton will push energy prices up, not down. That’s because he’s gone for the most expensive form of new energy.
With that, happy to take some questions.
JOURNALIST:
Treasurer, the books still show deficits for the next decade. Is this really the set of books and the set of numbers you’d like to be taking to the budget? And can I ask a specific question about the tobacco tax take that’s dropped 24 per cent. What’s going on there?
CHALMERS:
First of all, when it comes to the budget position, this very responsible set of books shows that we have made hundreds of billions of dollars in progress getting the budget in much better condition.
When we came to office, there were huge deficits as far as the eye could see. There was a trillion dollars of liberal debt in a budget weighed down with waste and rorts. We have spent the best part of the last 2 and a half years turning that around.
These books today, these numbers today, show the very substantial progress that we have made on that front.
That $200 billion improvement in the budget means $177 billion less debt, $70 billion less interest on that debt. That is an indication of our responsible economic management.
On tobacco, there is a very substantial write down in the revenue we expect to collect from tobacco. The good reason for that is more and more people are giving it away. That’s a good thing.
But we’re also aware we’ve got to make sure that we keep up our efforts on compliance. There is an issue with compliance and with illegal tobacco. We’re aware of that. I was speaking to one of my local shopkeepers in my local community about it not that long ago.
It really represents 2 things. On the upside, it represents fewer people smoking. Every Treasurer would like to be the Treasurer that collects precisely zero from tobacco excise because nobody is smoking anymore. That’s unrealistic. But those numbers have been coming down over time for good reasons. But we also know that there’s a compliance challenge too.
JOURNALIST:
The Reserve Bank projects that inflation will increase in late 2025 as electricity rebates expire. Is one reason that MYEFO, by contrast, has a rosier view and that inflation will stay steady because there’s more cost‑of‑living relief coming?
Should households expect a $300 electricity rebate?
CHALMERS:
That doesn’t explain the very small differences in the forecasts. There are a couple of relevant points to be made there.
First of all, when it comes to the impact of the energy bill rebates on the inflation forecast, the Reserve Bank takes the same view and applies the same methodology as the Treasury does.
There are some minor differences in the forecasts. They are partly explained by a difference in timing. When you stop the clock on some of these forecasts, you have to factor in things like the petrol price may have been different.
I think petrol is one of the main drivers of the difference and so I’d encourage you not to reach that conclusion.
From the small differences in the forecasts, they have the same assumptions about energy bill rebates as the Treasury does in theirs.
JOURNALIST:
Do you want to say anything about whether households should expect cost‑of‑living relief in the 5 billion decisions taken, not announced?
CHALMERS:
In the decisions taken but not yet announced, that’s a relatively small number by historical comparisons, particularly in the lead up to an election.
It doesn’t, as I said to Clare yesterday, stand out because decisions taken but not yet announced are a regular feature of budgets under governments of both political persuasion. That’s not an especially big number when it comes to cost‑of‑living relief.
The focus for us is rolling out the very substantial, meaningful but responsible cost‑of‑living help that we’ve already announced and already budgeted for. People are getting those tax cuts, the energy bill relief, cheaper medicines, cheaper early childhood education, rent assistance, student debt relief, getting wages moving again. Those are our efforts to help people with the cost‑of‑living and to take some of the pressure off household budgets.
As we’ve said before, I think we’ve said maybe a couple of times this week, we from budget to budget, if we can afford to do more, and there’s a case to do more to help people with the cost of living, of course we consider that.
JOURNALIST:
A lot of the revenue assumptions in this budget come from an expected fall in the price of iron ore to $60 a tonne, currently sitting at about $100. It was also expected to be at $60 a tonne in the last budget, $55 in the budget before that, despite never actually really pulling to that amount since about 2020. Do you think it’s time to either revise how we’re forecasting the iron ore prices, or do you truly expect a massive drop off in China’s economic activity?
CHALMERS:
First of all, we have revised the assumptions in the budget. We did that either the last budget or the one before. We did that in a very consultative way. And to all of your credit, you covered it at the time in a responsible way as well. We’re always trying to make sure that those assumptions are appropriate, but they’re also deliberately conservative, very deliberately conservative.
We’ve seen them go the other way, we’ve seen them be wrong in the other direction and we want to avoid that. And also don’t forget, and you wouldn’t have forgotten, Ben, you follow this very closely, particularly the kind of China facing part of this story. We have been under that glide path this year, in the second half of this year.
If you draw a line, you take the assumption which is the current price and you say that it takes 4 quarters to get to the anchor price, which you referenced rightly in your question. We’ve been under that at different times in the last 6 months and I think that warrants and justifies the very conservative approach that we take.
JOURNALIST:
Thanks Treasurer and Finance Minister. Federal spending as a share of GDP this year and next year is the highest since 1986 except for the pandemic. How can you say that fiscal policy is working in the same direction as monetary policy which is trying to slow the economy?
CHALMERS:
A couple of points about that.
Spending to GDP is lower compared to PEFO and so consistent with some of the other indicators which have gotten better since the pre‑election outlook, we’ve made sure that we’ve done what we can to get that a little bit lower.
The second point I’d make is a point that you and I have gone back and forth on on a number of occasions, that is if you look at the average annual real spending growth over the 6 years, it’s about 1.5 per cent. It was about 3 times higher under the former government.
I know that you don’t like that comparison, you don’t enjoy that comparison. But the reason we use the real spending figure is because it takes into consideration a whole bunch of things which are unavoidable, including indexation.
One of the big drivers of the extra spending in the budget update today, as you know, and which is uncontested, is indexation of things like the age pension, working age payments and the like. So that explains a big part of the spending which is there. But compared to the levels of spending that we inherited a couple of years ago, we’re making decent progress.
JOURNALIST:
Treasurer, if things go according to plan, you’ll be the Treasurer when Australia passes through a trillion dollars of national debt, can you reflect on the eye–watering amount of money that is and what it means to Australians given there are then a decade of more deficits to come?
CHALMERS:
Our debt position is very substantially better than other countries, but it’s still a concern to us. That’s because the more debt that we carry in the budget, the more interest we pay on that debt. We can all think of better destinations of those billions of dollars than paying interest on debt.
That’s one of the motivations for the work that all of us, but especially Katy have done in trying to get that debt down. If you look at our fiscal strategy, there’s a big emphasis on getting debt down and we’re proud that we have been able to do that.
When it comes to that trillion dollars in Liberal debt, we were supposed to have breached that last year, we have delayed that. I think it’s next year from memory.
The difference between breaching that trillion dollars, the couple of years difference there means an absolute mountain of debt avoided in the meantime and debt interest avoided in the meantime.
If you look at the dividend of our responsible economic management, it’s really the fact that debt is $177 billion lower than projected, that saves the Australian people $70 billion in interest.
That’s a good thing because we’d rather invest that money in budget repair or if not budget repair, then strengthening Medicare, providing cost‑of‑living help and all of the other far worthier purposes than paying more interest than we should be on the debt that we inherited from our predecessors.
JOURNALIST:
Individual income taxes are doing a lot of heavy lifting this year and into next year. Does this not confirm that this is a tax and spend budget?
CHALMERS:
No, this budget year contains very substantial tax cuts for every Australian taxpayer and that means lower debt‑to‑GDP than would otherwise be the case. It means lower average tax rates than would otherwise be the case. And the motivation for us is providing that cost‑of‑living relief via those tax cuts, but also making sure that we’re giving back bracket creep in the most appropriate way. The most appropriate way when it comes to fairness, but also the most appropriate way when it comes from the economic dividend we get from boosting participation, which was one of the key conclusions of the Treasury paper we released at the beginning of the year when we changed the tax cuts.
The tax cuts are about cost‑of‑living relief, but they also serve a useful economic dividend. They’re part of a budget which has a lot of effort to ease the cost‑of‑living pressures that people confront while being responsible about it.
JOURNALIST:
Treasurer, you talk about the average annual spending growth since PEFO, but what that includes or depressing that number is the really sharp reduction in spending after COVID. This year, it’s going to be 5.7 per cent growth in payments. To follow up John’s question, how can you say that you’re claiming that you’re helping Reserve Bank on inflation?
CHALMERS:
Even that number that you cite, Jack, is lower than the 6.2 per cent. On nominal spending growth, it was 6.2 per cent under our predecessor’s, it’s 5.2.
The real number and the difference between the 2 years reflects partly the fact that that we put in so much effort in those first 2 years. We had that huge contraction in the first 2 years. So the third year reflects in some ways the differences there.
But also, and we keep coming back to this, including yesterday, and we’ve done our best to explain what’s happening here. A lot of this spending which is in the budget is pressure that no responsible government could deny. We’re talking here about extra kids enrolled in early childhood education. We’re talking here about indexation of the age pension. We’re talking about strengthening Medicare.
When our opponents or others, including people in your line of work, Jack, they say that there is too much spending here, they should nominate which of this spending on Medicare or medicines or pensions do they think is inappropriate? Because that is the main driver of this spending that we’re seeing in the budget.
It would be madness, not just in fairness terms, but it would be madness in economic terms, given how little growth there is in the economy right now, to slash and burn in the budget.
We’ve got this free advice before, really, at every budget, we’ve got this free advice that we should slash and burn and have some kind of austerity budgets. We now know from the economic data that we’ve received subsequently that that would have been diabolical for an economy which is barely growing as it is.
JOURNALIST:
You’ve got budget deficits forecast of $117 billion from 25–26 to 27–28. The PBO and others have estimated that bracket creep will increase and increase the average tax rate of all Australians even with the tax cuts that hit this year. Does that size of deficit mean there is no scope for personal income tax relief in whoever wins the next term of government?
CHALMERS:
Whether it’s the PBO assumptions or other assumptions that are reported from time to time, I think it assumes wrongly that the tax scales and rates that we have right now are set in stone forever. Of course they’re not, from time to time governments, when they can afford to and when there’s an economic case to, they provide income tax relief.
When you’ve asked me about this before in this room, I’ve made the point that we’ve just delivered a very substantial round of tax cuts partly motivated by the desire to give back bracket creep in the best way that we can.
At some stage in that 10 year period that the PBO uses or the 10 year period that others have used and asked me about, I suspect a government of one political persuasion or another will do what they can to keep getting those tax rates down, if they can afford to.
JOURNALIST:
Will that be a party of your political persuasion?
CHALMERS:
I don’t take the outcome of future elections for granted, for starters. I think I’ve been very clear about that as well.
Broadly, whether it’s in the tax system or more broadly in cost of living, we’ve made it very clear that when governments can afford to, and there’s an economic case to, of course they should look to provide cost‑of‑living relief and/or tax relief when they can afford to do that.
JOURNALIST:
Thanks, Treasurer. Given those structural increases in spending like the NDIS, like aged care, those predicted in the future, is there any way to return to surplus without increasing taxes.
CHALMERS:
Getting the budget in better shape relies on a combination of strategies, not just one. Katy’s done an eloquent job of running through the combination of strategies that we’ve deployed.
In order to get the Budget in better shape you’ve got the spending restraint, which is the banking the upward revisions to revenue, you’ve got modest but meaningful tax changes which we’ve had in our budgets and you’ve got savings.
Don’t forget when Katy talks about almost $15 billion in savings and $92 billion in savings since we’ve been in office and we’re only in our first term. That compares to precisely zero savings in the last Coalition budget.
So, $92 billion in savings is not minor. What it shows is our willingness, our discipline, our capacity to make room for other pressures and priorities.
So you need all of those things at once. Without doing those 3 things at once we wouldn’t have had those first 2 surpluses. And so that’s the first point.
On the structural pressures on the Budget, and I’m pleased that you asked me about this because there’s been the big near term consolidation, 2 surpluses in the first 2 years, a smaller deficit in the third year. That’s very important. It gets the debt down, gets the debt interest down in ways that I responded to Charles.
But we haven’t ignored the structural pressures on the Budget as well. If you think of 3 of those big structural pressures, the NDIS, aged care and interest costs, we’ve made a meaningful difference there as well.
So, let me give you 3 comparisons.
If you compare the October Budget that we handed down to now, average growth in aged care spending has been brought down from 6.2 per cent to 5.2 per cent. These are medium term numbers.
Average growth in the NDIS has been brought down from 13.8 to 8.2, over that medium term.
Average growth in interest payments has been brought down from 14.4 per cent to 10.9 per cent.
So, we’ve made a meaningful structural difference to the Budget even as we’ve got the near‑term underlying cash balances in much better shape.
JOURNALIST:
Thanks Treasurer. According to your numbers, the real spending growth over 2 years will be 8.5 per cent. On that historical chart, you have to go back to the Hawke–Keating, the early part of the Hawke–Keating government to get a similar spending growth in real terms with the exception of the GFC, the pandemic, the dot com bust and the early 1990s recession. Should we be thinking about these levels of spending as being recessionary or crisis levels of spending? Because that’s what the comparison appears to be.
CHALMERS:
I wouldn’t describe them in the way that you have, no.
If you look at the spending that we have made, you know this mid‑year update is not chock full of big expensive new decisions. This is effectively we are reconciling and accounting for decisions we’ve taken or unavoidable pressures. That overwhelmingly explains the spending that you’re seeing here.
If you look at for example, over a longer period than you have, I accept that you’re comparing a shorter period. But the real spending growth over that longer period that we have been responsible for is a fraction of what we saw before us.
That spending to GDP has been lower compared to PEFO. And even if you look at the net policy decisions, $17.5 billion in net policy decisions, we think something like 94 per cent of that is a combination of genuinely unavoidable, already provisioned, cost of living, or supported in a bipartisan way.
That’s just to give you a sense that we haven’t sat down and come up with a whole bunch of new expensive things to fund in this mid‑year Budget update. We’ve done what’s necessary, we’ve accommodated pressures and priorities in the most responsible way that we can. There’s been some of those terminating measures, as Katy has explained in the last couple of days.
But I’d invite you to look through the spending, the new spending in the mid‑year Budget update and identify anything that any rational person would consider wasteful.
JOURNALIST:
Senator Gallagher, you haven’t had one yet.
GALLAGHER:
Thank you, I think. I might take that back.
JOURNALIST:
Just in sort of pure based political terms. One of your signature posts, if you like, you’ve delivered 2 successive Budget surpluses. Is that in terms of its usage going into the election now rendered obsolete by the deficit forecast?
GALLAGHER:
Not at all. I think when we talk about the surpluses, we’ve got a record to show that we’ve delivered 2 of them and our political opponents could do none of that over 9 years. So, I think we’ll go in with a very strong record of managing the Budget, getting it in much better shape – not just on the surpluses, but on dealing with all the pressures that are coming our way with finding sensible savings and adjusting the Budget as we can without the recommended slash and burn that comes from others.
People will see it’s been responsible, it’s been prudent, we’ve been methodical, we’ve been working through issues, dealing with issues as they come at us and making a big turnaround so that the nation’s finances are in a much better shape.
JOURNALIST:
On cost of living, it’s almost 3 years ago exactly that Labor released its modelling that showed that its collection of energy policies would reduce household power bills by on average 18 per cent by 2025 or $275. Is it time to concede that that is not going to be the case? And before you talk about the subsidies, obviously that modelling did not account for subsidies.
CHALMERS:
The modelling also didn’t account for the war in Ukraine and it was modelled in 2021 for an outcome in 2025. It’s 2024 now.
We are providing energy bill relief to every household. We’ve actually done 2 rounds of that and Peter Dutton and the Liberals have supported neither round of energy bill relief – and that means that energy bills will be bigger if they had their way, and energy bills will be bigger if we go down this economically insane path of nuclear energy in Australia.
You asked me about an outcome in 2025. It’s 2024 now, and we have delivered a substantial decrease in electricity bills because we know that’s one of the big drivers of pressures on household budgets. If you look at the most recent inflation figures, the electricity part of those inflation figures, those prices have gone down 35.6 per cent to October. And a big part of that is our energy bill rebates – but not all of it. They would have gone down without it. And that shows, I think, the progress that we’ve made. We’re realistic about that.
We know the role of our energy bill rebates, we know that people are still under pressure. But if our opponents had their way, electricity bills will be higher, not lower.
JOURNALIST:
In 2 weeks’ time, will you come back and answer that question in 2025 as to whether that $275 is actually achievable?
CHALMERS:
I’ll give you the same answer, which is we’ve got those power prices down by 35.6 per cent in the most recent inflation data, and we’re providing $300 in energy bill relief that our opponents don’t support.
JOURNALIST:
With $90 billion in off‑budget spending over the next 4 years, what’s your response to economists, including Chris Richardson and Saul Eslake, who say that the underlying deficit figures you’ve been discussing today are basically becoming meaningless because they don’t include most of your most costly spending commitments?
CHALMERS:
I’ll say the same thing as I said the other day. Chris is a wonderful guy, and he’s not always right. I read everything that Chris writes. I take him very seriously, I’ve done that for a really long time. But I don’t agree with him on this point.
First of all, we make the headline cash balance very clear. I think from memory, pages 73 and 74 of the MYEFO. We make it really clear what the headline cash balance is. And that’s what Chris has been talking about.
Katy’s checking that for me.
GALLAGHER:
Oh, yeah, you’re right, there we go!
CHALMERS:
We make that really clear. We’re very upfront about that, and we’re very upfront about the various investment funds that we think will make a difference to making our economy more productive and more dynamic and grabbing some of the opportunities that the net zero transformation in particular presents to Australia.
I look at that email that Chris Richardson sent to a few of you in the last day or 2.
The last line there, I think is a really important one – hasn’t been reported yet, but the last line was really important and that points out that those who rail against off‑budget funds, including Angus Taylor, would be introducing an off‑budget fund for nuclear, which would be 3 times the $45 billion number that he cites.
If our political opponents are anti off‑budget funds, why are they putting this nuclear fantasy into an off‑budget fund? Why haven’t they told us how big that fund will be and how much it will cost and what Australian taxpayers will be on the hook for if those investments aren’t economic? There’s a good chance that they’re not. So, the headline cash balance is clear. Chris’s points are understood, not agreed with, but respected.
If you care about off‑budget funds, then you should be terrified by Peter Dutton’s off‑budget fund to fund a nuclear experiment in this country which has every chance of being uneconomic and therefore not qualified to be off‑budget.
JOURNALIST:
Treasurer, given the fact that you’ve got revenue upgrades here in this MYEFO of around $18 to $19 billion, and given the fact that the first year of the Stage Three tax cuts cost $20 billion, give or take, is there an argument that you have simply given with one hand and taken from the other and that the Stage Three tax cuts have done nothing for the ordinary family that’s been in a per capita recession for the past 2 years to improve their cost of living?
CHALMERS:
The reason why I don’t agree with that is because the number that you refer to is bigger than tax.
I think the tax upgrades in this mid‑year update, if you take out the Commonwealth upgrades, take out the GST and some of the other things, about $7.3 billion – that’s about a third of the tax cuts and it’s less than a tenth of the average upgrade over the last 4 updates.
We’ve had a very, very small upgrade to revenue, nothing like we’ve become accustomed to in the last few. So the income tax cuts are much bigger than that, and I’d also say that it’s not coming necessarily from the same places.
Ordinarily – not in this update, we’ve had a write down in company taxes – but in the last few updates before this, one of the big drivers has been company taxes. And so it’s not quite comparing apples with apples.
We’re providing income tax relief for every Australian taxpayer for good reason, to give them a bit of help with the cost of living, also to return bracket creep in the way that makes the most economic sense.
We’re proud that that those tax cuts are flowing right now because we took a political risk to deliver them. But we know that they’re doing good.
JOURNALIST:
You made the point that the deficit is a little bit better. But looking at the reconciliation table on page 58, the deficit for this year, 25, most of that work is done by the parameter variations, right? It’s actually not done by the policy decisions.
I just want to draw out this point about spending. Couldn’t you have made some more policy decisions that would actually have done more to improve the budget deficit in that year rather than leaving it to the parameter variations? And I’m not talking about slashing and burning and I’m not talking about an austerity budget. And you’ve pointed out $92 billion in savings over time. Couldn’t you have kept up that track record in this year by making more policy decisions to improve that bottom line?
CHALMERS:
First of all, $15 billion in savings is substantial. That is a substantial amount of savings and it’s part of $92 billion in savings.
If you think about that $1.3 billion improvement to the deficit this year, that doesn’t include all of the progress that we had made before then. The deficit this year is $20 billion better than what we inherited, not just 1.3. It’s just the most recent update gets us that other 1.3.
There’s been a lot of effort in savings, spending restraint, banking revenue, revisions to get it from the high 40s to the mid‑20s. And that’s been deliberate.
Now, if your question is, is it always possible to cut harder? Of course it is.
We have been doing that consistently. You know, there has been savings in every budget and in every update under us. There weren’t any savings in the last Coalition Budget.
So, we have been chipping away at it in a methodical way. But we think responsible economic management is not just cutting as hard as you can whenever you can.
Responsible economic management is about striking all of these fine balances. We spend half our life in the Cabinet Room down here trying to strike the right balance. And if you look at those economic outcomes that I referenced at the start, I won’t go through all of them again.
But the fact that inflation is coming down and we’ve kept the economy growing and real wages are growing again and we’re creating jobs and keeping unemployment low, that gives us encouragement that the fine balances that we’ve been striking and all of these decisions we’ve been making in the budgets are broadly right. There will always be people who say cut harder. There will always be people who say cut less.
Our job is to take the right budget decisions for the right economic reasons, and I’m confident that we’ve been doing that.
JOURNALIST:
The government is providing more than $926 million over 7 years for existing projects in the infrastructure investment program. What projects are going to get extra cash and what are the main drivers behind some of these unavoidable pressures on the project?
I’ll take it in reverse order. When it comes to infrastructure spending, you’d all be aware that there’ve been a lot of cost pressures and one of the big tasks that Catherine King has done a wonderful job of is to try to make sure that we’re building as much infrastructure we can, but being realistic about the pipeline and the sequencing of that given cost pressures and labour supply and some of these really important issues. So, that’s been a big part of our considerations, Catherine’s considerations and the Cabinet’s considerations.
As part of that, there’s new spending in here for the states and territories to accommodate some of those pressures in the pipeline. Catherine will put out something later on that today, as I understand it, to go through that in a bit more detail.
Our job has been really to make sure that we have a realistic assessment of where the slippage is in the pipeline and that we account for that, but that we also make sure we’re accommodating these cost pressures at the same time as new projects get added to the pipeline.
JOURNALIST:
Treasurer, can you take us through the net overseas migration figures given in the 6 month update, they’re 80,000 higher than had been anticipated. Also just with the list of the economic indicators that you’ve pointed to right at the top, the soft landing, are you willing to declare that the plane has hit the tarmac or are we still hovering over the runway at this point?
CHALMERS:
Thanks, Mel. On net overseas migration, the net overseas migration spike after COVID has peaked and it’s coming down and that’s before some of the measures that we have put in place kick in and so we’re making progress managing that net overseas migration level down to something which is a bit more normal. It has peaked, it’s coming down, it’s coming down slower than was anticipated in the budget really for one main reason and that’s because there’s been fewer departures. The Treasury has been more or less bang on when it comes to arrivals, but departures have been slower.
People are hanging around for longer and that’s meant that the number is coming down more slowly and you see that updated.
JOURNALIST:
Do you have a sense of why?
CHALMERS:
People are just staying for longer. I don’t have a more granular sense than that. So what the new forecasts do is they account for that and allow for that.
We still have net overseas migration being managed down to more normal levels in a methodical and a considered way but that departures issue is the thing that’s slowing that up a little bit in terms of the soft landing.
We’re trying to manage a soft landing on a bumpy runway and that continues to be the case but a lot of the worst of the inflationary pressures, for example, are behind us. Inflation now peaked 2 years ago in our economy at 7.8, it’s now 2.8. The fact that we’ve had every quarter of positive economic growth in the context of other countries going backwards is now pretty clear.
The growth forecasts have been revised down a little bit, but we still expect growth to pick up in the next year or 2 and so there’s reasons for optimism. There are good reasons for optimism and confidence, but no cause for complacency because we know that the global economic environment’s very difficult.
We know that people are still under cost‑of‑living pressure, we know that interest rates are still having an impact on the economy, so for all those reasons, we’re not complacent.
But if you look across all of those major economic indicators, if you made a list of what a soft landing looks like in our economy, would basically be that list that I ran through at the start. We know that those national aggregates don’t always reflect how people are feeling and faring in the economy. We understand that and we acknowledge that. But we’re making good progress.
JOURNALIST:
Today’s update shows [INAUDIBLE] deficits into the future. Is this a sign the government is living beyond its means? And how do you explain that to households who are having to adjust their spending patterns due to the cost of living as we head into an election?
CHALMERS:
First of all, respectfully, they don’t keep growing each year. The worst of it is in 25–26 but then it starts to come off again, so it goes from 47 in 25–26 becomes 38 in 26–27 and 32 roughly in 27–28. We’re seeing the deficits peak in next year and then trail away again and if you look at the medium term projections in the budget, obviously the further out you go, the less reliable they are.
But you can see in the final year of the medium‑term projections, there is a tiny, tiny surplus. Again, obviously we’re not carried away about that, but that’s really an indication that the budget doesn’t get worse every year. There are some pressures we’re accommodating next year which make next year particularly challenging but overall, when you look at those underlying cash balances, they get a little bit better over time.
If you look at the last year of the forward estimates, for example, we’re talking about a budget deficit which is about $10 billion better than what it would have been in the PEFO. So we’re making progress there as well.
JOURNALIST:
Just to duck down to that last question, one of the key criticisms of economists has been about your fiscal strategy is that it hasn’t had a clear plan and objectives in place to rein in the structural budget balance, which only, as you just noted, only gets back to balance around that 2034–35. In the next term of government, How are you going to be approaching that structural balance and trying to bring forward that point at which you’re getting the budget back into a sustainable position?
CHALMERS:
I think I’d refer you to the earlier answer, Ron, about the effort we’ve put in on aged care, NDIS and interest.
We want to keep getting those debt levels down so that we can get that interest down. That’s, as you know, one of the biggest structural impositions on the budget, interest.
We’ve got all of the work that we’re still doing on NDIS and aged care and so I think that’ll make a structural difference.
It’s already making a structural difference to the medium‑term projections, but I think we’ll need ongoing vigilance in each of those areas.
Some of the other big spending pressures in the medium term are unavoidable when you consider the demographic change that we’re undergoing, an ageing population, the growth in the care economy, that means that some of the other fast growing areas, healthcare and hospitals, for example, early childhood education, are starting to grow quite quickly. That’s because of demographic pressures on the budget.
We’ll do what we can to make a structural difference over time. What we’ve shown in the first 3 budgets is a willingness and an ability to do that.
JOURNALIST:
How do the living standards of Australians reflect in MYEFO compared to the budget numbers? Are household living standards worse off? And how do you then I guess combat Opposition criticism when they ask voters if they’re better off than they were 2 and a half years ago?
CHALMERS:
Our opponents don’t have a leg to stand on because when we came to office, living standards were falling much faster. Real wages had gone backwards, I think 5 consecutive quarters. Inflation was much higher and rising fast and interest rates were already going up.
It’s bewildering that people take them seriously when they talk about living standards, given living standards were already going backwards when we came to office.
One of the most encouraging aspects of those National Accounts which were released not that long ago is really that trifecta of inflation coming down, wages going up and the tax cuts rolling out. What that’s meant is that real household disposable income is growing again, which is the best way that we understand what’s happening with living standards.
We’re realistic about this. We know that people have a lot of ground to make up in their household budgets. We know that it’s been a difficult few years in household budgets. We don’t pretend otherwise. We acknowledge that at every turn, on every occasion, but more than acknowledge that we’re doing something about it.
I’ll spare you again the long list of cost‑of‑living measures that we’re rolling out, most of which despite the opposition of our political opponents.
People would be worse off if they had their way. But we’ve done what we responsibly can to help people with the cost‑of‑living pressures.
We haven’t pretended they don’t exist, but when we came to office, people were already going backwards and we’ve been working very hard to try and turn that around.
JOURNALIST:
And the first part of my question. Just on living standards, between budget and MYEFO.
CHALMERS:
We’ve got an indication of that in those National Accounts. Subsequent to budget, we’ve had a sense of the important role that tax cuts, rising wages and falling inflation has had on incomes and on household budgets. That’s reflected in the MYEFO as well.
JOURNALIST:
Just to Ron’s question about the structural budget position. We saw the Tax Statement yesterday show $22.7 billion in full blown revenue from capital gains tax discounts and for the 21–22 year $2.2 billion in foregone revenue from negative gearing. You said it’s not a statement of policy intent, but is it something you want Australians to be talking about over summer?
CHALMERS:
We put out the Tax Expenditure and Insight statement because we want the country to have the most information it can about the budget and about the tax system, and because we’re obligated to do it under the Charter of Budget Honesty.
As you rightly flagged and pre‑empted in your question, we wanted to make sure yesterday, when I commented on it today, again, we didn’t put that out there to flag a policy change.
You know now, having seen the mid‑year Budget update, that it wasn’t put out in that timing to justify a policy change in the mid‑year update.
There’s a couple of quite modest tax changes in the mid‑year update that raise about $400 million, compliance and R&D and the like. But we’ve always worked on the basis that if we can provide more information, we should. We’ve done that with the Tax Expenditures Statement, the Intergenerational Report, the wellbeing framework and in a whole bunch of other ways.
JOURNALIST:
Just back on Vanuatu. You saw a couple of years ago when the volcano erupted in Tonga, the relief effort from everyone in the region soon turn into a bit of a geopolitical race between us and the Chinese and others. Without wishing to demean what’s going on there and the obvious and upfront need for humanitarian assistance, would you talk about the strategic importance of Australia to get into Vanuatu faster?
CHALMERS:
Obviously we understand that our neighbourhood is a contested space, but our motivations here are helping people who are in danger.
The many conversations I’ve had in the last 2 days about this, the geopolitical considerations haven’t featured at all. That’s because our primary motivation is helping our friends in need. We take our responsibilities to our neighbours very, very seriously.
I can only imagine how scary it is for people in Vanuatu. Earthquakes and aftershocks. There was a tsunami warning and so people would be absolutely terrified. Everyone in Vanuatu should know that your Australian friends are there for you.
We’ve got planeloads of help coming to you right now. That’s the beginning, not the end, of the ways that we are prepared to support beautiful people in a wonderful country.
People will think about and write about the geopolitical elements to that, but that hasn’t been something that we’re focused on.
I just wanted to say because I think Katy’s on duty tomorrow, so you might not see me.
Three days of the Blue Room has probably stretched your patience a little bit. But I just wanted to say to all of you that I absolutely love being in here with you and grappling with some of these big issues, including the issues that we’ve talked about today.
I really just wanted to say thank you.
We don’t always love everything you write. We don’t always love every headline. Occasionally we express that to you or I do. But I just wanted to express my gratitude as well. We probably spend more time in here than anyone, I reckon, taking as many of your questions as you can. They’re always terrific questions.
So I wanted to say thank you for that and I wanted to say Merry Christmas to you and your loved ones. Thanks so much.