JIM CHALMERS:
This is my first opportunity to acknowledge the remarkable life, incredible longevity and immense historical significance of Queen Elizabeth II, admired by so many Australians who have a genuine affection for her, and many of them would have tuned in to the funeral last night. We'll have an opportunity during Thursday's Day of Mourning and in the Parliament Friday to pay our respects to Her Majesty then as well.
Today, we wanted to talk to you about the Budget, which is five weeks away. We've got a fair bit to update you on. Katy and I will release the Final Budget Outcome for last year 2021-22 on Wednesday next week. But we wanted to give you an early and pretty comprehensive sense of that in advance. Katy also will give you a sense of what the spending pressures that we've been dealing with since the election look like - the ones that weren't budgeted for by our predecessors, whether it's COVID support, flood support that's now running into the billions of dollars. Wednesday night next week the fuel excise relief comes off. And I want to explain why prices shouldn't jump the whole 23 cents overnight. We're also supporting the G7 efforts to impose a price cap on Russian oil, and I want to spend a little bit of time briefly explaining why that's the case.
When it comes to the Final Budget Outcome for last year, the numbers are still being finalised for that. But we wanted to be upfront with people about what we're seeing in those numbers as they settle. The outcome will show that we've booked a substantial but temporary lift in taxes. And it will also show that billions of dollars that were promised, weren't delivered. And much of that spending will spill over from last year into this year and into subsequent years as well. The Budget deficit for 2021-22 will show an improvement of almost $50 billion from what was expected at Budget time, just over half of that, around $28 billion is from higher-than-expected revenues - I'll come back to that in a minute. And the rest - around $20 billion - is from lower-than-budgeted payments. And what we know from the Final Budget Outcome is that this substantial improvement is welcome, but the bulk of it is driven by temporary factors. On the revenue side, commodity prices remained higher for longer than expected over 2021-22. But they've already begun to drop. To give you two examples of that: the two-week average on the iron ore price is down more than 20 per cent since the end of June, and the two-week average of the met coal price is down more than 25 per cent since the end of June. That gives you a sense of the temporary nature of this revenue boost. We've also seen a one-off boost in revenues from lower take up of COVID business support measures which has the effect of boosting revenues last year, but lowering them in the out years compared to what was expected because of the accumulation of the deductions that businesses accumulate.
The large payment underspends are all about delays in COVID-related spending including the procurement of vaccines and PPE, also delays in infrastructure spending arising from supply chain disruptions and industry constraints, as well as lower payments across health and social security as well. Now, as I said, we're still going through all of the details of this. We will release the formal Final Budget Outcome in the course of next week, on Wednesday of next week. But we wanted to give you a sense because a lot of the temporary improvement that we saw in 2021-22, now becomes an issue for this Government to deal with in 2022-23 and beyond. Because of the overpromising and underdelivering on much of this funding that will be pushed out into subsequent years, because of the inability to secure some of the particularly COVID-related spending, some of that will be pushed out as well. And there are other issues at play, which I've run through. Katy is going to give you a sense now of some of the pressures that we've already had to budget for since the conclusion of that budget year in June. And then I wanted to say a bit more about petrol in particular, and then we'll take your questions.
KATY GALLAGHER:
Thanks very much, Jim. So just taking off where Jim's left. He's giving you an outline of the FBO - that's in a sense, looking back. Looking in the 2022-23 financial year, we've already had to make provision for costs in the order of five and a half billion dollars. These are costs that no provision was made for. They are largely across the pandemic related costs. So some of the money that Minister Butler announced yesterday - the $1.4 billion largely for aged care support and keeping respiratory clinics going and that type of thing, other payments related to the pandemic and also the $2 billion - with these numbers to be finalised of course - for flood related costs as well. So that's just giving you a sense of some of the magnitude of some of the immediate pressures that we're dealing with. On top of that - and we're working through this calmly in the Budget process - there's a range of other programmes right across the public service where they were funded for the short term but they are ongoing programs, and we're having to work through those as well. If I use health as an example, there's a couple of hundred terminating measures. Now some of those may not be ongoing once we've worked through them all, but some of them will be. And to give you an indication of those: things like the digital health record, Closing the Gap measures, the early psychosis centres for people with severe mental illness, public dental services for adults. Now, clearly, those are programs that are ongoing, but haven't been factored in and they're creating pressures as well. So managing that and working through those is going to take a bit of work. But clearly, under the previous government, there were decisions taken where ongoing programs were not funded in an ongoing sense and that is creating pressure in those forward estimate years as well.
CHALMERS:
So the October Budget will have to find room for all of these pressures that Katy has run through, but I'd really encourage you not to see the improvement in 2021-22 as an ongoing improvement. On the contrary, some of the improvements in the Budget last year create additional issues for us, for the Expenditure Review Committee and the Government to find room for. The Expenditure Review Committee has been meeting for a substantial amount of time in the last few weeks. We met this morning, we'll meet this afternoon as we finalise this Budget. The October Budget will be a pretty standard bread and butter Budget because that's what it needs to be to find room for all of these pressures that Katy and I are outlining today. I encourage you to see this Budget in October as the first of three or maybe four this term - the beginning, not the end of a big national conversation about the structural position of the Budget, how we fund the things that we value not just in our economy, but in our society, whether it's healthcare or the other essentials that we need to provide. There will be difficult decisions in the October Budget.
One example of a difficult decision that we've had to take has been to stick with our predecessors’ timing for the end of the petrol excise relief. We're under no illusions that this will be difficult for people. It's a difficult decision for us to take as well. But we put a premium on responsible budget management. We do have to make room for these pressures that Katy has run through, and so ending that fuel excise relief next Wednesday night is part of the story. And we need to remember that fuel prices in most parts of the country at the moment are now around 50 cents a litre below the peak recorded in July and that's obviously a welcome development. In Sydney, Melbourne, Brisbane and Adelaide, the drop from the peak is even greater than 50 cents at the moment so we need to remember that as well. I think most people understand that the Budget cannot afford to keep the excise cut going forever, and people are preparing for the fact that it will return to its normal setting.
Now today, you would have seen industry estimates that there'll be more than 700 million litres of lower excise fuel in the system when the fuel excise is reintroduced. This is 700 million reasons why the price shouldn't shoot up by the full 23 cents on the night that the excise relief ends. We've been working closely with the servos and suppliers to understand that there are hundreds of millions of litres of fuel underground in tanks that was purchased at the lower price. And so the ACCC and the Government expect that the price of petrol shouldn't shoot up at the bowser on Wednesday night by the full 23 cents if the normal market pressures are in operation. This is why we've maximised the ACCC's role in monitoring the petrol situation as this petrol price relief comes off.
The final issue before we take your questions is around the oil cap proposed by the Americans, agreed by the G7 and now supported by the Australian Government as well. For some time now I've been engaging with Secretary of the Treasury Janet Yellen in the US. We have had multiple conversations about their proposal agreed by the G7 to impose a price cap on Russian oil exports. There are two big concerns here that we're trying to address. First of all, the cost‑of‑living pressures that come from skyrocketing oil pressures on the global market. This is partly designed to deal with that, but also when we think about the dangerous global economic situation right now and the risks to the global outlook. Oil prices at the global level are a big part of those concerns. And so what this oil price cap is designed to do - and the Americans and the G7 and others will work through what are some considerable implementation issues - it's designed to try and come to a solution, or a way to address those skyrocketing global oil prices as well. This is a big risk to the global economy going forward. It's not the only one but it's a substantial one. And we are supporting the efforts of the Americans and the G7 as they do what they can to deal with it. There are implementation issues. There is no downside to the Australians participating in this effort but potentially there is some upside and that's why we want to be part of it. Over to you.
JOURNALIST:
On the price cap, do you think this is just a purely symbolic move by Australia or does this genuinely in your view, going to drive down the global oil price?
CHALMERS:
We need to be realistic about it. And I've been realistic about it in the conversations I've had with Secretary Yellen, the conversations I've had at our end - Minister Wong has been part of that and her department. We need to be realistic about it but our view is anything that has the potential to deal with our concerns around the global oil price, then we should explore. Nobody's under any illusions about the uncertainty around the Russian response, for example, or the implementation issues between now and the beginning of December when it's slated to come into effect. The Americans, G7 partners and others are doing a heap of work to try and make this as effective as possible and we want to be part of that.
JOURNALIST:
Treasurer, perhaps the Finance Minister as well, Philip Lowe last Friday was making the point - he was smiling when he made the point but he made the point nonetheless - that it seemed a bit peculiar to him that Australia should have the highest terms of trade, which you're saying now will see our deficit being in about 28-29 billion, a record number of people in work and unemployment at a 48-year low, and still the Budget is in deficit. Is he right that that's a bit peculiar? And secondly, can you confirm that though we might be acting on Russian gas, Australia, in particular, has benefited in a budgetary sense from the war in Ukraine?
CHALMERS:
If you're happy with me to take those Katy. On your first point about Governor Lowe, obviously, I saw the comments that he made on Friday as my colleagues and others from the Parliament questioned him about a whole range of matters. This is the reality of the Budget that we inherited. And we do have some things going for us. We do have very low unemployment, we have had solid demand, we have been getting good prices for our commodities, but those prices are coming off. But at the same time, we've got some pretty extreme pressures on the Budget, which Katy ran through, and there are more to come. And so the reason I welcome Governor Lowe's contribution to this important conversation, is because I do think we need to have a national discussion about the structural position of the Budget, and how we fund the expectations that Australians legitimately have. Katy and I, and the ERC and others, we speak frequently about the five big growing areas of spending in the budget, which are creating pretty substantial structural concerns. Health, NDIS, aged care, defence, and the cost of servicing a trillion dollars in debt, all of those costs are growing fast. And that's a combination of the unavoidable and the desirable, and so we do need to have a conversation about that. Now, the first Budget in October, will be pretty standard, pretty solid, a bread-and-butter Budget. But there are multiple opportunities in multiple Budgets over the course of the next three years or so, for us to properly engage the people in a proper national conversation about the services that we provide, and how we fund them.
GALLAGHER:
I was just going to add, in terms of the approach we're taking on the Budget, is one of honesty, I think what we're seeing and what we're uncovering as we go through, the Budget process that we're currently undergoing, is that the previous government did the bare-minimum to skate through it, and didn't accept that things like aged care, for example, going across the forwards, was going to cost a lot more. The provisions weren't made. And we've come in, and we're telling you that there are enormous pressures and the Budget is in structural deficit. And we're doing what we can in the October Budget to go through the previous measures, the waste audit, having a look at making sure that the spending that's currently being provided is going where we need it the most. But there's a lot more work to be done, and it's not going to be just dealt with in October.
JOURNALIST:
Treasurer, you're talking about this $50 billion better unexpected result, last year's, you can use it as a sort of bond for you in the next financial year. Can you give us an example of how that's creating a headache for the ERC? The current Budget, it wasn't the situation and the Budget was close to surplus at the time of the last election given that improvement in the bottom line.
CHALMERS:
Even with an almost $50 billion improvement in last year's Budget, the deficit will still be a little bit north of $30 billion.
JOURNALIST:
But at the time of the election?
CHALMERS:
No I don't think it would have been close. I'm happy to think more about that, Phil. In relation to the examples about how spending, which was promised but not delivered, has become a challenge for subsequent years - if you think about the $20 billion in cash payments that didn't get out the door, there were delays in procurement of COVID-19 vaccines and PPE, that might be almost three billion dollars. Health and NDIS services, almost one and a half billion dollars, some of the assistance to the states. Another big factor here was delays in road transport and rail transport spending, that might be three and a half billion dollars, promised and not delivered. And obviously, we go through each of these and work out what's the sensible way to re-profile, we have to work out which ones are going ahead and not. And so that doesn't necessarily translate directly into the immediate next year. But a big chunk of it inevitably will. And so there are some examples. We're going through all of it to make sure that we can sensibly, responsibly profile some of this spending that our predecessors promised but never delivered. It won't be all of that, but it will be a large chunk of that, I suspect. But that's part of the work of the ERC that we're engaged in now. Rachel, then Pablo, then Paul.
JOURNALIST:
Thanks Treasurer, you mentioned that this is a temporary improvement to the Budget bottom line. In terms of the next quarter with high inflation, high interest rates, lower commodity prices, how do you expect that will affect the Budget bottom line? And to Minister Gallagher, if I can ask a second question - with this rorts and waste audit, have you identified anything where you can actually pull out savings and we'll see a report on that?
CHALMERS:
First of all on the question about 22-23, obviously, we'll budget for that in October and we haven't finalised those numbers. But the easiest example I can give you is that substantial drop-off in the iron ore price and the met coal price, which will flow through to company revenue. In addition to the issues I was talking about with Phil, where some of the money that was promised didn't get out the door, and we need to budget for it. So we will provide a full four years of numbers in October. But our message today is that the there is no relationship necessarily, between the substantial improvement last year and the challenges that we are confronting this year.
GALLAGHER:
On the waste and rorts audit, you will see some of that reflected in the Budget, there is opportunity to return some money to the Budget, we're currently going through those decisions now. But I would also say there's going to be a longer-term piece of work. So some of the work that's come out of that audit is that, there's long-term kind of analysis that needs to happen in a range of programs where there's been layering upon layering over the years. And that will take a longer period of time. So I expect that process will probably feed into every budget, just as it will become part of the normal discipline of putting a budget together. But there will be some intermediate list that you'll get through the budget process and a report on an interim kind of findings.
CHALMERS:
We're going to go Pablo, then Paul, and then Pat, and then Clare.
JOURNALIST:
Thanks, Treasurer. And this might go on the waste and rorts as well, on the previous infrastructure spending commitments made by the Coalition, do some of those commitments fall into that category? And if some projects align items in the previous budget, does that mean they're off limits in terms of cutting?
GALLAGHER:
So that's probably fairly and squarely with me, so I'll answer both of them. We are going through a process of looking at all the measures from the March Budget. So again, line by line, we want to be convinced that the spending is quality, it's going where it's needed, it meets those tests. Where there is the opportunity to reprioritise we're looking at that, or reframing them and adjusting them to our policy direction. So that work is underway. And you'll see some of that again, in the Budget. On infrastructure, I'm working with Minister, well we all are, working with Minister King on decisions around that. There's obviously some other issues like supply chain issues, labour issues, that we're also, Minister King is discussing with the states and territories around that program. So there will be some reprofiling and adjustments made to that program. We'll do that in the Budget as well.
CHALMERS:
Paul, then Pat, and then Clare.
JOURNALIST:
Thanks, Treasurer. Could I please ask the Finance Minister, there was $1.9 billion of spending promised by Scott Morrison for the gas-fired recovery that has not been formally committed by the Australian Government. It's things like gas industry, road upgrades, carbon capture and storage, and Darwin's Middle Arm project. Are those on the table to be cut in the October Budget? And what is your current thinking on those?
GALLAGHER:
We're looking at them all, all of those commitments line by line. I mean, I'm not here to tell you the decision outcomes for any of those programs. But I can guarantee that the ERC is going through every measure that was in the budget in March. And through the waste audit, we're looking back at other commitments that were made, to make sure they line up with the Government's priorities and our policies, and make sure that that money is well spent. But you'll have to wait and see. It's in October. I'm just telling you, we're going through due process. As people would want us to I think.
JOURNALIST:
We've heard about the big improvement in last financial year, can we expect that this financial year will be a further improvement again, or at least an estimate of a further improvement?
CHALMERS:
A bit like the answer to Rachel's question, we're still finalising the numbers, obviously, for October. Depends a bit on how many of these pressures that Katy ran through we'll need to accommodate. It depends, of course, on economic forecasts and final revenue figures and the rest of it, and so in October, we'll account for the deficits going forward. But what the Final Budget Outcome has done, is it has shown that we should expect the deficits in this year that we're in now, to be an ongoing, and to be bigger than the deficit last year. And that's because of those temporary factors that I've mentioned. Clare.
JOURNALIST:
Thanks Treasurer, on cost‑of‑living, there are concerns that a new land tax proposed by Queensland that would hit interstate investors, could drive up the cost of rent. Do you share those concerns? What are your thoughts on that tax? And broadly, does a bread and butter Budget include more cost‑of‑living relief than what has already been announced through the election, or is that all Australians should expect?
CHALMERS:
First of all, on the Queensland State Government's policies, what I've tried to do with state governments of both political persuasions, is to not take shots at people, as they try to take difficult decisions to repair their own Budgets. I've got a very collegiate relationship with the Treasurers and particularly with the Treasurer of Queensland, and I understand that governments at all levels are doing their best to repair the budget. And I would rather work collegiately with people than take shots at people at press conferences. Cameron and Annastacia and others, are capable of explaining the decisions that they take in state budgets. Our job is to make the Commonwealth Budget as robust and resilient as we can. And so I'm not going to engage in commentary around the policy that they have proposed. When it comes to cost‑of‑living relief, we have said that there will be responsible cost‑of‑living relief in the October Budget. It will be focused on childcare and medicines, and also our efforts to get wages moving again, because wages are a bigger part of the story than people will often write, when it comes to cost‑of‑living pressures. And so that's our focus. And our challenge is to provide that cost‑of‑living relief in a way that doesn't make the hard work of the independent Reserve Bank even harder. We don't want cost‑of‑living relief to be counterproductive. And so our cost‑of‑living relief is designed very carefully and very deliberately, to deliver an economic benefit at the same time as it takes some of the pressure off Australians who are dealing with skyrocketing inflation. We'll go Rob, Tom, then we're probably done.
JOURNALIST:
Thanks Treasurer, so you said there's 700 million litres of fuel sitting in tanks around the country. And that's a reason for prices not to shoot up on the day the excise, after the excise ends. But service stations say the reality is, it's probably going to take only three days. So we should see within three days prices up again.
CHALMERS:
The point that we're both making is that there is no reason for every service station to jack up their prices by 23 cents on Wednesday night. That is largely agreed. And I do actually want to thank the peak organisations that we've been engaging with and that the ACCC has been engaging with, to help us understand and hopefully to help Australians, through you understand, that when there's 700 million litres of fuel under the ground in tanks that cost the lower price for petrol, there is no reason for that cost to shoot up for punters, for motorists, on the night that the petrol excise relief ends. Now the reason that we've maximised the ACCC's role in all of this, is we want to make sure that there's not dodgy behaviour going on. We don't want suppliers and servos to treat Australian motorists like mugs. And that's why we're making this information available, so that people understand that if the market is operating as it should, we shouldn't see a 23 cent increase in every servo, everywhere, on the night that the petrol excise relief drops off.
JOURNALIST:
Housing is a big promise from Labor. Are you at risk of losing the argument that super funds should be investing in housing? At the Property Summit yesterday, they expressed some hesitation about that, returns not good enough. Are you interested in tax tweaks and other sweeteners that they've been talking about?
CHALMERS:
First of all, I have encountered nothing but encouragement from the superannuation industry, when it comes to our efforts to get them interested in solving our housing supply challenge in this country. And I read the commentary in the Fin Review from the Summit. And again, I recognised as they did, as the story did, that there's a role for the Commonwealth Government. That's the point that I've been making for some time now. It's the point that I made at the Jobs Summit. And we want to be part of the solution here. When it comes to superannuation, investing in our national priorities in a way that delivers strong returns for their members. We've got a massive opportunity here, with superannuation. I had my Indonesian counterpart here yesterday, talking about this huge chance that we have to deliver good, strong returns and retirement incomes for Australians, at the same time as we invest in our big national priorities, whether it's housing, whether it's the energy transition or other national priorities. And so I've been really encouraged. I've met with a number of the funds now who are encouraging, if not excited, by the prospect that the Commonwealth Government wants to play a role here within the constraints of our Budget pressures and position that we've outlined to you today. And so, we will be working with state governments, local governments, the industry and the superannuation funds to deal with this issue. Our economy is creating jobs for people, but we're not creating the houses for people to live in, near where they can work. It's a big challenge. The Jobs Summit was a big part of this conversation, and whether it's the story I read in the paper from the Property Summit, whether it's all the private conversations I've been having right around Australia, and Julie Collins the Housing Minister, we are encouraged by the support that we received from the industry about moving forward on this front.
Thanks very much.