JIM CHALMERS:
Tonight I'll be leaving to visit the United States to meet with the Chairman of the US Federal Reserve, the head of the IMF and the head of the World Bank, private investment banks and my counterparts from the US, UK, Canada, India, and Korea. This is a crucial opportunity to confer with my international counterparts to make sure that the latest thinking about the concerning international developments in the economy can be factored into the Budget in real time. I'll be back on Sunday morning and the Budget, of course, will be released about a week and a half after that.
The world is bracing for another global downturn. That's the truth of it. And we've seen in the comments from the head of the IMF overnight, we've seen in recent commentary from the OECD and the World Bank and the IMF that the prospects for a recession in some of the major economies of the world has edged over from possible to probable and that has obvious implications for us as well. This is a crucial opportunity to meet with my colleagues to talk about a whole range of issues ‑ climate change, debt, energy and food security, multinational institutions. But most of all, it's an opportunity to take the temperature of the deteriorating global economy to properly understand what it means for us, as the government puts the finishing touches on the Budget.
The world is bracing for the third downturn in the course of the last decade and a half and if it goes that way, as many expect, this will be a very different downturn to the two others that we've had over the course of the last decade and a half. The first one, the global financial crisis, was a financial shock that became a demand issue. The second one was a health shock which became mostly a supply issue. This one is an inflation shock and the risk here is a hard landing around the world brought about by the blunt and brutal but in some ways necessary tightening of monetary policy that we're seeing, particularly in the big, advanced economies. And so that will be central to the conversation that we will have in Washington DC.
This deteriorating global situation is the backdrop for the Budget that I'll hand down in two weeks' time. The deteriorating global situation combined with high and rising inflation here at home and the ongoing, persistent structural spending pressures on the Budget. Those three things together ‑ inflation, the world economy and spending pressures ‑ are the three most important factors which provide the backdrop for the Budget that I'll hand down in two weeks' time. Our priorities in the Budget, as they have been over the course of recent weeks, as the Expenditure Review Committee has met a number of times to finalise this Budget ‑ there are three priorities for the Budget. First of all, provide responsible cost‑of‑living relief that has an economic dividend. Secondly, invest in the resilience of the economy by investing in people, investing in supply chains, investing in areas like skills and training, where we've got obvious skills and labour shortages ‑ so to make the economy more resilient. And then thirdly, is to begin to unwind some of the wasteful spending which has been a feature of Budgets in this country for the best part of a decade. So they will be the priorities for the Budget. It won't be fancy, it won't be flashy, it will be responsible, it will be solid, it will put a premium on what's responsible and affordable and sustainable. And it will be targeted to the economic conditions that we confront together in the here and now and also into the future. And the global situation is obviously front of our minds as we put the finishing touches on the Budget in two weeks' time. Over to you.
JOURNALIST:
Just a couple on the Budget. You released the global forecasts in your speech last week ‑ will they remain or could you downgrade those again based on what you learn over the next few days? And just on multinational tax, you mentioned this morning on radio ‑ will the Budget just contain what you took to the election or is there a possibility you'll go further on multinational tax in this Budget or beyond?
CHALMERS:
First of all, on the economic forecasts, they are still being finalised. What I tried to do on Friday was to give you a sense of where they were headed. My expectation is that they will be the international forecasts in the Budget. But until they're finalised over the course of the next week or so, it's always possible that they are tweaked. But I would encourage you to expect those downgrades to global growth which I put out in the public domain last Friday ‑ I did that because I want people to understand that no matter what we have going for us in this country, we won't be completely spared a global economic downturn. I think that's obvious. Your question about multinational taxes ‑ what you can expect in the Budget in two weeks' time is an updated costing of the policies we took to the election which factors in anything that's been updated or evolved since those costings. As you know, we've also flagged that we are enthusiastic participants in the OECD process around multinational taxes. But in the Budget in October, you'll see us costing what we took to the people in May. Michelle.
JOURNALIST:
You talked about attacking wasteful spending. But are you willing in this Budget to also look at some of those key areas you've been talking about, in particular health and the NDIS, which may be vital, but nevertheless, are big cost areas? And secondly, you spoke about putting the finishing touches on the Budget ‑ do you expect that anything you learn during your talks this week could change, not the direction, but make a big difference to how you frame the Budget?
CHALMERS:
Thanks, Michelle. First of all, the Budget will trim wasteful spending and it will do that with an eye to making some room for these persistent structural pressures on the Budget. In the health budget, aged care, National Disability Insurance Scheme, defence, our intention is to get maximum value for money in those areas and to recognise that those pressures on the Budget are intensifying rather than easing. And when your priority is providing a decent level of service and a decent level of care, then you need to look elsewhere in the Budget to make room for that. So I wouldn't expect from us some big cuts to spending in those areas. Really why we raise them is to level with people about the pressures on the Budget and the fact that some of the difficult decisions we have to take elsewhere in the Budget, trimming some of this wasteful spending is partly done with an eye to making sure that we can afford that. In terms of the finishing touches on the Budget ‑ I am prepared to update our understanding of the Budget in the context of what we discuss over the course of the next few days in Washington DC. The Budget will be finalised when I get back. We already know in some areas, including the one that Phil asked me about, that we can expect substantial downgrades to the global growth outlook in the Budget. If that requires some tweaking over the course of the next few days, then that would be normal for the Treasury to update their costings all the way up to when we have to finalise the Budget.
JOURNALIST:
Treasurer, two questions. One, you mentioned the worsening international situation. Isn't it inevitable if the world slides into recession that Australia will almost certainly follow? And secondly, you just mentioned supply chains and skills ‑ do you want to lessen Australia's vulnerability to commodity prices and minerals trade in the future?
CHALMERS:
In terms of the first part of your question, most of the respected international analysts and commentators think that we are headed for a substantial global downturn and we won't be immune from that. It's not our expectation that the Australian economy will go backwards. But the world economy is a dangerous place right now. And so obviously, as our understanding evolves, we'll make sure that our forecasts evolve with it. But the Budget that I hand down in two weeks' time, won't have an expectation or a forecast that the Australian economy falls into recession. But it will have an up‑to‑date view about the prospects for some of our big international partners.
We have a lot going for us in Australia ‑ we've got incredibly low unemployment, we've got good prices for what the world pays us for our commodities, we've had relatively solid growth and so we start from a better position than most of our peers. We're in much better nick than most of the countries with which we compare ourselves but we won't be immune from a global downturn. And so I think the concerning aspect of what we know about the global economy, what we've learned in the last couple of weeks, is that it will have implications for us. It will have implications for our own growth forecasts, it will have implications for our unemployment forecasts, I think that much is obvious and that much is clear. When it comes to commodity prices, even though a number of those prices have come off in the course of the last few months, we still expect, particularly in the near term, for commodity prices to make a good contribution to the Budget and I think you can expect to see a sizable contribution from the prices we're getting in the near term for those commodities. But the point that we've tried to make is that even with another substantial contribution from high commodity prices, that will not go anywhere near making up for these persistent structural spending pressures on the Budget.
JOURNALIST:
Treasurer, you variously described your first Budget as a bread and butter Budget, workmanlike, today you say it won't be flashy or fancy, but at the same time you're saying there are going to be some tough decisions. What's tough about taking the knife to a bit of national pork? Or do your tough decisions go well beyond that, if you're not tackling, say, big budget blowouts in the NDIS?
CHALMERS:
I think if you've sat around the Cabinet table as we have over the course of recent weeks and months, you appreciate that a culture of waste and rorts and largesse has been allowed to build up in the Budget for the best part of a decade and that means the Australian people aren't getting maximum value for money for the dollars that previous governments have committed. And it's not easy to unwind that culture. And I know this from working closely with Katy Gallagher and Catherine King and others. These are not easy decisions. I've said to you last week and I say to you again today ‑ these are difficult times and there'll be difficult decisions in the Budget as well. Frankly, it was difficult politically not to extend the petrol price relief after it ended. It's going to be difficult to begin to unwind some of this waste and some of these rorts. These are not easy decisions and I think you'll see that in the Budget.
JOURNALIST:
Treasurer, electricity prices ‑ if they do go up by 35 per cent next year, long‑term structural reform isn't going to help low income people and pensioners in the short term to meet their bills. I just wondered two things ‑ what the government can do by way of regulation or other mechanisms to limit the increases in electricity prices. And two ‑ what sort of support you might give to low income and pensioners in terms of perhaps cash payments to meet those costs in the short term?
CHALMERS:
A couple of elements to that. First of all, we are very concerned about what's happening with power prices. It's a combination of what's happening around the world. It's a combination of that with extreme weather. And, frankly, these are the costs and consequences of a decade now of denial and delay when it comes to having a stable policy environment. And so that's the situation that Australians confront, and it's not easy.
If you look at this inflation problem that we have in the economy, what will happen over time, even as inflation eases in aggregate, is that I think, or our current expectation, the Treasury's current expectation is that a bigger and bigger part of this inflation problem over time will be what happens with power prices. Inflation has a number of constituent parts. Shipping costs have been a concern, supply chains have been a concern, the labour shortages are an ongoing concern that we're addressing in the Budget. But electricity is the one that I think most about. I think it is going to be the most problematic aspect of it, of our inflation problem over the course of the next six or nine months. And I've had a number of conversations with Treasury and with others about it.
When it comes to support for cost‑of‑living, we need to be extremely cautious here that any cost‑of‑living support that we provide isn't counterproductive. We want to make sure that cost‑of‑living support that we provide doesn't make the already hard job of the independent Reserve Bank even harder. We're very conscious of that. It's rare that there's a conversation with ERC colleagues which doesn't weigh up in one way or another this challenge that you're getting at when it comes to providing cost‑of‑living relief. And so, what we'll do in October is we'll provide cost‑of‑living relief where we are supremely confident that it won't make the job of the independent Reserve Bank harder. And the way you do that is you provide cost‑of‑living relief in a way that has an economic dividend. Childcare is an obvious part of that, cheaper education costs are an obvious part of that, making medicine cheaper, and a lot of people who will be under pressure from high power prices will benefit from cheaper medicines. This is how you go about providing cost‑of‑living relief. But what I've tried to do for some time now ‑ and you've all heard me say it one way or another ‑ is I don't want to get into the situation of spraying cash around in a way that is counterproductive and just makes it harder for the independent Reserve Bank.
JOURNALIST:
Also on energy, Treasurer, you mentioned global energy costs. Gas is clearly going up around the world. We can see the factors for that with Ukraine and there's a government agreement, heads of agreement with the gas exporters in Australia, however there's still more room to go on gas regulation and the latest message from the Government seems to be that consumers have got to get accustomed to gas prices going up. Do you really accept that? Or is there a case for more stringent government action to actually get the price down? That's not inflationary, that kind of help that the government could offer. So is there more the Government could do to actually get increased supply of gas in Australia to bring that price down?
CHALMERS:
I think there is and I don't think it's an either‑or. I think we need to begin by recognising that the price of gas is very high for all the reasons that we're familiar with, including most importantly the international environment. I think there is more that governments can do and there will be more that we do. I'm working closely with Ministers King, Husic and Bowen to see what else can be done beyond the near‑term updating of the heads of agreement that Minister King did with the companies. I do think there's more that can be done. I think all of those ministers recognise that the way that our gas industry regulation is set up has not been delivering the kinds of outcomes that we want to see and so if you recognise that, and I do, then you recognise that if more can be done, it should be done ‑ and I'm a part of that work.
JOURNALIST:
Treasurer, you've made very clear, I think, since you've taken the portfolio, but particularly over the last couple of weeks, that the structural spending in the Budget requires a structural‑reform solution. So I'm curious, obviously, we've had the debate about stage three, and that's landed in this way for this Budget. But I'm curious whether or not the Government intends to approach the structural reform issue in an ad hoc way budget by budget or might this Budget point to a process where voters can have some insight into how you might conduct that, like a tax review or a revenue review. Where do you go from here in order to address some of the problems that you're attempting to address?
CHALMERS:
There's a couple of elements to that. First of all, it has always been intended that the October Budget will be the start of this conversation and not the end of this conversation. We will begin with winding back some of the waste and rorts, we will begin with multinational tax reform, we will make sure that the commitments that we make are responsible. That's how we begin this conversation about making the Budget more affordable, more responsible and more sustainable and better targeted. I am hoping that the Australian people are up for a serious conversation about how we pay for the services that they need and deserve and have a right to expect. And the reason why I've pointed out those big five areas of fastest growing spending in the Budget ‑ health aged care, NDIS. defence plus rising interest costs on the trillion dollars of debt ‑ is because I want people to understand what we're grappling with here. Now, one of the kind things that people say about our Government from time to time is that the adults are in charge ‑ and we take that seriously and we appreciate that but that means talking to people like they're adults too. And part of that is levelling with people about the sorts of issues that we're grappling with in the Budget and in the economy and in our society. So that's the foundation for doing something about it and I've begun that conversation ‑ I'm pleased that I have. The October budget will be a big part of that it will be the beginning of that, but not the end.
JOURNALIST:
Treasurer, on radio this morning you referred to the big and widening the gap between the US Fed fund rate and the RBA cash rate, and that's putting extraordinary downward pressure on the Australian dollar. Is it your expectation that if that gap continues to grow that that's going to add an additional inflationary impost on our inflation environment here, which is going to have broader implications both for your Budget and for the RBA cash rate pathway.
CHALMERS:
That's the risk. I'm not making predictions, I'm not pre‑empting decisions by the US Fed or the Australian Reserve Bank but the mechanics of it are pretty clear. When there's a big and widening gap between US interest rates and Australian interest rates that risks putting downward pressure on our currency that makes imports more expensive ‑ and that has implications for inflation. I think that's the mechanics of it, and I tried to raise that this morning and I'm happy to discuss it here again today so that people understand why our dollar has been low by recent historical standards and for people to understand that this is one of the things that the Reserve Bank Board weighs up when they come to their decisions. A lot of people, a lot of Australians understand that the global economy is a dangerous place right now and they're trying to make sense of the various moving parts. One of the reasons why our currency is low is because American interest rates are high and expected to go higher and that's what we're seeing playing out.
JOURNALIST:
Treasurer, on radio this morning you talked about the political risks around decisions that you have to make it. In 2008, Wayne Swan came back from the Washington meetings and did make modifications to the Budget. Are you prepared, pending on what you hear, to break promises or having to abandon plans that you've had locked into this Budget?
CHALMERS:
I'm obviously prepared to factor in to the Budget in its final days of preparation anything that we learn about the deteriorating international environment ‑ otherwise it wouldn't be worth going. The reason I'm going at a pretty key time for finalising the Budget is because I think it will be worth it to hear directly from the heads of the IMF, the World Bank, US Federal Reserve, five of my counterparts as economic ministers and to speak with multiple US investment banks. It's because the Budget needs the most contemporary understanding of where people think the global economy is going to head, and so if changes need to be made, obviously I'll make them. But in the broader sense, in the Budget, you should expect to see us delivering on the commitments that we made to the Australian people because they are now more important than ever, that we invest in skills more important than ever, that we invest in workforce participation via childcare more important than ever, that we invest in our supply chains and a Future Made in Australia. The economic plan that we took to the Australian people is absolutely bang on for the sorts of challenges that we have in front of us. If there are tweaks that need to be made more broadly, whether it is forecasts or in other ways, we will make them but Australians should expect us to implement those policies and plans and investments that we announced.
JOURNALIST:
So you've talked about spending non‑negotiables but also this bread‑and‑butter Budget, should we be looking out for modest spending cuts across the entire Budget to save money?
CHALMERS:
Certainly the approach we've taken is to go through the Budget line by line and to see where savings could be responsibly made but inevitably the burden of that falls disproportionately on different portfolios because as I said in answering, I think Michelle's question, we want to make sure that we're investing properly in health and some of these other areas where spending is growing strongly. So inevitably the burden won't fall completely equally across portfolios. Some have been more wasteful than others over the course of the last decade and I think inevitably you'll see that reflected.
JOURNALIST:
In a similar vein, you've talked about cutting wasteful spending, what's your attitude to things that were included in the March Budget, things like expanded training places for rural medicine, schools, or the Perth cancer centre? Do you start from a blank slate or have those things gone and you'll have to re‑promise them? Or do we assume that things that were specific like and not sort of vague regionalisation funds are continuing?
CHALMERS:
I think if it's high quality spending and commitments made for good defensible reasons then our instinct is to try and continue with them. Our efforts to trim wasteful spending will be a combination of things, but it will include some of those discretionary funds. But where a commitment has been made in good faith, where it's been made for good defensible, economic reasons, and where it can actually be delivered, our intention isn't to cancel all of those but to go through each of them and deal with them on a case‑by‑case basis.
JOURNALIST:
How confident are you still that a lot of the measures you took to the election to clawback revenue will deliver in terms of the waste and rorts, the changes to productivity and competition, increased penalties? Are they still expected to deliver what you anticipated when the economic environment was obviously very different? And just secondly, is the Government considering re‑looking at the modelling that initially determined that you'd be able to deliver $275 in savings on electricity bills under your policies given the situation is now very different on what that modelling was based on?
CHALMERS:
First of all, on the revenue forecasts and the costings of some of those policies, from budget to budget, they get updated so you shouldn't expect exactly the same number. For all of those policies, particularly when you remember that one entity did the costings for us in opposition and a completely different entity does them in government and so they won't be exactly the same. That's just to be up‑front about that ‑ there'll be differences. Some will deliver more, some will deliver less. I think that's inevitable when you've got two institutions doing the costings, and we've had a lot happen between these commitments being made and being delivered on climate modelling. One of the things that I'm really keen to see ‑ and we are implementing ‑ is I want to put Treasury back at the centre of climate modelling. I announced that in opposition, I think I read it on the front page of the Sydney Morning Herald written by Shane here. That is one of my priorities: doing something meaningful and responsible on climate change is a whole of government responsibility, and I want Treasury right in the thick of it. That will be the case whether it's sustainable climate finance, whether it's the disclosure regime that I'm working on ‑ there's a whole range of areas where I want to work really closely with Chris Bowen and with others in the Government to make sure that we've got a good, stable climate policy. And so Treasury will be central to that, and Treasury modelling will be central to that. Inevitably, you can't go from nothing to a fully humming, fully functioning climate modelling team overnight ‑ it takes a bit of time to build it. I'm in discussions with Chris Bowen and with the Treasury and with others about how we do that. But we've always said that climate policy will be informed by Treasury modelling over time, and I look forward to saying more about that on another occasion.
JOURNALIST:
The head of the ACCC has told the economics committee that the median household electricity bill is up by $300 or 25 per cent since April. Has that level of increase been factored into any modelling? Was the Government aware it had gone up that much and do you still expect to cut power bills by $275 by 2025?
CHALMERS:
It's become really clear to us ever since Angus Taylor hid the last electricity price increase during the election, it's become very clear to us that a combination of global factors, extreme weather, and policy failure has meant that electricity prices are going up much faster than we would like to see and what Australians would like to see. I think that's incredibly clear, and we've had news in the last couple of days about that as well. I've tried to be up‑front in answering questions about power prices that that combination of issues is going to put pressure on household budgets for some time. When it comes to our commitments, we have made it very clear that adding more sources of cleaner and cheaper and more reliable energy is the medium and long‑term solution to this rather than the problem. Inevitably, we've got these near‑term challenges as well. The best way to make energy cheaper, the best way to make electricity cheaper is to provide policy certainty, but also to create the kinds of conditions which will see more investment in cleaner and cheaper and more reliable energy and that's what we're doing. Thanks very much.