JIM CHALMERS:
Okay, I’m here to talk about the National Accounts and the monthly inflation gauge and I figure you may have questions on other issues. Today’s National Accounts show that growth in the Australian economy is moderating, as expected. This is the inevitable consequence of global challenges, high inflation and rising interest rates. These numbers tell the story of 2022 and we know that 2023 will be a different story. The global economy is even more unpredictable. The war in Ukraine is entrenched and interest rates are biting harder and harder on our people. We knew that growth would begin to moderate around now and it is. We knew that 2023 would be a challenging year for the economy and we still expect that to be the case.
But despite all of these challenges, the Australian economy still grew by 0.5 per cent in the December quarter of last year and by 2.7 per cent through 2022. This is faster growth than all of the major advanced economies and it’s more than twice the growth of the OECD average. I think it’s an unfortunate sign of the times that even in one of the best economies in the world here in Australia our people are still under extreme pressure. It’s a sign of the times that even in one of the world’s best economies, people are still struggling under the weight of a global downturn, high inflation and rising interest rates as well. We’ve got a lot coming at us from around the world, as I’ve said to you before, but we’ve got a lot going for us as well.
But the major story of these National Accounts being released today is really about the cost‑of‑living pressures and the impact of rising interest rates on Australian households. In particular, inflation is still the defining challenge in our economy and it is still the primary focus of the Albanese government’s economic plan. There is lots of evidence of the impact of rising interest rates on Australians around the country in these new numbers today. Consumption growth softened to 0.3 per cent in the quarter to be 5.4 per cent higher over the year. Households have continued to pull back on discretionary goods spending in favour of services as Australians look to get out and travel more around the country. With the sustained pressure on family budgets we are seeing households saving less out of their income. The saving ratio has declined sharply to 4.5 per cent. More of people’s income is being directed to servicing their mortgages. Interest payments are up 23 per cent in the December quarter.
There are some good indications in here that more homes are being built as some of the supply constraints in the economy ease and with a solid pipeline of work over the months ahead, there are reasons to be relatively positive about the outlook for construction of homes.
As I said, inflation remains the number one challenge for the economy and while inflation is higher than we’d like, we are cautiously hopeful that it has peaked and this is also the view of the Reserve Bank. The National Accounts measure of consumer prices rose by one and a half per cent in the December quarter and 6.9 per cent over the year, but we also got the monthly inflation read for January today as well. There’s a lot of volatility in the monthly inflation read. We need to be cautious and careful about interpreting the monthly outcome, but what it shows is that inflation in January was around 7.4 per cent compared to 8.4 per cent in the monthly read for December of last year. So this is more evidence that inflation is likely to have peaked in our economy and the worst when it comes to inflation is behind us. Obviously, inflation will be higher than we’d like for longer than we’d like but this is an encouraging sign in this monthly inflation number that inflation is likely to have peaked at the end of last year.
We do have a number of important things going for us in the economy more broadly. The unemployment rate is still near historic lows. It’s still got a three in front of it. That’s important. We have seen indications more broadly of the beginnings of decent wages growth in our economy, even though the hourly measure in these National Accounts is a bit more modest. We are really pleased to see our tourism and education exports are continuing to bounce back from the pandemic. Returning international students and tourists supporting a 9.8 per cent lift in service exports in the quarter, and that’s really important as a driver of growth in our economy and we’re getting really good prices for our commodity exports as well with the terms of trade up by 7.2 per cent over the year.
Despite our sustained and growing challenges in our economy, as I said before, our economy is performing substantially better than other comparable countries. Our economy grew faster than all of the G7 at 2.7 per cent, and more than double the OECD average of growth of 1.1 per cent. And so we are, even with all of our challenges, outperforming the world when it comes to economic growth.
Now, we’ve been upfront about the challenges facing our economy from high inflation and rising interest rates and the global economic slowdown, but we are confident and optimistic about the future of our economy. We do have precisely the right economic plan for these conditions. Our economic plan is custom‑made for the conditions that we confront in our own economy and in the global economy. The best combination of cost‑of‑living relief repairing our supply chains and showing restraint in the Budget. We’re focused on addressing inflation with that cost‑of‑living relief with our efforts to fix broken supply chains. And by trying to make the Budget more responsible, we can make the economy more resilient at the same time.
Now this was the story of 2022 in the National Accounts figures before you this morning, today. The National Accounts figures released this morning show the story of 2022. The unfolding story of 2023 will be a story of some substantial economic challenges. We can’t pretend them away. Interest rates are biting. Higher inflation has been biting in our economy and we’re not immune from global conditions either. I’m confident that we can get through this. I’m confident that the worst of inflation is behind us rather than ahead of us but we don’t pretend away the substantial challenges in our economy represented in today’s National Accounts.
JOURNALIST:
[Inaudible] the savings from not lifting deposit rates to offer lower mortgage to refinancing. What’s your stance on the balance they need to strike between looking after depositors and looking after borrowers?
CHALMERS:
Well, they will make their commercial decisions based on a whole range of factors. I’ve made my view really clear that interest rate hikes should be passed on as quickly to savers as they’re passed on to mortgage holders. I’ve got the ACCC, the consumer watchdog, looking into the behaviour of the banks in this regard.
Now, obviously treasurers don’t sit there directing every commercial decision taken by every bank but I’ve made my view really clear. One of the things that makes people really angry in the banking system is if they’re living off savings and looking forward to higher interest rates, they want to see those benefits passed on. It should be the silver lining in rising interest rates. It isn’t always. I want to get to the bottom of it. I’ve asked the ACCC to help.
JOURNALIST:
The Governor says that corporate profits aren’t adding to inflation. Think tanks like the Australia Institute say they are. Who’s correct?
CHALMERS:
I think it is important that we broaden our conversation about inflation beyond this ridiculous suggestion that we’ve got a wage‑price spiral. Now, we don’t have inflation in our economy because wages are growing too quickly. If anything one of the biggest problems in our economy for the best part of a decade is that wages growth has been too stagnant and we’ve had a number of pieces of data, including in the last few days, which show that there’s absolutely no wage‑price spiral driving inflation in our economy. So, I welcome the contributions from others which say that we should be thinking about issues in our supply chains, which the Governor has been talking about as well. We should be making sure that businesses aren’t gouging in an inflationary environment.
It’s not that long ago that people from this lectern were always talking about we’re all in this together. We do need to make sure that the price rises that businesses are asking their customers to pay are justifiable. And so I welcome the contribution, particularly as it broadens out our understanding of inflation beyond wages.
JOURNALIST:
There’s talk on this about market concentration allowing companies to lift profits successfully, keep wages low. Do you want to comment on this dynamic and whether regulators and policymakers can do more in this space?
CHALMERS:
We want a more competitive, more dynamic economy. I commend my colleague Andrew Leigh in particular, who’s been talking about some of the issues that you raise. We are always looking for ways to make sure that ordinary people, pensioners and working people in our economy, can have access to competitive prices, and one of the ways you do that is to make your economy more dynamic, more competitive and that’s something I work closely with Andrew Leigh on.
JOURNALIST:
On the capital gains tax exemption on the family home, the Prime Minister this morning said we are not going to impact the family home – full stop, exclamation mark. Ruled out. Here’s your opportunity to do the same.
CHALMERS:
Yes, I do, do that. And I should have done that this morning too. What I’m trying to do is to maintain a focus on what we are doing, not on what we’re not doing. And I am concerned that having provided, in the interests of transparency, a sense of all the tax breaks across the Budget and Treasury’s best assessment of how they’re growing, I don’t want to get into the practice of coming before you each day and working through hundreds of billions of dollars of tax concessions and playing the same rule in/rule out game, but I should have done that when it came to the family home this morning. And I’m happy to say that, I’m very prepared to say that and I’m happy to tell you why.
I want the country focused on this choice that we can make to make superannuation more affordable by making the tax concessions in super more sustainable and in the process, make the Budget more responsible. That’s my objective. And I want to focus on that. The tax expenditure statement that was released yesterday is not a statement of intent. It’s not a policy statement. It’s a summary of facts and I want people to see it that way. But we have no intention of going after capital gains tax on the family home.
And in making that point, I do want to make the point that this country should be capable of a more sophisticated conversation about our Budget pressures. And every time I come before you, as I like doing, what I’m trying to do is to give you a sense of what we’re grappling with, the sorts of pressures on the Budget, and the sorts of options available to Australia. We won’t be pursuing that policy.
JOURNALIST:
Treasurer, you won’t be pursuing that policy, but we’re having a sophisticated discussion about the pressures on the Budget. Does that mean that part of the tax increases in other areas are possible this term?
CHALMERS:
What I’m saying is we are focused on superannuation. You know, we made an announcement yesterday, which is a really important announcement. It’s a modest change, but it’s a meaningful change. It puts the Budget in a better structural position than it would be otherwise. When you inherit a trillion dollars of debt and deficits as far as the eye can see and the medium term pressures on the Budget are intensifying, rather than easing then it’s up to government like ours to say what we intend to do. And what we intend to do is make these superannuation tax concessions fairer and more affordable and I want to focus on that and not all the other things that we’re not doing.
JOURNALIST:
Cost of living is one of the most important things to come out of the National Accounts; one of the eye‑catching figures was rental rises. Is there anything in the pipeline that can solve that or at least slow that for those who are out there looking for homes?
CHALMERS:
We have to build more rental properties. You know, this is a real passion of Julie Collins and myself and the government more broadly. We have got ridiculously low vacancy rates. We’ve got very high rents. And that’s because we don’t have enough rental properties and just as importantly we don’t have enough rental properties near where the jobs and opportunities are being created in our economy. That’s the thinking behind the Housing Australia Future Fund that Julie is trying to get through the Parliament. It’s the thinking behind the Housing Accord that we’re working with the states and the industry and the superannuation funds on. We need to build more stock. And that’s our intention.
JOURNALIST:
Treasurer, one of the bases of sustainable wage growth is productivity gains. The figures show that productivity performance has been poor again and that business investment is also not going along very strongly. So, where is that productivity gain going to come from?
CHALMERS:
Well, this has been, unfortunately, the story of the last decade. If you made a list of the defining features of the economy for the last decade or so, and not just because of the pandemic, but before that, weak business investment, flatlining productivity outcomes. These have been some of the disappointing defining features of the economy for too long. And one of the reasons why I’ve tried to start proper engagement between the wealth-creating, opportunity-creating, job‑generating private sector and government is because we have got to get investment flowing in areas where we have these big advantages. We do need more investment.
If you think about the energy transition, if you think about the other big shifts in our community, services, the care economy, you think about data and digital - all of these big shifts in our economy which will determine whether we succeed or fail in the 2020s, the defining decade, all of these areas require much more investment. And I think we should avoid falling into the trap of thinking because we had COVID all of a sudden now we’ve got weak business investment or we’ve got flatlining productivity. That’s been a perennial for the best part of a decade. And so, our efforts to get investment flowing to areas of national economic advantage are part of the story, but not the whole story.
When it comes to productivity, it will be all about how we invest in our people so that they can adapt and adopt technology so technology works for people not against them. That’s the productivity task for us. Previous treasurers have had different opportunities and different focuses when it comes to productivity. And much of that from 40 years ago has been remarkably successful. Our challenge is in energy and data and digital and making our industrial base deeper and broader. So much of our economic plan is about doing that. And if we get it right, we can get productivity growing again in more meaningful ways because productivity is the secret sauce to growing the economy the right way, where there’s more opportunities for more people.
JOURNALIST:
The National Accounts show GDP per capita flat for the quarter after a 0.1 in September quarter. Like 2018, are you expecting a GDP per capita recession this year? People will feel like it’s a recession even though it may not be.
CHALMERS:
First of all, I’m not making predictions on that front but people are already doing it tough. And I think the story of these National Accounts is a story of higher interest rates biting, higher inflation biting, combined with difficult global conditions. And people are already feeling this pain in our economy. You don’t have to walk far down the main street of any of our cities or suburbs or towns to find people who are doing it tough. And from time to time, the numbers that you get don’t seem to mesh with the conversations that you have in the street of this country. But what we’re seeing today is the numerical representation of the pressure that people are feeling right now. And when interest rates started going up before the election and continued afterwards, ever since that March quarter, which was the worst quarter last year for inflation and subsequently, we have understood that people are doing it tough. The cost‑of‑living pressures are the defining features of our economy right now. We’re seeing that in the numbers. That’s why they’re the primary focus of our economic plan.
JOURNALIST:
On the back if superannuation, you said yesterday [80,000] people are expected to be affected by the cap, have either you asked or has Treasury provided you any modelling on how many people could be affected by that in, say, 10, 15 years’ time?
CHALMERS:
We’ll update those numbers as we need to, but I think it’s important to be able to send the signal to people that 99.5 per cent of people in the system will be unaffected by what we have put forward, and for the half of one per cent of people who will be impacted, they’ll still get generous tax concessions. They’ll just be a little bit less generous. They’ll come in after the election. It’s prospective, not retrospective, because it applies to future earnings and does not come in for a couple of years. These are all important features of it. And when we need to update the number of people affected down the track, we’ll do that.
JOURNALIST:
In pursuit of a sophisticated debate, can you answer this question: does it philosophically trouble you as Treasurer, trained in economics, that the tax system could be such that it props up people who have multiple homes through negative gearing and that that system can actually squeeze out first home buyers from buying homes, consequently increasing the cost of living, squeezing rents and so on?
CHALMERS:
I am concerned about people’s ability to get into the housing market and I think there are other policy levers that we can pull and we are pulling to make that possible. My concern about the way that the tax concessions in the system are put together is that people with very comfortable superannuation balances end up being subsidised by people who are still trying to scratch together a decent retirement. That I think when I look at that Tax Expenditure and Insights Statement yesterday and you think about how $150 billion of value in the top 10 tax concessions, a third of that is superannuation, that’s the thing I want us focused on because I don’t want a situation where people who don’t need the biggest tax concessions because they’ve already saved, and good on them, for a decent retirement, I don’t want them to see them subsidised excessively by ordinary working people who have an average of 150 grand of super. And so that’s our focus. That’s our priority. That’s the unfairness I’m trying to deal with.
JOURNALIST:
Would you apply the same philosophy to subsidising people who have made themselves quite rich through investing at taxpayer cost in the housing market?
CHALMERS:
I’m applying that philosophy to super.
JOURNALIST:
I’m just staying on super. You talked about how you’ll expand it to also include defined benefits models. I know that you don’t have firm numbers yet, but do you have any idea how many more people that’s going to involve? Is that going to be thousands? Is it going to be tens of thousands? And have you spoken to public sector unions about how it’s going to impact them?
CHALMERS:
We intend to consult the sector broadly about the defined benefits scheme. We want it in. We want it in this change that we proposed yesterday and we were up‑front about it yesterday when we announced it and said we want it in. It’s our intention to have it in. There’s some complexity here including some legal complexity with judges and the like. We want to make sure that we get around that properly. And that’s why it’s actually quite useful to have a policy announced at the end of February to be budgeted for in May. It does allow for some genuine consultation.
JOURNALIST:
The Coalition has criticised you for not indexing the $3 million threshold for the super changes so just going back to the question about modelling, is there anything you can give us today like a 10‑year figure about how much the change is going to raise or any assurance about what proportion of people are going to be affected into the future?
CHALMERS:
Well, in terms of the costings, it will raise $900 million in the forwards, $3.2 billion over five years and I’ve included that extra year because I want you to understand that it is about $2 billion or just over when it’s properly up and running. When we want to and when we’re ready to provide any further numbers, we’ll do that.
On the $3 million threshold, you know, I think this is an important design feature. Obviously, we’re consulting on the design features, but one of the reasons why I think it is important that the threshold is at $3 million is because we want to make superannuation more sustainable over time. And I think if you strip away all of the politics and all of the argy‑bargy of this building away from it, I don’t think any objective observer could look at our superannuation system and think anything other than we need to make these tax concessions for people with millions of dollars in super more affordable, more sustainable and fairer, when we’ve got a trillion dollars in debt, all of these deficits and Budget pressures intensifying.
JOURNALIST:
For the rest of the medium term, will it raise more than $2 billion a year then?
CHALMERS:
It will raise in that fifth year I think $2.3 billion and obviously as more people down the track save more than $3 million in retirement, then they will become subject to still generous tax concessions, but slightly less so.
JOURNALIST:
Just on this indexation question again, is this completely off the table of slowly over time to over 10, 20 years changing that cap up slightly. Because as you’re saying at the moment, over time this is going to claw in more people and one of the scare campaigns of the Opposition today is that people are going to get scooped up into this, and your government can’t say who that will be over time.
CHALMERS:
We can say that. We’ll say that people who’ve got more than $3 million in their superannuation, and good on them, we think that’s a good thing people have got sufficient savings for a decent retirement - we’ll give them concessional tax treatment just not quite as concessional. A future government may decide to change the $3 million threshold, but the way that I’ve designed it in conjunction with Treasury colleagues is for a $3 million threshold. If some future government decides that they want to lift that, then they can pay for that, but that’s not our intention.
JOURNALIST:
Based on the National Accounts is that it really reflects interest rates climbing. Just for the people at home that are watching this and hearing that, can you explain to them is there still an argument for further rate hikes?
CHALMERS:
I think as you know, I think everybody in this room knows, I don’t pre-empt or second guess or give free advice to the independent Reserve Bank. The Reserve Bank and its board takes these decisions independently, and I’ve got my own job to do when it comes to the supply side of the economy and providing cost‑of‑living relief without adding to inflation pressures and showing restraint in the Budget. And so I’ve got enough to do without doing the Reserve Bank Governor’s job for him.
The Reserve Bank board will weigh up all of this data that we’ve got today - the monthly inflation read, the recent data on wages. They’ll weigh up the National Accounts. They’ll weigh up their expectations for the global economy. I was in India with Governor Lowe over the weekend, meeting with our counterparts in the G20. All of that no doubt feeds into the decisions that Phil and the board will make. They make that decision independently without interference from the Treasurer.
JOURNALIST:
Just back to [inaudible] the index to the cap, there was some modelling done by one of the industry groups, and they say someone today who’s 45 and plans to retire at 65 in 20 years’ time.
CHALMERS:
I’m smiling because I’m 45 tomorrow [laughter]
JOURNALIST:
Someone who gets only 10 per cent contribution, not 15, will have an effective cap on their retirement of $1.6 million, which is less than the tax transfer cap today of $1.7 million, going to $1.9 million in July. Someone who’s 25 years old today will have in today’s dollars an effective transfer cap of less than a million dollars. So, younger workers today, people younger than me, are going to be worse off than me when they get to retirement. Is that fair?
CHALMERS:
I think one of the reasons for that is because there’s a gender gap in super as well and we’ve said, I think, publicly probably countless times now that we think there is work to do when it comes to adequacy, particularly for Australian women. But I don’t see that that challenge that you identify –
JOURNALIST:
[Indistinct].
CHALMERS:
I don’t see how –
JOURNALIST:
That’s the effective cap in today’s dollars, 20 years’ time.
CHALMERS:
Right, they’re applying a deflater to the $3 million. Some future government might decide to change it. My goal here, my objective here, as I’ve been really clear about, is to try to make superannuation more sustainable. Superannuation in Australia is world‑class, absolutely world‑class, but it’s got its imperfections. The gender gap is a big imperfection in superannuation. The affordability of the tax concessions for people with 100 million bucks in super is a big imperfection, and I’m trying to do my bit to take a world‑class system and make it a bit more sustainable.
If at some future point a government with somebody else’s treasurer in it, decides that they want to take a hit to the Budget by shifting that threshold north, that’s fine. Some thresholds are indexed, some aren’t in our Budget - that’s the reality of it. This one when we implement it, won’t be indexed. I think there’s good reason for that but if people disagree, they can shift it and they can pay for it. And just on the Opposition, Trudy asked a moment ago and you’ve asked about the threshold, and that’s obviously a key part of the design.
But the Opposition is all over the shop on this. Just today Dutton said that he would repeal it, Taylor said he wasn’t sure if they were going to repeal it, Jane Hume said she wasn’t sure if they could repeal it if they wanted to. They’ve got three positions on this. And one of the reasons why we think it’s important that we take this change to the people is because there is a choice for this country to make, and last time Peter Dutton was asked to repair the Budget, he went after Medicare. And so, people can choose. Do they want the guy who goes after Medicare? Or do they want the guy and the government who says let’s continue to give tax concessions in superannuation, but if you have got a fair bit of money in your superannuation, maybe those concessions can be a little bit less generous?
I think on the merits of the policy itself, there is an inarguable case for what we are proposing and I understand the politics are contested, and I understand the Opposition says no to everything. They’re voting against more affordable housing for women fleeing domestic violence. They voted against energy bill relief for pensioners. They’re voting against more manufacturing jobs in our economy. We have the lowest expectations of these people. They say no to absolutely everything.
But they’re prepared to go to the wall to protect half a per cent of people with tens of millions of dollars in their superannuation account, getting even more generous tax concessions. These people who gave us a trillion dollars in debt want the Albanese government to borrow even more to subsidy people with tens of millions of dollars in their superannuation account. If they want to have a barny about that between now and the next election, I’m comfortable with that because I think we’ve got the right policy, we’ve come to this decision for the right reasons. The politics will sort themselves out.
The right path is not all it is path of at least political resilience. I understand that. And if this is a dividing line in our policy, so be it. I would rather it was unanimous.
JOURNALIST:
Treasurer, just on your philosophy as you called it, fairness and Budget sustainability, how fair and sustainable are the stage three tax cuts? Do they need some tweaking, perhaps? That might take effect after the next election as well?
CHALMERS:
I haven’t changed our position on the stage three tax cut and they don’t come in for some time.
JOURNALIST:
[Indistinct].
CHALMERS:
I think it is really important, for example, that in those tax cuts they kick in at 45 grand. We shouldn’t forget that. And we’ve always been up for tax relief for people on modest incomes, we’ve said that throughout. Our votes in the parliament have demonstrated that. But those tax cuts don’t come in for a while. We haven’t changed our position on it. Coming to a position on that which is different to the current position, wouldn’t address a lot of the challenges that we’re dealing with today.
JOURNALIST:
[indistinct] reforms to negative gearing and capital gains to the 2016 and 2019 elections. Obviously, you succeeded in last year with those clearly off the table. Can you offer assurances to [indistinct] investors that these policies or anything like them remain off the table?
CHALMERS:
Yeah, we don’t intend to reheat the policies that we took to the 2019 election. We’ve made that really clear. We do intend to make a modest but meaningful change to superannuation tax concessions. The country should be capable of coming to a decision like that in the interests of a more responsible Budget. This is above all about responsible economic management. We take the challenges in the Budget seriously. Our opponents don’t. They will play politics with this between now and election day. We take the right decisions for the right reasons, the politics can take care of themselves. Thanks.