JIM CHALMERS:
I'm back from brief and busy, but very productive, very worthwhile engagements with counterparts from around the G20, the IMF, the World Bank and others in Washington DC. And obviously we are heading now into the homestretch of the Albanese government's second Budget to be handed down in three weeks tomorrow. This week, we will finalise many, if not most of the remaining decisions, and then the Treasury and Finance Department and others will do their work finalising with us the 2023 Budget. This Budget will be handed down in the context of an uncertain and volatile global economy, which is precariously placed. One of the key messages from the engagements in DC was that although the global economy has managed to get through a difficult period in recent months, the risks in the global economy are still ‑ in the language of the IMF ‑ tilted to the downside, by which they mean there is still a lot of uncertainty, a lot of volatility, a lot of vulnerability in the global economy. The IMF has said that they expect an incredibly weak five years of global economic growth. Our Budget in three weeks’ time will forecast for 2023 and 2024, the weakest two years of global growth in the last two decades, apart from the depths of the GFC and of COVID. In DC, we had largely five objectives: understand developments in the global economy; align our Budget with the conditions that we confront; urge stronger supervision of banks around the world, particularly when it comes to the speed of these potential spot fires developing; find a place for Australia in the investment environment for cleaner and cheaper energy post the Americans announcement of their own substantial investments; and then fifth and finally, focus the efforts of the multinational institutions, including the new leadership or the incoming leadership of the World Bank, on our own neighbourhood here in the Pacific.
The best antidote to global economic uncertainty is responsible economic management here at home, and that's what the May Budget will represent. We do have, as we've said in this room a number of times, we do have a lot coming at us but we do have a lot going for us as well: low unemployment, high prices for our exports, and both of those things are helping the Budget right now but the pressures on the Budget are intensifying after that. And that's obviously a big focus as well as we finalise the second Budget to be handed down at the beginning of May. The Budget will be about three things: cost‑of‑living help without blowing the Budget and adding to inflation. Secondly, laying the foundations for growth in our economy with a focus on energy, industry, and particularly the care economy. And then thirdly, doing what we can to make our people, our Budget, and our economy more resilient to the types of international economic shocks that we are becoming more and more accustomed to.
Before I take your questions, I wanted to flag the release of some upcoming reports in the coming days and weeks. First of all, as you know, I've received the report from the review panel, the Reserve Bank Review panel have provided their report to me. I've had some discussions with Governor Lowe about the contents of the report. Before long, I want to have a discussion with the Opposition and ideally the crossbench about the contents of that report as well. I intend to confer with my colleagues as well. But I wanted to flag that I hope to be able to release the Reserve Bank review quite soon, ideally in the next week, but certainly in the next couple of weeks that will be released with an initial view from the government about the 51 specific recommendations contained in the report. So that's the Reserve Bank.
When it comes to the Economic Inclusion Advisory Committee chaired by Jenny Macklin. As you know, we are obligated to release at least a couple of weeks before the Budget, a summary of the recommendations of that committee. I hope to be able to release that report quite soon as well, and to go beyond the obligations to release as much of that, if not the full thing, as I can. Again, ideally in the next few days, but certainly in the next couple of weeks, we will provide to you the report from that really important committee. I wanted to thank Jenny, and all of the committee members for the work that they've put into it. We have received it, we do hope to release it quite soon.
I wanted to flag that on Friday of this week in Brisbane. I'll be convening for the second time the Treasurer's Investor Roundtable. And the focus of this second discussion will be cleaner and cheaper energy and particularly the investment climate in Australia and around the world, when it comes to investing in cleaner and cheaper energy; broadening, diversifying our own industrial base, to take advantage of the immense opportunities that come from the shift to net zero, and particularly in the context of developments in the US and around the world as well, which were a central part of the discussions that I had in Washington DC.
We've made progress on the energy rebates, the household assistance for electricity bills. We've been working, as you know, for some months with our state and territory counterparts, recognising that there are different systems around the country, different pressures, different existing infrastructure when it comes to providing that assistance. And we are reaching the conclusion of those discussions. The energy assistance, household assistance and small business assistance will be a centrepiece of the May Budget. But ideally, I can update you on those negotiations with the states and territories before then, but certainly at the very latest in the Budget. Australians will understand depending on where they live in the country, what kind of assistance they will be receiving, who is eligible and how much assistance as well.
The last point I wanted to make, and I thank you for your patience, is that I have now received advice from the Treasury about how we think differently about the commodity price assumptions in the Budget. And as you know, as I've said publicly before and as I've said many times privately, there are good reasons to maintain a conservative and cautious approach when it comes to those commodity price assumptions. I've received the advice from the Treasury about how we would go about that. They've been consulting with industry and with other experts to make sure that that advice is well founded and it is. My inclination is to accept the recommendations of the Treasury when it comes to changing in a moderate way and quite a restrained way ‑ a cautious, conservative way ‑ the way that we go about making those commodity price assumptions in the Budget. You will see that on Budget night, how we've gone about that, but I had indicated to some of you previously that I would let you know when I've received that advice from the Treasury. It's come from the Treasury. They have a pretty firm view and a clear view that the time is right to change those assumptions. I've indicated throughout that my preference is they remain conservative and cautious for good reason. I'm inclined to accept the advice that I've been provided. We will finalise it between now and the Budget, and you'll see it on Budget night.
JOURNALIST:
Just from your trip to the G20, you've laid out a pretty grim assessment from that. Is that actually going to have any flow‑on effects to the Budget? Are you making any changes in terms of policy decisions?
TREASURER:
The uncertainty and volatility in the global economy will be a really key influence on the Budget that we hand down in May. It will influence our forecasts but it will also influence how we try and strike this balance between maintaining the kind of fiscal restraint which was a hallmark of the October Budget, but also making sure that we can support people through a difficult period. That's the fine balance and series of fine judgments which are central to this Budget that we hand down in May. And so the discussions with my counterparts over the latter half of last week were really about how do we properly understand what's going on in the global economy, what are the risks, what are the implications for Australia, and more broadly when it comes to energy and other important parts of our policy suite, what are the opportunities for Australia. And so yes, those meetings that we had last week will be a key influence on the Budget, there'll be a key influence on our understandings of how we expect the economy to play out in the next 12 to 24 months, but also where our policy agenda fits in there as well. I was accompanied by the Reserve Bank Governor and the Treasury Secretary, and so we were all able to gather that intelligence at the same time.
JOURNALIST:
About the RBA review ‑ you say you're going to talk to the crossbench as well. Does that suggest that the recommendations that you are inclined to accept in the RBA review will require some legislative change?
CHALMERS:
There will be a legislative element to the recommendations that have been put forward by the Reserve Bank review panel and my view is that the recommendations should be beyond party politics in this building. As I've done before, I commend Angus Taylor for the way that he's engaged with the review panel. I've arranged definitely two, perhaps three briefings from the panel while their work has been under way so that he can stay abreast of their thinking as it developed and ideally before long I can provide him with the report, provide him with a sufficient briefing and other conversations so that he can take it to his team and contemplate it. And we've also had the review panel brief the crossbenchers before the finalisation of the report and that's because I genuinely want this to be bipartisan. There are some recommendations which would require legislative change, there are some that would require the Governor and the Board to change the way that they go about things at the bank, there are some pieces of it which will factor into the statement of conduct of monetary policy and so for all of these reasons, ideally, people will see this review, they'll consider the recommendations and ideally they'll come to the sorts of conclusions that I have which I'll make clear in the course of coming days.
JOURNALIST:
There's been talk about more support for single parents in the Budget. Is that something we can expect?
CHALMERS:
I think people can expect that the Economic Inclusion Advisory Committee and other committees that the government has set up have taken an interest in that payment. I think Phil and others around the room have written in the past about the public comments of some of the participants in those committees and so I don't think it would be a surprise to people if some version of that was to show up in the recommendations. I don't want to pre‑empt the release of that report or the recommendations of that report. Our commitment to that group is that we will work collectively, methodically through the recommendations that they provide us. I think people understand that we can't do everything at once, we can't do everything that we would like to do. There are more good ideas than there is the capacity to fund them. And so we will go through the recommendations of that report and the report being provided by Sam Mostyn to Katy Gallagher and other opportunities to work through those things in a methodical way with a premium on what's responsible and affordable.
JOURNALIST:
Treasurer, would lower than anticipated economic growth mean higher than anticipated unemployment?
CHALMERS:
When the economy slows as the Treasury and the Reserve Bank expect it to, that will have consequences for the unemployment rate and one of the things that I'm really quite pleased about is we enter this new period of substantial global economic uncertainty from a position of relative strength when it comes to our labour market. To have unemployment at three and a half per cent is quite a remarkable achievement when you consider the global pressures on our economy. It's one of the things that we have going for us but as we made clear in the forecast in the October Budget and as we will make clear again, Treasury and others anticipate an increase in the unemployment rate as the global economy slows and as these interest rate rises bite.
JOURNALIST:
In October you banked almost all the windfall gains that you had in the Budget. Do you intend to try to be as ambitious this time putting windfalls to budget repair?
CHALMERS:
Our strategy is to bank most of the upward revision to revenue which comes from a combination of higher commodity prices and lower unemployment. And in the October Budget when the inflation peak was still ahead of us and when the inflation challenge was most acute, we were able to bank 99 per cent over two years and 92 per cent over four years. Now the strategy will be similar in May but the conditions are a little bit different. We are closer to the slowing of the economy and so what we will do, what we intend to do subject to decisions taken in the next few days is to bank most of the upward revision in revenue. It won't be 99 per cent over the course of the forwards but it will be most and there's a good reason for that and that's because the balance that we have to strike as the economy slows is a little bit different.
JOURNALIST:
Treasurer, you mentioned the second pillar of your Budget is building the foundations of the economy. You mentioned energy and industry, should we expect any new policy measures in that area or is this going to be mostly following through on election promises in those areas?
CHALMERS:
I don't want to pre‑empt any additional announcements we might make in this area but when it comes to the combination of the investments that we're making in Chris Bowen's, Madeleine King's, Ed Husic's and my portfolio, we already have a really substantial agenda when it comes to cleaner and cheaper energy, broader and more diverse industry, we've got strategies being developed as Madeleine King was talking about last week in critical minerals. I'm bringing investors together to invest in the transition and particularly the transition to net zero. And so really right across the government, but particularly in those four portfolio areas and others, there is a substantial amount of policy work already happening.
The Budget that I hand down in the second week of May will be the most substantial investment in cleaner and cheaper energy and the future of our industry, I think, that we've seen subject to the final numbers. And so it's a big priority for us. I don't want to pre‑empt or front run any additional announcements that we might make but cleaner and cheaper energy is absolutely central to our growth strategy for the Australian economy. The whole world is moving in this direction in one way or another, we want to be beneficiaries not victims of what's happening around the world and that's why we're putting such a big emphasis on it.
JOURNALIST:
Treasurer, you would have seen today the reporting about Kris Ridgway and David Sutton and the complaints that from some elements that ASIC has been very slow in their investigations into effectively Ridgway's concession of what he got up to. Do you have concerns about ASIC? And in a completely non sequitur about the RBA review ‑ does it make any sense for the statement of the conduct of monetary policy not to be in the RBA act?
CHALMERS:
I think it makes good sense to have a statement which can be more frequently updated and to have it built on a foundation of legislative certainty and so I think the key for the recommendations in this review will be to get the balance right between the legislative framework and the statement on conduct. As you know and have written about in the past, I held up providing a statement to the Governor when we first came to office because I wanted to take into consideration the steps that we take after this RBA review and so that's what I'll do. But what you'll see when you see the 51 specific recommendations and you read through the rationale for it, is that there's a role for government, there's a role for the Reserve Bank and its Board. There's a role in the statement, there's a role for legislation and one of the key reasons why I want it to be bipartisan if we can is because ideally we'd get all those ducks in a row. And in the absence of bipartisanship, we don't really want to run the gauntlet in the Senate, for example, on legislative change to the RBA Act. The RBA Act should be something that we can agree on and put beyond politics. That's my objective, my aspiration, that's how I've behaved in this regard throughout the review process and I think that's how Angus Taylor has too, frankly, and I hope that that holds. On ASIC, I don't have much to add to what you've put forward.
JOURNALIST:
Thanks Treasurer. Just on PRRT, have you or do you expect to receive the Treasury report before the Budget to potentially make changes to it? What sort of changes are you contemplating? And could it potentially pay for some of this household bill assistance that you've already outlined?
CHALMERS:
Well, the review of the PRRT as you know John, the first part of it began under Treasurer Morrison, the second part continued under Treasurer Frydenberg, it was paused during COVID and it restarted towards the end of last year. It was a decision taken by the Treasury to complete the work that was commissioned from them by my predecessors, two of my predecessors. I have now received the report from Treasury, the advice which is the culmination not just of the work that they have been doing in Treasury over the life of two governments, but also the substantial consultation that they've been engaged in over a long period of time now. I've only received that advice quite recently, very recently in fact. I'm working my way through it. I'll engage in a consultative way with my colleagues and we will come to a view on it at some point, I'm not prepared to say yet whether that will be before or after the Budget, we haven't decided that to be frank but we are working through it right now in a methodical way, considering the recommendations and suggestions and proposals that the Treasury have put to me.
JOURNALIST:
Treasurer, the CBA was warning last week of a collapse in household incomes later this year, potentially requiring a bit of a cut in interest rates, what do you make of that sort of gloomy outlook? And has Treasury done any work forecasting mortgage delinquencies or defaults later this year?
CHALMERS:
First of all, on the pressure on Australians, as they feel the pressure from what's happening around the world and what's happening here in our own country, we understand that Australians are under the pump. And the Commonwealth Bank analysis goes to that reality. And as interest rates have gone up, as the cost of rent, the cost of electricity has been higher than we'd like ‑ for all of these reasons people are feeling the pressure and that's the key conclusion from the Commonwealth Bank. We've been pretty up‑front, I think, in saying that for the time being, the combination of persistently high inflation, and wages growth which is only just beginning to pick up now, means that we have a real wages challenge in our economy. That's why such a substantial part of our economic agenda is about getting wages moving again and getting on top of this inflation challenge at the same time. So to the extent that the Commonwealth Bank got to some of those realities, obviously, we share some of that analysis, if not all of the language that they use to describe it. On the analysis of the pressure that people are under, particularly for homeowners and mortgage holders, we are frequently advised, regularly advised ‑ whether it's APRA, Treasury or others and the private banks themselves ‑ about the state of people's finances, particularly as interest rates rise and obviously the higher interest rates go, the more pressure people are under. And so that's an ongoing conversation that we'll have.
JOURNALIST:
Treasurer, the IMF has claimed ‑ an alarm really ‑ about the possible splintering of international arrangements, trading arrangements and so on. For a country like Australia, how concerned should Australians be about that possibility, and how real is that risk? And have you had an opportunity to have these discussions with international colleagues about that?
CHALMERS:
It's a key part of the issues that were discussed with our counterparts around the world. We are concerned about the fragmentation that we've seen, we are concerned about the obvious geopolitical risks that come from Russia's invasion of Ukraine and other issues closer to home. Obviously, the geopolitics are becoming more and more complex, and that has economic consequences for all of us. And that's a key part of what we discuss at these international meetings. When it comes to supply chains, in particular, I think a key thing that people are trying to work out is how do we find a way to shore up our supply chains without shutting people out of them. And certainly, my conversations with Janet Yellen, with the UK Chancellor Jeremy Hunt and with others, about how do we make our supply chains more resilient and more reliable, without just completely pulling up the drawbridge? It's a huge challenge, particularly for those of us who believe that when the global economy is uncertain as it is now, that we need more engagement not less engagement ‑ that's my view and it's a view, broadly shared, but probably not universally shared around the world. And so finding a place for Australia in all of this uncertainty, all this volatility, all of this supply chain risk, I think is actually an opportunity for us, rather than just a risk for us. But it's a key part of how we see things.
JOURNALIST:
Just on PRRT again, as you consider the findings of the Treasury report as a sort of a starting point in your thinking, do you think that under the current settings, the Australian community and taxpayers are getting sufficient return for the development of their natural resources?
CHALMERS:
I'll have more to say about this when I discuss the advice we've received from Treasury. We've said for some time now that we want to make sure that the PRRT arrangements are up to scratch. Clearly my predecessors had concerns that they were not and I have some concerns that they are not. The Australian community, I think shares those concerns. And so we'll work our way through the advice that we've just recently been provided and when we've got more to say about it, we will.
JOURNALIST:
Treasurer, on China, what's your hopes and confidence that China will lift sanctions against our exports? And what would that do to the Australian economy moving forward?
CHALMERS:
I thought we saw some important developments last week. I pay tribute to Penny Wong and Don Farrell for the progress that they've been able to make. We don't get carried away with that progress but clearly, our efforts to stabilise the relationship somewhat give us a better chance of resolving some of these issues than we had before our government changed hands. And we've made it really clear that we want to see those restrictions lifted, we think it's in the interest of both countries, frankly, for those restrictions to be lifted. It has done damage to some of our industries, in particular, and so a big part of our effort is on progressing those issues. Penny and Don were able to announce last week some developments on this front, which were very welcome. We expect the Chinese economy to make a decent contribution to the growth that we will see in the Australian economy, but it's not without uncertainty as well. And again, pretty central to the conversations we had at the G20, is about the likely growth trajectory for China and what it means for all of us. And clearly for Australia, we rely on China as a big market for our exports. And so clearly, we monitor these things closely but we welcome the progress that has been made in the last week or so. But we don't get carried away, we're not naive about the complexity of the relationship. We want to see those restrictions lifted.
JOURNALIST:
You flagged back in the October Budget that it would be in this Budget where we see tough decisions made, you've spoken about wanting to have conversation about tax reform. We've only really seen announcements about tax breaks for superannuation profits, you've ruled out tinkering with GST and ruled out walking away from stage three tax cuts. So where do the tough decisions come in, other than to not provide as much help for those doing it toughest, as you might like?
CHALMERS:
A couple of things about that, budget repair is not the task of any one budget, or even for the budgets of one parliamentary term. We inherited a trillion dollars of liberal debt, structural deficits, and intensifying rather than easing pressures on the Budget. And one of the big things that we'll have to invest in in May, is cleaning up some of that mess when it comes to unfunded ongoing programs. And when you're presented with a challenge of this magnitude, you need to operate on three fronts. Spending restraint where you can, which goes to Michelle's question about what we do with upward revisions to revenue. Secondly, trimming spending, where you can to redirect it to other more productive areas. I refer you to the fact that in October, we found $22 billion in savings versus $0 in savings in the March Budget, so we made a good start there. And then thirdly, modest but meaningful tax changes. And we do consider the changes that we're proposing to superannuation tax breaks to be modest and meaningful but even a decision like that attracts some controversy. Some of the outlets here spent weeks talking about that change that we are proposing which will be in the Budget. And so none of it comes without controversy. There are hard decisions to be taken and there are hard decisions which will be taken. But it doesn't all rest on tax changes. It relies on those three pillars of budget repair, which is spending restraint, trimming spending where we can and sensible, methodical changes to the tax system.
JOURNALIST:
On the NDIS, which is one of the fastest growing areas of expenditure in the Budget, doesn't seem to get a lot of public attention but in 2021, in Morrison's Budget in '21 he had to tip another $13.2 billion into it over the forward estimates. Your first budget last year had to top it up by another $8.8 billion and we read it's going to be another $5.7 billion top up. That's $28 billion over the forwards in two years extra. Do you share the concerns of the former government that this scheme is now at risk of becoming unsustainable unless it's reined in?
CHALMERS:
If they had those concerns, they didn't act on it.
JOURNALIST:
Well, they tried to. They tried bringing in independent assessments and warned about, and they were blocked. So I'm wondering, do you share similar concerns about the cost of this scheme?
CHALMERS:
We've said repeatedly that the costs of the NDIS which are growing very strongly are a key pressure on the Budget. The big five spending pressures on the Budget ‑ number one, the increasing cost of servicing a trillion dollars of debt that we inherited as interest rates go up, number two is the NDIS and then aged care, health care and defence. So obviously, our objective here when it comes to the NDIS, is to make sure that we get value for money for the people in the scheme we created. We are enthusiastic supporters clearly, of the NDIS. We want to make sure the money's going where it needs to go. Bill Shorten has already done a heap of work in making sure that the NDIS is more cost effective, we get better value for money for the participants and he's got a review underway as well which goes to some of these questions. But it's no secret, when you look at the pressures on the Budget, the NDIS is a big one. Bill has indicated by setting up the review that he's prepared to engage with some of these questions. As I understand it, I think he's at the Press Club this week speaking about some of these issues, and so no doubt you'll tune into that then. Okay, thanks very much, everyone.