JIM CHALMERS:
Today is three weeks until the Budget is handed down. It's one week until I go to DC to confer with my counterparts about the deteriorating global economy and what that means for us here at home. But perhaps most importantly for Australians today, we saw another increase in interest rates by the independent Reserve Bank - 25 basis points to take the cash rate to 2.6 per cent. Now, just because this is a bit less than what many people were anticipating, and just because it's consistent with what we're seeing around the world, it won't make it that much easier for Australians to find room in their household budgets to meet the increasing costs of servicing the mortgage. Ever since interest rates started rising before the election, it was clear from the independent Reserve Bank that there would be a number of interest rate rises. This is now the sixth in as many months and the statement from the Reserve Bank Governor today indicates that it's likely that there will be more interest rate rises as well.
This is important context for the Budget that we are currently finalising to be handed down in three weeks today. The three most important pieces of context for the Budget that we are currently finalising is first of all, high and rising inflation, rising interest rates and falling real wages. Secondly, the deteriorating global outlook. The storm clouds are gathering again in the global economy and that's not irrelevant to us as we put together our Budget here at home. Similarly, what's happening in the United Kingdom has been a cautionary tale when it comes to dealing with this substantial turbulence brought about by high and rising prices, whether it's energy or food security, or in other important ways. The storm clouds are gathering in the international economy and that's important context for the Budget that we are currently finalising. And thirdly, persistent structural pressures on the Australian Budget in areas like health, NDIS and aged care, defence and the rising costs of servicing Commonwealth debt as interest rates rise as well. So the three most important pieces of context for the Budget with three weeks to go: deteriorating global outlook, rising inflation and interest rates and falling real wages, and those persistent structural pressures on the Budget, which we need to accommodate in some fashion as we finalise the Budget. As we do finalise the Budget, we will put a premium on what's responsible, what's affordable, what's sustainable, and what is sufficiently targeted to deal with the economic cards that we have been dealt.
This will be a Budget which is about difficult decisions in difficult times. It will be an opportunity for us to ensure that our Budget settings are best calibrated to what we're seeing in the global economy and the consequences for Australia in our own domestic economy as well. Our commitment to the Australian people is to take the right and responsible path, and not just the path of least resistance as we finalise this Budget. We do need to make the Budget more responsible, more affordable, more sustainable and as targeted as possible to deal with the cost of living pressures that Australians face to deal with the deteriorating global situation and to deal with these persistent structural pressures on the Budget, which have been ignored for too long. Over to you.
JOURNALIST:
Given that scenario, what is the point of the stage three tax cuts in terms of responsibility in terms of what impact it can have on those various factors? And you've referred repeatedly to the cautionary tale from the UK. They've just done a backflip on their tax cuts for high income earners. When you talk about a cautionary tale, you've talked about the diverging of monetary and fiscal policy. But isn't there a more specific point here about unfunded tax cuts for high income earners as well? And does that make you have cause for pause about as tax through tax cuts for 2024?
CHALMERS:
I think the broader point is sufficiently relevant to us that when you get monetary policy and fiscal policy out of whack, as the Brits are at risk of doing, then there are consequences not just for the Budget, but for the economy as well. This is a point I've been making I think since last time we spoke Laura, that I do see what's happening in the UK as a cautionary tale of getting that fiscal and monetary balance out of whack. We do need to ensure that spending in the Budget, particularly in these uncertain global times, is geared toward what's affordable and sustainable and responsible and sufficiently targeted. I think that's one of the lessons from the UK.
JOURNALIST:
Treasurer, are you worried at all about the RBA decision to ease the pace of tightening when inflation is actually expected to increase further and could jeopardise efforts to combat inflation? And separately, have you spoken to the ACCC at all this week about its monitoring of the end of petrol excise?
CHALMERS:
First of all on interest rates, I don't second guess the decisions taken by the independent Reserve Bank. They've made it clear in their own statement today that they think that there is more work to be done by tightening interest rates, that remains to be seen whether that's the case or not. Our own Treasury forecasts expect inflation will get worse before it gets better, but it will get better and it will moderate during the course of next year. We certainly hope that that's the case, and so the decisions taken by the independent Reserve Bank are taken by them alone without me second guessing them. Clearly, we've still got an inflation problem in this economy. Interest rates often have a lag effect and so the effect of rising interest rates is often not immediate. Clearly the Reserve Bank board needs to take that into consideration as well, that time lag.
The other part of your question about the ACCC - we have been in regular contact with the ACCC over the course of the last few weeks about petrol prices, but also about the issues with Optus and before that issues with gas. We're talking with the ACCC pretty regularly. We get regular monitoring of what's happening with petrol prices. What we need to understand when it comes to petrol prices is that there's two things going on and not just one. Firstly, the petrol excise relief came off on Wednesday night and that obviously has implications for the price at the pump, as some of the cheaper fuel which has been underground in tanks runs out and is replaced by the more expensive fuel. But we've also got the regular fuel price cycle as well. You need to disaggregate those two things, which is what the ACCC is doing. We've maximised the ACCC's role for a reason and that's because we want to make sure that there's not any dodgy behaviour going on here. Indications so far is that the market is behaving more or less appropriately, but you only reached that conclusion when you disaggregate the price cycle from what's happened with excise relief. We're not out of the woods yet. We want to make sure that the ACCC is on the case in an ongoing way and I'm confident that they will be.
JOURNALIST:
The ECB and US Federal Reserve have flagged that they now believe high levels of inflation will be more persistent. I just wanted to ask whether Treasury is expecting inflation to be bigger than the 7.75 per cent for the December quarter? And secondly, if the US heads for recession, are you concerned about what downturn impacts could happen for us here?
CHALMERS:
First of all, the Treasury will update their inflation forecasts in the usual way in the Budget that I hand down in three weeks' time. I haven't been advised of any material change to the inflation outlook but those numbers are still to be finalised. And when they're finalised, we'll make them available in the usual way. I think anecdotally, when you speak to economists around the country, I think the concern that they have about our inflation outlook is around electricity. So obviously, we're vigilant in monitoring what's happening with electricity prices, but the outlook for inflation will be presented in the usual way in the Budget. And then the second part of your question was?
JOURNALIST:
There's obviously speculation that the US might head into a recession, I just want to know what kind of implications you think that may have for us here?
CHALMERS:
I think the balance when it comes to some of these major economies, the likelihood of recession has tipped over from possible to probable in some of these big economies which are very important to us. I've tried to be upfront with Australians about that. The OECD, the IMF, the World Bank and others have said that they can't rule out a global recession. And that obviously has implications for us. We wouldn't be spared completely a downturn in the US or in the global economy for obvious reasons. And I think one of the biggest things that has changed in the last month or two is the way that our expectations for the global economy have deteriorated so substantially. We had concerns for the global economy for some time now. I think the weight of opinion around the world is that the global situation has gotten much worse even in the last few weeks. The storm clouds are gathering in the global economy and that's not irrelevant to us as we finalise the Budget.
JOURNALIST:
Treasurer, one of those storm clouds was this incredibly negative response from the markets in the UK, to the idea of future tax cuts, funded by debt. Do you accept that there's a parallel with Australia because the stage three tax cuts are future tax cuts, funded by debt, there is no surplus in that 10-year outlook while the stage three tax cuts come into effect. So do you accept that parallel? And do you give any consideration to whether there would be a negative reaction from the markets also to a similar move in Australia? And does that, I guess, warrant any decision in the October 25 Budget on those stage three tax cuts?
CHALMERS:
Well, as I said in answering Laura's question, and I think, as I've said for some time now, what we've seen play out in the United Kingdom is not irrelevant to us. It's not irrelevant to us because it's a cautionary tale about what can happen if you get your policy settings out of whack in a way that doesn't suit the economic conditions, and particularly the global economic conditions. And so we're very attentive to what's happening in the United Kingdom. We've been sitting the ERC for most of today. And a big part of our considerations is what's happening in the global economy, what's happening in the UK, the US, China, Europe - what that means for us at home, and so I think any responsible government sees what's happening in the UK, and factors that into their own considerations.
I think I said, Phil, then Shane, then Greg, then Katharine.
JOURNALIST:
Just on stage three, Treasurer. You're talking about storm clouds and some dour predictions for the global economy. Could it not be the case, that in a year and a half or two years when these tax cuts are due to start you may need them if the economy's depressed by then and they in fact might be working, not against monetary policy or fiscal policy. I mean, are you being premature by looking at capping them this early out when it could be wiser to wait to see what the economic situation is in 2024 before making a decision?
CHALMERS:
I think it is really important that our Budget settings reflect the economic conditions. That's really the guiding light when it comes to putting together a Budget - making sure that it's relevant to the economic challenges that we confront in the near-term, and in the longer term, as well. And as I keep saying, as we finalise this Budget, as we go through hours and hours of ERC meetings throughout the course of the rest of the week, the guiding light in lots of ways is what's responsible, what's affordable, what's sustainable, and what's sufficiently targeted to deal with economic challenges and Budget pressures which are becoming more serious and not less serious. And so we will put together and release a Budget in three weeks' time which is calibrated to these economic conditions as we confront them, economic conditions when you consider the global economy which have deteriorated even in the course of the last few weeks.
Shane.
JOURNALIST:
Treasurer, the Budget baked in about $110 billion in infrastructure spending over the next 10 years. You've got your own rewiring the nation $20 bil expenditure there, they were predicated on much lower interest rates, is the Budget - or are you and ERC - considering winding back some of the expenditure because it may not be value for money now?
CHALMERS:
First of all, it's right to recognise that the cost of servicing the trillion dollars in debt that we inherited is going up and up. One of the fastest-growing pressures on the Commonwealth Budget is the cost of servicing this debt that has been accumulated in recent years. And that has implications for our Budget. It has implications for how we find room for that unavoidable spending, but also some of the desirable spending in some of the other areas that we've talked about at some length. So when it comes to infrastructure, and I commend the Minister Catherine King for this work, she's been in discussions with states and with others about how we deliver our infrastructure commitments in a way that recognises that labour costs and material costs and labour shortages are having an impact on the infrastructure rollout, not just at the Commonwealth level, but at the state level as well. And state governments of both political persuasions have recognised that reality as we are recognising that reality. And so I think we've said publicly a number of times now, certainly I have and I think Catherine has too that you should expect to see some reprofiling of infrastructure commitments to make sure that we can deliver them, but deliver them in the most responsible and affordable way as well in the context of some pretty serious Budget constraints.
Greg and then Katharine and then here.
JOURNALIST:
Just very specifically, are you considering amending stage three?
CHALMERS:
We haven't changed our position on stage three. What I've said –
JOURNALIST:
Have there been discussions about changing policy internally?
CHALMERS:
We haven't changed our policy. And I'm obviously not going to get into conversations that people have from time to time when proposals are put to us from outside the Parliament. But I've tried to be as upfront with you as I can. We haven't changed our position. As we finalise the Budget, we are obviously factoring in the context of that Budget, including deteriorating global conditions, the need to build a fiscal barrier, the need to make sure that every dollar of spending is defensible when it comes to being affordable, sustainable and responsible and sufficiently targeted. But we haven't changed our position on the tax cuts. Katharine.
JOURNALIST:
Treasurer, in the spirit of being upfront, though, you say you haven't changed your position, the policy hasn't changed as yet. But is the government considering amending, delaying or scrapping the stage three tax cuts in the October Budget?
CHALMERS:
It's a similar answer to what I gave Greg. We haven't changed our position. We haven't altered our position. Obviously any responsible government looks for ways to make the Budget as sustainable and responsible as it can. But we haven't changed our position on those tax cuts for all of the reasons that I've run you through. Over here.
JOURNALIST:
On Syria repatriation, is the NSC meeting, or will they be meeting this evening? And do you agree that the Coalition is fear mongering by suggesting that the young boys being returned to Australia could pose a risk to being radicalised while they're here?
CHALMERS:
First of all, I'm obviously not going to comment on the timing or the contents of any meetings of the National Security Committee. I won't do that on this occasion, and I won't do that on any occasion. Our priority here is obviously the protection of Australians and Australia's national interests informed by the national security advice, but beyond that I'm reluctant to say much more. We'll go John, and then up the back.
JOURNALIST:
Thanks, Treasurer. You've spoken about making sure, in the context of the UK, fiscal and monetary policy, you're working together, the tax cuts don't start for nearly two years. So regardless of whatever you do with them, they're not going to make one iota of difference to inflation over the next 18 to 24 months. So that being the case, isn't the fastest and most immediate way you can help the RBA reduce inflation pressure by cutting spending. And just on that, you took $18 billion worth of on-budget spending to the election, are you committed to fully offsetting that, at least at a very minimum in this Budget, to make sure there's not a net increase in discretionary spending over the next couple of years?
CHALMERS:
First of all, as I've said for some years, in conversations like this one, what matters is not just the aggregate level of spending, but what the spending is for. And the cost-of-living relief that I will include in the Budget in three weeks’ time will deliver an economic dividend. It's an investment, whether it's dealing with labour and skill shortages, with our childcare reforms or our skills policy. Whether it's investing in energy, with cleaner and cheaper sources of renewable energy. Right across the board, the spending that we have proposed is an intelligent investment, in dealing with some of the issues that are pushing up inflation in this economy. So in response to maybe a Shane question from an earlier press conference, I don't think that there's a way in this Budget, a desirable way, or even a way to hack back on discretionary spending so harshly, that it would make a material difference to the Reserve Bank's independent considerations. But where I do think we can make a difference, is when it comes to dealing with some of these issues on the supply side, which have been pushing up inflation, so skills, energy, childcare, some of the other issues that came out of the Jobs and Skills Summit. That's how we make the task of the independent Reserve Bank easier rather than harder. That requires some investment. You can't do that in many instances without some responsible investment, and that's what we intend to do. We'll go here, and then at the back there.
JOURNALIST:
Thanks Treasurer. You've described the NDIS as a desirable investment. Bill Shorten says it shouldn't be seen as a line item, and every dollar delivers to the economy. He's launched a report today that says that the NDIS should continue to grow as long as there's demand. How do you see in this Budget, the need to keep a lid on those costs going up?
CHALMERS:
We want to make sure that every dollar that's spent in the NDIS is spent effectively. And that's a task that, whether it's Bill, Katy Gallagher and myself, we've been in rolling discussions about this really since we took office, because we are big supporters of the NDIS. We created it, we want it to succeed and part of ensuring that it succeeds is making sure that we get maximum value for money. And in that context, I really welcome Dylan Alcott's contribution today. The release of that report will be an important factor, as we conduct the various reviews that Minister Shorten has underway. We want the NDIS to work for Australians with a disability. We will fund it sufficiently to do that task. Where we can make sure that money is better targeted, obviously we will look at that, that's in the interest of everyone who believes in the scheme, to make sure that every dollar out of the billions and billions of dollars that is rightly invested in Australians with a disability, we want to make sure that it's effective. And that's part of the work that we've got ahead of us.
JOURNALIST:
Peter Dutton says, essentially, the only way Australia is going into recession is if you stuff things up. What's your response?
CHALMERS:
Every time he opens his mouth, it's a reminder of why they've got no credibility on the economy. A lot of what we are left to clean up has been a consequence of a wasted decade of missed opportunities and warped priorities. Whether it's the skills shortage, whether it's 22 different energy policies that have left this energy policy chaos that we're dealing with, a trillion dollars in debt. These characters were in office for the best part of a decade. And it will take more than one Budget to clean up the mess that we've been left. And every time he opens his mouth, or Angus Taylor opens his mouth, it's a reminder that this is the dregs of the former government, which gave us a trillion dollars in debt, gave us an energy crisis and gave us a skills shortage. And we will work around the clock to fix the mess that we've been left. Last one, Phil.
JOURNALIST:
You said last week, reasonably, this is going to be a bread and butter Budget. Now you're saying is going to be a Budget about difficult decisions. Have you changed your thinking, in terms of measures that you are going to include, in the last week?
CHALMERS:
I see that as entirely consistent. I'll finish on this point. I don't see Budgets as some kind of vanity exercise. I don't see them as some kind of opportunity to do something fancy. I see Budgets as an opportunity to take the right decisions for the right reasons. And I will always put the right economic outcome above a political outcome. I will take a difficult decision if it's necessary, working with my colleagues, because these are difficult times. And people should expect a solid Budget, they should expect a considered Budget. One that takes the right decisions for the right reasons for the future of our economy and the future of our Budget, but most importantly for the future of our people. And there's no use pretending that the global situation hasn't deteriorated. There's no use pretending that rising inflation isn't punching a hole in family budgets. There's no use pretending that we don't have these big five areas of persistent structural pressure on the Budget. And my job and the Government's job is to take the right decision, even if it's difficult, to put the economics before the politics and let the political cards fall where they may. And that's what people can expect from me, not just in the Budget, but beyond that as well.
Thanks very much.