Jim Chalmers:
The Final Budget Outcome that we’re releasing today shows that the deficit came in $6 billion better than expected and debt was $10.6 billion lower at the end of the financial year. We have made a lot of progress in the Budget, and we’ve made more progress since then, but we know that there is more work to do.
The bottom line is better than we inherited, better than it was at the election and better than it was forecast to be in May. It is now around half the deficit for the year just finished compared to when we came to office. It now means that the aggregate improvement to the budget in our time in office is $230 billion better when it comes to the underlying cash balance, and there is $197 billion less debt.
Now, if you look at the improvement in the budget since the Budget was handed down in May, payments are down 1.4 billion, and receipts are up 4.6 billion. I want to be really clear that the improvement in receipts is not from commodities – in fact, mining profits came in lower than was anticipated. It’s also not from wage earners. It is overwhelmingly from higher super and investor income than what we anticipated in the Treasury’s forecasts in May.
So to be really clear about that, this is not about wage and salary earners, it’s not about commodity prices, it’s about higher than expected super and investor income, higher than was anticipated in the May Budget. Mining profits actually came in lower than was expected. So those are some important points of perspective.
Now, responsible economic management is a defining feature of this government. You can see that in the way that we have made savings. In fact, the last 2 Budget updates had positive net policy decisions. You can see that in the way we’ve banked revisions. You can see that in the fact that we’ve limited spending where we could do that.
Our responsible economic management has given us one of the strongest budgets in the G20. We have much, much lower debt to GDP than the major advanced economies. And this is precisely why the agencies have rated us AAA for budget management. I refer you to the comments that S&P Global and Moody’s have made in recent weeks when it comes to our responsible economic management, the conservative way that we’ve gone about our budgeting, which has given us a AAA credit rating, and stable, from the 3 major ratings agencies.
I wanted to touch on a couple of points about public demand as well, because what you can see is over the course of 25–26 public demand actually moderated. New public final demand grew 2.2 per cent, which is the slowest in 11 years, and it’s half a percentage point below the May forecast. And remember as well from the national accounts that in annual terms, $4 in every $5 of demand was private demand, not public demand. So we saw public demand actually come off a bit compared to forecasts in the Final Budget Outcome we’re releasing today.
Now, despite this very welcome improvement in the budget, we know that pressures are intensifying rather than easing. As I said, responsible economic management is a defining feature of this government. You can see that in the Final Budget Outcome, and we’ll see that in the difficult months ahead as well.
With that, I’ll hand you over to Katy, then we’re happy to take some questions.
Katy Gallagher:
Thanks, Jim. Well, as Jim said, the FBO result is better than expected at Budget because of lower‑than‑expected payments as well as an improved outcome for receipts. Payments were $1.4 billion lower in 25–26 than was estimated at Budget. This really relates to a few programs spending less, so in aged care, PBS, across the childcare system, a couple of national partnership payments, but up in other areas, so in NPPs, in road and rail, batteries again being an area where we’re seeing higher than expected growth.
But what we see is that the deficit has come in lower. We’ve delivered a stronger budget than we inherited in every year since we’ve been in office. The budget over the last 4 years is $230 billion or almost a quarter of a trillion dollars, better than what we inherited. Gross debt in 25–26 was $197.6 billion lower than we estimated when we came to office. And that has avoided about $70 billion in interest costs over the 11 years to 2031–32. Gross debt as a share of the economy was 33.2 per cent in 25–26, down from 38.3 per cent in 21–22.
So, you can see that since we’ve come to government, we’ve limited real spending growth. We average 2 per cent over the 4 years we’ve been in government, which is half of the 4.1 per cent our predecessors averaged. We’ve delivered those substantial savings and reprioritisations, around 178 billion since coming to government in 2022, including 23.8 billion in 25–26. We’ve returned around 75 per cent of all tax receipt upgrades to the bottom line. And at the same time, which is not an area we get a lot of reporting on, we’ve found room for $120 billion in automatic payment variations, really across those big portfolio areas like social security, natural disasters, veterans and aged care.
Journalist:
Treasurer, just in relation to tomorrow’s likely rate hike, the RBA said that there’s a speed limit on the economy being 2 per cent. There’s some estimates that it might actually be lower because productivity keeps falling. In light of that, is there anything the government is considering and if not, why not, to actually take pressure off inflation in the short run given we’re likely to see one, maybe 2, maybe 3 rate hikes?
Chalmers:
Well, first of all, in the usual way, I’m not going to predict or pre‑empt the considerations of the independent Reserve Bank Board which is meeting right now and, as you rightly point out, will announce a decision tomorrow. I think it is the universal or near‑universal expectation of economists and the market that rates will go up around the world, including in Australia. We see much more pressure on inflation from developments in the Middle East in particular. And that’s why, if you look right across the major advanced economies, there is an expectation of higher interest rates around the world as a consequence of higher inflation coming from primarily oil prices, but with other considerations and factors as well. So that’s the first part.
The second part of your question around productivity, no government in the last few decades has taken this productivity challenge in our economy more seriously than this one. No government has had a deeper or broader productivity package in a budget than the 15 or so different elements that we put in the Budget in May. And that’s because more than acknowledge Australia’s got a productivity challenge, we’re doing something about it. There is no quick and easy way to turn around 2 decades of underperforming on productivity, but we’re taking that challenge more seriously than our predecessors did.
In the near term, the most important thing is that we continue to play a helpful role in the way that we put budgets together. The fact that public demand has come off in this Final Budget Outcome is a good development on that front. The fact that the deficit is smaller in the year just finished is a good development on that front. We acknowledge the independent Reserve Bank has its own job to do. Our job is to continue to manage the budget in a responsible way and take this productivity challenge seriously, and we’re doing both of those things simultaneously.
Journalist:
Thanks, Treasurer. Minister Gallagher, can you share any new information about the OpenAI incident from last week? Is the company being forthcoming in the rapid investigation? Is there a completion date for that? And is there any indication of other parts of the government having been affected?
Gallagher:
So I can. On that final bit of your question, no, we have no further information that would say it was bigger than what we talked about last week. OpenAI has continued to share technical information. I had a briefing from Services Australia this morning. They have all the technical information they need, but there is some further information that’s still being sought and there’ll be follow‑up meetings with OpenAI over the course of this week.
I don’t think there’s anything further I can update you on other than that website will not be reactivated. It’s the Medicare statistics reporting portal, it is no longer and the data that was on that has been progressively shifted to data.gov.au as a place where we share public data.
The email that notification from OpenAI came to has been redirected to be, essentially be monitored 24/7, not once a day. So there have been some short‑term responses that Services Australia put in. I don’t expect – I expect the forensic investigation to be finished within a matter of weeks, no longer than that. I don’t have a specific date. And that will feed into the rapid review that the PM&C are leading.
Journalist:
Yeah, minister, just picking up on that and you saying that there’s no further information that it’s any bigger than what the government outlined last week, are you meaning just in relation to accessing the Services Australia portal? Because last week Minister Marles said that the actions involving, say, the AIHW website were normal, but there are logs online suggesting that agents tried multiple tactics for almost a week to access that website, albeit unsuccessfully. So that doesn’t sound normal. Is there more information about that incident?
Gallagher:
Well, I guess, my response was in terms of the agencies identified as being subject to this OpenAI disclosure. The rapid review team being – you know, worked on across government is looking at all of those things. I’m, as Minister for Government Services, responsible for the Services Australia site, but certainly in the information I have about that, there is no – there hasn’t been any further reports of anything greater than what we announced last Thursday.
Journalist:
Treasurer, could I just follow up on that? Are you turning your mind to our expenditure on cyber security and the way that we could be detecting or preventing these things, given that if they are unsuccessful there’s not always going to be an obvious footprint to follow?
Chalmers:
Look, from budget to budget and budget update to budget update, of course we consider these kinds of pressures and these kinds of challenges. And because the challenges in the tech world and particularly as it relates to AI, because they’re so fast‑moving, then they are more or less an ongoing feature of the discussions that we have.
But it’s not like we waited for this event before we put a lot of time and effort and investment into safety in the AI world. You know, the safety institute is an important part of it, the national standards, there’s a whole bunch of work that we’ve been doing for some time which has meant extra investment and extra resources in some areas. And so that work is ongoing, and when there are new developments, obviously we respond to them.
Gallagher:
And can I just add – sorry – just to add to that is in the last budget we put $160 million in for a cyber security uplift in Services Australia, recognising that we have to continue to bolster those systems of government significance. And I was trying to say this last week – the kind of cyber protections of a public‑facing website versus our systems of government significance are quite different, and they are under constant, constant attention from people who would like to get in. Those systems are the ones that the upgrade will be focused on.
Journalist:
Treasurer, back to the Final Budget Outcome, look, you’ve long had a tendency to compare your numbers to the forecasts you inherited in the 21–22 PEFO. That was a notoriously unreliable document because of the circumstances at the time of COVID. For example, they predicted an $80 billion deficit for 21–22. It came out at actual $32 billion. Wouldn’t it be more intellectually honest to compare the numbers today to the actual numbers you inherited rather than the forecasts? You could still claim you’re $10 billion better off and your better percentage of GDP. But it would be a more honest reflection of the improvement rather than these numbers that never really existed.
Chalmers:
Well, if your assertion, Phil, is that the budget is better off on our watch no matter how you measure it, then that’s a welcome assessment.
Journalist:
[Inaudible].
Chalmers:
I know – I mean, obviously I understand that you have a view about this, Phil. I’ve read it in your columns over the years. But it’s not unusual, nor is it inappropriate to compare the mess that we inherited with some of these outcomes that we’ve been able to deliver. And particularly when you look at that debt trajectory, you know, to be able to get that debt trajectory down a couple of hundred billion dollars means that we save about $70 billion in interest costs at a time when we expect that there will be substantial additional pressure on borrowing cost going forward because of what we’re seeing in bond yields around the world. So however you measure it, we have gone about managing the budget in a much more responsible way than our predecessors. whether you compare the outcomes we’ve been getting with the 2022 Pre‑election Fiscal Outlook or in other ways.
Now, from time to time I think it has been insufficiently acknowledged that, for example, when there have been upward revisions to revenue, like you reference in your question, we’ve banked three‑quarters of those upward revisions to revenue. Our predecessors banked, like, 40 per cent, I think. You’d remember that Howard and Costello banked 30 per cent. So by that measure, too, if you’re looking for other ways to show how responsible we’ve been with the budget, the way that we’ve banked those upward revisions to revenue has been really important.
Similarly, if you look at the last 2 budget updates, we’ve had net policy decisions positives. The last 2 budget updates. And in the context of the question that Paul asked about what is our role at a time when we expect inflation to spike on Wednesday because of petrol prices, when the independent Reserve Bank is meeting to consider interest rates. And right around the world there’s an expectation that interest rates will go up in the major advanced economies – in fact, in all of them – then by any measure we’ve managed the budget much more responsibly than our predecessors. That’s not to say that the job is finished. Of course from budget to budget it requires ongoing vigilance and diligence. And that’s what people have been getting from us. And you can expect that to continue when we see some of these budget pressures intensify, including when it comes to borrowing costs potentially quite significantly.
Journalist:
Yeah, Treasurer, we’ve seen in the last couple of days reports that at some point quite soon the government is going to be spending more on debt repayments than on Medicare. Given the increasing costs of borrowing globally, do you think that puts more pressure on your government to actually cut spending? And if so, where would you see those cuts?
Chalmers:
Well, first of all, I refer you to the number that Katy used, which is about spending growth. So our spending growth at 2 per cent on average, compared to 4.1 under our predecessors. If you want to take COVID out of that, our predecessors averaged 2.6. So we have been limiting spending growth. We have had net policy improvements the last 2 updates. We have found that huge amount of savings and reprioritisations, and that work will continue. Every budget that we hand down is intended to be the most responsible budget that we can hand down.
Now, when you ask about borrowing costs and what’s happening with bond yields around the world, you know, we have seen an increase in borrowing costs. It’s because inflation expectations have gone up because the war has dragged out. Expectations of interest rate rises around the world have gone up. Other countries are in a far worse position than us when it comes to their debt position and their overall fiscal settings. There’s huge competition from the hyperscalers for capital.
And you’ve got all of the uncertainty as the backdrop to that outlined in the IGR around the energy transformation and AI more broadly, industry change, ageing the population, geopolitical fragmentation. And so anybody who’s been watching developments in global markets and particularly global debt markets would understand that that is a very serious pressure, upward pressure, on borrowing costs, and that will play out in our budget when we update it in the MYEFO.
And if you think about that – the debt that we are carrying in our budget, debt to GDP is a sliver of what it is in other comparable countries. Today our debt is a bit under a trillion dollars – I think $980 billion today – almost two‑thirds of that debt was added by the Coalition. And when you’re carrying that debt, even though it’s a sliver of what other countries have got, obvious when borrowing costs go up, that impacts our own budget. That does put a premium on us continuing to manage the budget in the most responsible way we can.
Journalist:
Treasurer, I’ve been spending the last couple of days talking to people in agriculture and hospitality and accommodation. They say that they’ve got basically a crisis of shortages of workers and they point to, in particular, the shortage of working holiday workers. Your minister in this space has slowed down the processing of those visas. Could you tell me how that makes sense? And on a related question, is the politics of migration in this country, which is pretty lively, as you know, is it trumping common sense?
Chalmers:
Well, a couple of things about that. I mean, first of all, there’s an ongoing role for backpackers in the temporary workforce. But the responsibility that we embrace and accept is to make sure that we’re managing those numbers, that the migration system is serving our national interests, including our national economic interests, including on farms. That’s the first point.
The reform package that Tony Burke announced at the National Press Club a couple of Thursdays ago is a responsible, considered, methodical way to weigh up all of these pressures in our economy and in our local communities to make sure that the migration system is its best version of itself.
It is self‑evident that we’ve got shortages in some sectors, including construction, including in the care economy and including in some seasonal parts of the economy. What we’ve been able to do is to manage net overseas migration down, almost 50 per cent lower than that post‑COVID surge that we inherited. Almost 50 per cent lower. That’s important. And some further to fall. But making sure that the mix serves our national economic interests.
Now, as I understand it – and I didn’t see it live – but as I understand it, Barnaby Joyce has been on TV in the last little while and he is once again all at sea on some of these questions. I think he has admitted that the One Nation proposal is uncapped. So Barnaby Joyce can’t say whether migration will be higher or lower under the policy that they put together and announced.
So these are some complex questions and we’ve been working through them in a considered and methodical way. And you can see that in the way that we’re going at some of these important questions around skills shortages.
Journalist:
Putting aside what Barnaby Joyce has to say about it –
Chalmers:
You asked me about the politics of it, and a lot of the politics of it has been driven by –
Journalist:
You’re the Treasurer. Wouldn’t you like to see a booming regional economy? I’m speaking to people who say these shortages are harming our economy.
Chalmers:
This is precisely why we are managing the migration system with an eye to the economics and not the politics. I do accept your assertion that there’s a lot of politics being played with migration policy. Of course there is. And unfortunately our opponents are always looking for the most divisive outcome and not the best outcome for Australia. And that’s why as the last party standing in the sensible centre of Australian politics, we’re managing net overseas migration numbers down at the same time as we’re making sure that it serves our national economic interests. And that means putting the right policy ahead of the day‑to‑day politics being practiced by our opponents.
Journalist:
Treasurer, your budget is $6 billion better off. Most household budgets won’t feel any of that. What do you say to mortgage holders or renters who are dreading what is coming in 26 hours’ time?
Chalmers:
Well, I mean, first of all, again in the same way I responded to Paul’s question a moment ago, I’m not going to make a prediction about the outcome of the deliberations of the Reserve Bank Board.
We do know that Australians are under pressure. That’s why we’re cutting their taxes. That’s why we’re increasing their bulk billing. That’s why we’re making sure that wages are growing, because when you see the pressures that Australians are under, you’ve got 2 options. You can just acknowledge it or you can acknowledge it and act on it, and we’re acting on it.
You know, we’re cutting income taxes, opposed by our political opponents, so that people can earn more and keep more of what they earn. We’re increasing bulk billing because we know that that’s a really important way to take pressure off family budgets and the budgets of pensioners. We’ve made sure that wages have been growing above 3 per cent because we see decent wages as part of the solution to cost‑of‑living pressures and not part of the problem.
So we’re acting on the legitimate pressures and concerns that people have. We know that these are difficult days for people who are under pressure already. We know that when interest rates go up it puts additional pressure on mortgagees in particular, and that reverberates right through the economy. Our job, our responsibility, which we embrace and accept, is to continue to manage the budget in the most responsible way that we can, continue to roll out that cost‑of‑living help in a responsible and affordable way at the same time as we deal with some of these longer‑term economic challenges which have been a feature of our economy for too long.
Journalist:
Thank you, Treasurer. Minister Gallagher, the National Audit Office report into the strategic commissioning framework has just been released, and they’ve called for more transparency around reporting of government spending on external contractors. Why isn’t your department moving harder on transparency in that direction?
Gallagher:
So, yes, I’ve been briefed recently on the audit report. So we’ll have a look at the recommendations and see what we can do. I mean, we brought in the Strategic Commissioning Framework precisely to deal with the problem that we came into government and found that key functions of the public service were being outsourced to private companies. And we’ve tried to change that with the Strategic Commissioning Framework.
If there’s more we can do, we will do it. I mean, this is an area we want to see continued progress. I’m still kind of concerned about the level of spending on external arrangements across the public service. We’ve made a couple of attempts at this to reduce spending on those arrangements now that we have bolstered the public service to a size that can do its job properly. So if there’s more to be done, we will do it.
Journalist:
Thank you. The Australian Tourism Industry Council has today said that there will be a $1.65 billion reduction in visitor spend in the regions. Does that fact alone show that maybe the government hasn’t gotten the balance right between the migration figures for working holiday makers and the economic ramifications of that policy? And what’s your message to the many, as Matt said, businesses, the tourism operators and the hospitality businesses in the regions that are struggling and don’t know whether they’re going to get enough people in ahead of the holiday season.
Chalmers:
Yeah, I mean, again, I would say that the backpackers will continue to play a role in the seasonal workforce. There are more opportunities as well in the PALM scheme to make sure that people are getting the workers that they need at the same time as we manage those overall net overseas migration numbers down to something which is a bit more normal.
We take very seriously the issues raised with us by farmers and by the agricultural sector. Of course we do. And similarly when it comes to the construction sector and the care economy. I think, from memory, the Housing Industry Association gave our migration changes a 10 out of 10 because we have factored in some of these really important considerations when it comes to different parts of the workforce. And, again, with apologies for repeating the answer I gave to Matt, this is precisely why you need to balance all of these considerations, manage the program in a responsible and methodical and considered way, and that’s what we’re doing.
Journalist:
Should the government have modelled the outcome of the impact of the working holidaymakers changes before announcing the policy?
Chalmers:
Well, we take into consideration all kinds of advice when we make these kinds of changes to the migration system. They are carefully considered by Cabinet, and we come to an outcome which best serves Australia’s national interest. And that’s really the difference here. I think, as I said in the parliament, the difference here is, you know, we take considered decisions about migration, decisions taken by Cabinet ministers in the Cabinet room. Our political opponents take their direction from Gina Rinehart and others. We are the only ones managing migration in a sensible, considered and methodical way, getting those numbers down at the same time as we recognise the genuine economic need.
Journalist:
Treasurer, backpacker visas will be slashed by around more than 80 per cent. Tony Burke says that there won’t be any change to an increase in food prices. Can you confidently say that you agree with him?
Chalmers:
There will be an ongoing role for backpackers in the system. And I think the PALM system as well has a really important role to play here.
Journalist:
The NFF says that the PALM scheme is uneconomical and the 2 can’t be compared accurately.
Chalmers:
I think the PALM scheme is a really important scheme that recognises the legitimate workforce needs that we’ve got in the regions, including on farms. And there will be an ongoing role for working holidaymakers, backpackers, in the system. We acknowledge that migration policy always has a broad range of views. We take seriously all of the issues that are raised with us. And, again, in managing those net overseas migration numbers down for important reasons, we will continue to make sure that the system serves our national interest, including our national economic interest.
Journalist:
So price don’t be impacted?
Chalmers:
That’s not our expectation.
Journalist:
Just so Australians are clear – is government spending contributing to inflation? Yes or no?
Chalmers:
Well, what we saw in the Final Budget Outcome, as I said before –
Journalist:
It’s yes or no, isn’t it?
Chalmers:
Well, you determine the questions and I’ll answer the question the best that I can.
Journalist:
But just to be clear for Australians.
Chalmers:
No, the additional pressure on inflation that you’ll see in Wednesday’s numbers comes from the fact that we have a war in the Middle East pushing up global oil prices, pushing up prices at the petrol bowser. Anybody who has forecast the inflation number for Wednesday’s CPI is expecting the headline number to come up potentially quite substantially because in August we saw the excise relief come off, we saw prices spike because of the re‑escalation of the war in the Middle East, and there’ll also be some interactions from the former energy bill relief and the timing of that coming off.
And so if you look at the year that we’re talking about here in the Final Budget Outcome, if you look at that year, 4 in every 5 dollars of demand came from private demand, not public demand. Public final demand is lower in this Final Budget Outcome than was expected in May. And so I think anybody objective observer of what’s happening in our economy, and particularly what’s happening with inflation, will conclude that a big driver of the inflation we’re seeing in our economy right now comes from the Middle East.
Journalist:
So that’s a no, Treasurer?
Journalist:
Just building on Charles’s question, despite today’s good news – $6 billion better off the Budget bottom line – do you accept that at the end of the week ultimately the number that most Australians are going to remember is that interest rates will be the highest they’ve been in 15 years?
Chalmers:
I do acknowledge that a lot of Australians will be apprehensive about the deliberations by the Reserve Bank Board today and tomorrow. I do acknowledge that a lot of Australians will be hanging out for that decision from the independent Reserve Bank, for obvious reasons.
It’s not to predict or pre‑empt decisions that they will take independently to point out that any increase in interest rates obviously puts additional pressure on people. Our job, you can see it in these figures today, you can see it in our responsible cost‑of‑living help, our job is to manage the budget and the economy in the most responsible way that we can. We will continue to do that because we recognise that Australians are genuinely under pressure. That’s why we’re delivering real change – cutting taxes, boosting wages, boosting bulk billing, making it easier and fairer for first‑home buyers. All of this is about recognising the pressures that people are under and doing what we responsibly can to address those pressures.
Journalist:
So just back to the FBO and some of the numbers, in payments, spending to GDP ratio has gone up from 26.6 to 26.9. Obviously that’s part of weaker economic growth. The tax‑to‑GDP ratio has gone up as forecast in the May budget for the 26 financial year from 23.6 to 24.1. Now, you mentioned before this is not more tax from workers, but it is, isn’t it? Because you’ve got the individual and other withholding tax going up 2.3 billion on what was forecast in May, and then you’ve also got this high superannuation, which is workers’ money as well.
Chalmers:
So a couple of things about that. I mean, first of all, there are 3 components of the personal income tax system. This is the – the increase today is not the PAYG part, it’s not the third part; it’s the superannuation funds have done a good job hedging all of this uncertainty. It’s an exchange rate story partly. So the higher receipts are really a function of 2 things – investor returns being higher than anticipated in the Budget and better superannuation outcomes. That is overwhelmingly why that receipts number has come up.
When it comes to the spending and tax as a share of GDP calculations, as you’re right to point out and I hope I see it in your copy, the reason for that is because the nominal GDP came in lower because inflation was lower than expected in the May Budget. Inflation came in actually quite substantially lower than was expected in May. That has implications for nominal GDP, and that means the calculation is different.
When it comes to spending, spending is down in nominal terms in the FBO. It came down by $1.4 billion, as Katy pointed out and as I pointed out. So spending is down in the FBO as a share of GDP that’s impacted by that nominal GDP calculation.
When it comes to tax‑to‑GDP, tax‑to‑GDP would have been higher were it not for us cutting income taxes. And were it not for our tax cuts, instead of being below the Howard highs, we would have been above the Howard highs. So if our opponents had their way and knocked off our tax cuts, then tax‑to‑GDP would be higher than Howard and Costello in these numbers, but they’re not. They’re lower than Howard and Costello, and that’s because we have been cutting taxes to take some of the pressure off people.
Last point I’d make is this, and it comes to spending: our political opponents have racked up more than $110 billion in new commitments just over the forward estimates since the election, and more than half a trillion dollars in new commitments over the next decade just since the election. So by their own logic, inflation would be higher and interest rates would be higher if their policies were put in place. More than $110 billion in extra commitments unfunded just since the election. And so when you hear from our political opponents today and tomorrow and the day after, remember that by their own logic, by their own admission, the commitments that they have made would see higher inflation and higher interest rates than what we see today.
Journalist:
I don’t imagine you’d stoop to their standards, would you?
Journalist:
Treasurer, when you mention the inflation problem now you routinely reference the Iran war. Can I ask –
Chalmers:
So does every objective observer, Tim.
Journalist:
Okay, but I’m asking you: do you now say that that is the overwhelming factor driving Australia’s inflation problem – the war launched by our greatest security ally? And can I also ask then, are you saying that the government cannot do anything more to soften the inflation problem, to deal with our inflation problem?
Chalmers:
The best way to describe the inflation change right now is that we have an inflation challenge in our economy made much worse by a war in the Middle East. That’s the best way to describe the situation that we have right now.
Now, on Wednesday at 11.30 we’ll get the inflation numbers, the monthly numbers, for August. And if you look at all of the expectations across the independent economists and the way that the market is thinking through, people expect there to be a substantial jump in the headline rate on Wednesday because of higher petrol prices. And obviously that is a function, at least in part, of much higher global oil prices because of the re‑escalation of the war in the Middle East.
Now, again, our opponents, and some, including perhaps some in the media, want to pretend that none of that is happening. They want to pretend that our inflation challenge is primarily domestic. Our inflation challenge is partly domestic, but it is made much, much worse by global conditions. And from an economic point of view, the war in the Middle East has been absolutely disastrous for family budgets in Australia. From an economic point of view, the end of this war can’t come soon enough. Australians are paying an extremely hefty price for decisions taken on the other side of the world. I think that’s self‑evident.
Journalist:
So can you do more? Is there anything you can do re inflation, that you can tell the Australian people you can do re the problem?
Chalmers:
There are 3 things that we can and that we are doing. First of all, manage the budget responsibly. The budget has come in even better shape than we anticipated a few months ago. Secondly, provide cost‑of‑living relief in an ongoing and really responsible way. That’s what we’re doing with tax cuts, bulk billing, wages and in the housing market. And thirdly, deal with some of these longer‑term issues, which were in Paul’s question a moment ago. We do have an issue with the speed limit of our economy. For 2 decades productivity growth has not been what we need it to be, and that’s why we’re taking the productivity challenge more seriously than our predecessors with the biggest and broadest productivity package in the Budget.
And, again, even those initiatives across all of those, I think, 15 different areas in the Budget, it you could just click your fingers and make our economy more productive, somebody would have done that already. But we had a wasted decade, the weakest productivity growth of any decade for 50 or 60 years was the decade our predecessors presided over. We knew that we had a lot of work to do on productivity. We are doing that work. The benefits of that unfortunately will be felt in the coming years, not necessarily in the coming days and weeks. But those are the 3 things that governments need to do and those are the 3 things that this government is doing.
Journalist:
In addition to the Middle East, you mentioned hyperscalers wanting capital as one of the causes of pressure on interest rates. Is high inflation the new normal, and do you agree with Michele Bullock that unemployment will need a 5 in front of it to bring interest rates back down?
Chalmers:
Well, a couple of things about that. I mean, the competition for capital is fierce in the world right now. And the hyperscalers in the AI world are seeking to raise mountains of capital to fund their investment plans. Overwhelmingly, Australia can be a beneficiary of those investment plans so long as we manage the risks appropriately, and that’s what we are doing. But there’s a huge contest for capital, and the hyperscalers are kind of turbocharging that, and that’s one of the reasons why borrowing costs are going up.
And the second part of your question?
Journalist:
Michele Bullock, it’s unemployment with a 5 in front of it.
Chalmers:
Yeah. What we have seen is that it’s possible in this country to have lower unemployment than that at the same time as inflation comes off. Indeed, in the last year or 2 we’ve seen times where we’ve had incredibly low unemployment at the same time as inflation has been moderating.
The Reserve Bank under Governor Bullock’s leadership and under the leadership of former Governors, has had a dual mandate to care about price stability at the same time as they care about maintaining full employment. That concept of full employment has been contested for as long as I can remember. But our goal and, dare I say, the Reserve Bank’s goal is to see inflation moderate in ways that we expect in the budget at the same time as we maintain good employment outcomes. We’ve shown that that’s possible in the past. It will be possible in the future again.
But to wrap it up, because so many of your questions have gone to this, we have an inflation challenge in our economy not because unemployment is too low but because the price of petrol is too high and we’ve got other inflationary pressures in our economy. I’m reluctant to blame the workers of this country for our inflation challenge. It’s been overwhelmingly a good thing that this country has had extremely low unemployment for the life of this government. In fact, the lowest average unemployment of any government in 50 years, the Albanese Labor government. That’s a good thing. But we’ve got work to do to make sure that we can maintain low levels of unemployment at the same time as we see inflation moderate over time. And in that the Reserve Bank and the government have got the same objectives, but we’ve got different responsibilities.
And what this Final Budget Outcome shows today is that we take our responsibilities very seriously when it comes to providing responsible economic management. You can see that in the fact that the deficit has come in lower. You can see that in the fact that debt has come in lower. You can see that in all of the aggregates that we’ve been talking about today. Responsible economic management is delivering these better figures today, but we know there’s much more work to do. The pressures are intensifying rather than easing in the budget, in the economy. And that’s why we’ll continue to manage both of those things in the most responsible way we can. Thanks very much.