JIM CHALMERS:
Today Katy Gallagher and I are releasing the Final Budget Outcome for the year just finished, which shows that the Albanese Labor government has delivered a second consecutive budget surplus.
This is a powerful demonstration of our responsible economic management. Responsible economic management is a defining feature of the Albanese Labor government. These are the first consecutive surpluses in almost 2 decades.
In our first year a $22 billion surplus, which was a $100 billion turnaround. In our second year a $15.8 billion surplus, which is a $72 billion turnaround. That $172 billion turnaround in just 2 years is the biggest nominal improvement in the Budget in a parliamentary term ever. And it wouldn’t have happened without our responsible economic management, it wouldn’t have happened without our spending restraint, without our savings, and it wouldn’t have happened without the way that we’ve taken the right economic and fiscal decisions for the right economic and fiscal reasons.
It’s really important to recognise that this surplus is bigger at the end of the financial year than we anticipated in May, not because taxes are higher, but because spending is lower. Spending in the last financial year was much lower than anticipated at budget, and revenue was lower as well. Spending was down by around twice as much as revenue was down.
So this bigger surplus is not because we taxed more, it’s because we spent less, and that’s an important thing to recognise.
Now we don’t see a surplus as an end in itself. These surpluses are all about fighting inflation, making room for cost‑of‑living relief, building a buffer against global economic uncertainty and also paying down the Liberal debt that we inherited so that we pay less interest on it. Less debt and less interest, something like $150 billion less debt, which means something like $80 billion less in interest payments on that debt.
Now in addition to the quite stunning progress that has been made in budget repair over our first 2 years, we haven’t neglected those big longer‑term spending pressures as well. Whether it’s dealing with the interest costs on the debt we inherited, whether it’s reform to aged care or reform to the NDIS.
Spending on NDIS will continue to grow, spending on aged care will continue to grow, but what we’ve been able to show is a willingness and an ability to make sure that both of those grow more sustainably at the same time as we get those interest costs down.
Katy and I have spoken to you on multiple occasions about the big pressures on the budget. Our responsible economic management is in the near term, but also in the longer term as well.
I think Australians can be really proud of the progress that we’ve made together over the course of the last couple of years, indeed over the course of the last week or so.
If you think about the last week, only last Wednesday, we got very welcome, very encouraging, very heartening numbers when it came to monthly inflation. Not just headline inflation but underlying, both measures, as well as non‑tradables and services inflation, all went down in welcome and encouraging ways.
In the second half of last week, we re‑started the Strategic Economic Dialogue with China; it couldn’t have been better timed given the very welcome news out of Beijing that the Chinese government is acting to support growth and activity in the Chinese economy.
That softness in the Chinese economy has been a big concern for us, a big part of the global economic uncertainty which plays out in our own economy as well. We saw another round of weak manufacturing data just in the last couple of hours or so out of China.
Our forecast for China over the next 3 years or so, if they play out as we anticipate, would be the weakest growth in China since it opened up in the late 1970s, and so progress stabilising that important relationship with China, a relationship full of complexity and economic opportunity, important developments in the last week as well.
We should also be proud collectively as Australians of the progress that has been made in the last couple of years despite very difficult economic conditions around the world, and indeed here at home as well.
Over the last couple of years inflation has halved in quarterly terms, better than that in monthly terms. We created a million jobs together despite the weakness in our economy overall. We’ve got real wages growing again, we’ve got a tax cut for every taxpayer, and we’ve got these 2 substantial Labor surpluses, which mean less debt and less interest on the debt as well, a budget in much better nick.
This is what responsible economic management looks like, and the key figure in that has been the Finance Minister, so we’ll hear from Katy, and then we’ll take your questions.
KATY GALLAGHER:
Thanks very much, Jim, and it’s great to be here with Jim with the Final Budget Outcome showing that improvement on the surplus that was forecast at budget time. So, a surplus of $15.8 billion, and this really is the culmination of a lot of work over a couple of years now through our approach to the budget.
So, that is finding savings, not just adding to expenditure, but looking at ways that we can reprioritise spending, making ministers go back and do the hard work of looking within their departments, and they have all done that. And Jim and I really appreciate the role that they have played in helping us tackle the budget mess that we inherited when we came to government.
So, it’s obviously returning a lot of the receipts, 87 per cent of the receipts back into the budget, lowering the debt, lowering the interest we pay on that debt. And that’s an extraordinary amount of money when you think about it, $80 billion over the medium term in interest costs avoided means that we have room to invest in cost‑of‑living measures in those areas that people really value, like Medicare, like in our housing program.
Again, we don’t see just reaching a surplus as the end game, it’s so that we can make room for the important things that people really value in the community. More housing, better Medicare services, cheaper medicines, and cost‑of‑living help when they’re doing it tough, and we’ve only been able to find the room to do that because of the approach that we’ve taken in the last 3 budgets since we came to office.
So, it is a great outcome reflected in these pages today but there’s a lot of hard work that underpins it and contrary to what our opponents, what the Opposition has been saying this morning, it’s not on the receipt side of the budget, it’s on the spending side.
And there’s a reason, there’s a few moving parts in that – there’s some, payments to the states, there’s some timing issues there, and then there’s some demand‑driven programs which haven’t had as much uptake, but it’s definitely the opposite of what you’ve been told this morning by the Shadow Minister for Finance. This is on the spending side that’s allowed us to have an improved surplus. Thanks Jim.
CHALMERS:
Thanks Katy, we’re going to go Amanda, then Michael, then Ben.
JOURNALIST:
So this may be a good news day for your government, but a surplus may come as a slap in the face to a lot of Australians out there. So how do you justify a surplus when a lot of Australians are struggling to pay the bills?
CHALMERS:
We don’t see a surplus as an end in itself. One of the reasons we are proud of the consecutive surpluses that we’ve delivered for the first time in almost 2 decades is we haven’t done that or cost‑of‑living relief, we’ve done that and cost‑of‑living relief. A tax cut for every taxpayer, energy bill relief for every household, cheaper medicines, cheaper early childhood education, Commonwealth Rent Assistance increased in 2 consecutive budgets at the same time as we’re getting wages moving again.
We understand the pressures that people are under. We’ve deliberately ensured that we have found room for that cost‑of‑living relief so that we can help people doing it tough.
JOURNALIST:
Is a third consecutive surplus completely off the cards this financial year, and separately do you share concerns expressed by ANZ and some Coalition MPs about home loan laws potentially locking out first home buyers?
CHALMERS:
In reverse order, Michael, and I saw your story on the front of The Financial Review today. As I understand it, that story in the paper today was that the Liberals will consider the recommendations of a Parliamentary Inquiry. I would have thought that that’s relatively non‑controversial.
If our political opponents really cared about housing, they would support our efforts to build more homes for Australians so that people can find it easier to find a home to rent or to buy. Instead they oppose our efforts, and Katy sees that in the Senate every day that the Senate sits.
If you take one issue that was raised in your story, which is the serviceability buffer, this is a matter for the regulators, in this case for APRA. I speak with John Lonsdale, the Chair of APRA from time to time about the ongoing appropriateness of that serviceability buffer, and it’s appropriately a matter for him where it is set.
On the current year that we’re in right now, I think people understand that what we’re releasing today is the Final Budget Outcome for the financial year just finished. We will update the underlying cash balances in the mid‑year budget update in the usual way closer to Christmas, and we will take into considerations all of the developments since the budget.
But even if you take that budget forecast for this year’s deficit, which is around $28 billion, don’t forget the deficit for that year when we came to office was going to be $47 billion.
So even where we’ve got a currently forecast deficit for the third year, it is a much smaller deficit than what we inherited from the Liberals and Nationals. So we’ve made progress there as well. We’ve turned 2 big Liberal deficits into 2 big Labor surpluses in our first 2 years, and we’ve also got the third year deficit much smaller than what we inherited.
I’m not going to speculate about what that update might say when we release it closer to Christmas. Clearly a $28 billion deficit is hard to get rid of in one whack, but we will continue to make the right decisions for the right reasons and manage the budget and the economy in the most responsible way.
I said I’d go to Ben, and then I’ll go to Tom, and then we’ll go to Jack.
JOURNALIST:
Just following up on Mike’s question, I mean whether or not there will be a surplus next year, I mean you saw first‑hand the stimulus that China’s put into the economy over there, we’ve still got a very tight labour market here. I mean, if nothing else, we should expect really a smaller deficit in the upcoming financial year probably, right?
CHALMERS:
A couple of things about that. First of all the labour market, we’re really pleased and proud that a million new jobs have been created in the life of our government, that’s obviously a record and that’s a good development, but conditions in the labour market are weakening; we’ve seen that in job ads, we’ve seen that in the fact the unemployment rate has ticked up a bit since the middle of last year from the middle threes to the low fours. The labour market is softening in ways that we have expected, and that has consequences obviously for the budget.
On China, this is a really welcome development for Australia that the authorities are stepping in to support growth and activity in the Chinese economy. It has been a considerable concern for me and for the government over a period of time now, that weakness in the Chinese economy, and you can see the way that markets have reacted to it, you can see the way that the iron ore price has reacted. I think it’s up about $11 a tonne since this time last week.
You can see that people were really hanging out for some additional steps from the Chinese government, and we’ve seen that in the course of last week, and it was quite remarkable timing that I could respond in real time from Beijing and meet with some of the key decision makers in that Politburo meeting that determined those measures.
But we need to be careful about over‑assuming its impact on the budget in the near term. The iron ore price has been pretty low; in historical terms, I think it was down about 40 per cent from the beginning of the year to a couple of weeks ago. It has been below our assumptions at times, which is another important reminder of why we need to be conservative about our assumptions.
When it comes to the situation more broadly in this year, as I said in response to Michael’s question, we have got that deficit much smaller than what we inherited, we’re not complacent about the fiscal challenges that we confront. Some of them are intensifying rather than easing, and that’s why our efforts on the NDIS, aged care and interest are so important.
Tom, then Jack.
JOURNALIST:
Thanks Treasurer. People in your party and members of the Caucus are eager for the government to be bold on negative gearing. Given you’re going to have some pretty schmick Treasury modelling on the subject regardless of where it comes from, wouldn’t it be politically and in a policy sense responsible to at least keep that around even if you’ve got a strongly held view about your policy position?
CHALMERS:
We do have a strongly held view about our policy position, because the primary challenge in housing right now is housing supply, and that’s why we’ve found $32 billion in 3 budgets, including $6 billion in the last budget to build more homes for Australians so that it’s easier to find somewhere to rent or buy.
We’re proud of that housing policy. It’s big and broad and ambitious. It’s got a lot of billions of dollars associated with it, and we need to see it supported through the Senate, because those are the most important things that we can do to address the challenges we have in housing right now.
JOURNALIST:
So are you going to look at the modelling at all?
CHALMERS:
What we’ve said is that the discussions that I have with Treasury – and I’m obviously not going to go into the details or the specifics of all of our interactions with Treasury – but I’m happy to speak generally, as I did last Wednesday in Brisbane and on Friday in Beijing, and say that the sorts of advice that we seek from time to time is not especially unusual, especially when it comes to contentious issues, and frankly, when we’ve got a housing challenge as acute as it is right now I think it’s just doing our job, me doing my job as Treasurer, to seek advice on the various proposals that are in the public domain and from time to time in the Senate.
But our focus is on supply, our priority is rolling out that $32 billion. That requires us to get some legislation through the Senate, and that should be the whole Parliament’s focus. Jack.
JOURNALIST:
To the Finance Minister, if I may. Of the $10.2 billion in lower‑than‑expected government outlays, what proportion of that is due to the deferral of payments into future budgets versus what lower‑than‑expected claims or demand for government programs?
GALLAGHER:
There’s a chunk that is about lower demand‑driven programs, so there’s a few in, I think in aged care and the COVID‑19 vaccines, for example, and then there is another quite a sizeable chunk which is about national payments, national partnership payments to the states, and that can be for a variety of reasons; failure to sign up, failure to meet milestones or there’s some timing delay.
So I would say it’s both of those things contributing, demand‑driven programs, and then payments to the states.
CHALMERS:
Karen.
JOURNALIST:
Treasurer, you talked about being in China. The United States is talking about restrictions on electric vehicle imports. I’m wondering how confident you are that there are no security concerns about Chinese‑made electric vehicles, or indeed other technologies like solar systems. And if you are confident there are no security concerns would you consider easing restrictions to encourage more Chinese investment in clean technologies and associated products in Australia?
CHALMERS:
As I said in Beijing, we don’t propose to ban EVs from any one country, but we do intend to continue to take advice from our relevant agencies, and if the situation changes at some future point, then we would take that into consideration.
But as Chris Bowen has said, as I have said, and I’m assuming others as well, we don’t intend to do what the Americans have done. We will continue to discuss their position with the Americans, we’ll continue to take advice, but that’s our position right now.
JOURNALIST:
What about encouraging more Chinese investment in clean technology given that they’ve complained about the restrictions on that kind of thing?
CHALMERS:
I mean they’ve sought clarification on our Foreign Investment Review Board regime, which is appropriate, they’re not the only country that seeks more information and more transparency and more clarity, and I’m happy to provide it.
We welcome foreign investment from around the world, it’s an important part of our prospects as a country and as an economy, and our foreign investment regime is non‑discriminatory. It applies a risk‑based approach to areas like critical minerals, critical technology, critical data and critical infrastructure, at the same time as it tries to streamline proposals in less risky areas. We make no apology for that.
Every country screens foreign investment in one way or another, including the Chinese, and I was able to have quite a constructive, productive conversation with my Chinese counterparts about it.
We’ll go Mark, then Dom, then Isobel.
JOURNALIST:
Treasurer, consecutive surpluses is obviously good news for the Federal Budget, but I think families will probably be asking themselves when are things going to turn around for household budgets. What sort of hope can you give them and a timeline for when things might get better?
CHALMERS:
We know that people are still under really substantial pressure, and that’s why there’s a tax cut for every taxpayer, and energy bill relief and other cost‑of‑living relief rolling out right now, because we do more than just acknowledge that people are doing it tough, we’re doing something about it. And we’ve been able to roll out that cost‑of‑living relief at the same time as we’ve knocked out a couple of budget surpluses, and so we haven’t chosen between cost‑of‑living relief or budget surpluses, we’ve been able to do both, and that’s because of the responsible approach that we’ve taken.
JOURNALIST:
Treasurer, can you also please give some clarity on the FIRB and foreign investment rules. So were there any specific proposals that China raised with you that haven’t made it through FIRB, and you mentioned it was non‑discriminatory, are you able to just list what countries make up the bulk of – or who leads FIRB decline requests I guess?
CHALMERS:
First of all, no specific cases were raised by my counterparts or by myself when I was in China. We had a discussion about the regime, but not about individual cases. And in terms of knock‑backs, there have been some investment bids knocked back, but they haven’t all been from one country.
I think something like a bit more than 90 per cent of bids from China have been approved. There have been some that haven’t been, but if you look at the ones that haven’t been approved, they haven’t all come from one place.
JOURNALIST:
Sorry, what area are the knock‑backs in? So you mentioned some areas before, critical minerals, Karen mentioned clean energy. What areas are being knocked back versus what areas are being approved? Is there a discrepancy there, or is it just down to the specific projects?
CHALMERS:
It’s a case‑by‑case analysis of risk, and I’ve identified in our Foreign Investment Review Board reforms the kinds of things that we’re especially attentive to.
JOURNALIST:
Treasurer, just on the rallies over the weekend. The AFP says that the holding up of a Hezbollah flag is not something [inaudible]. Do you think that warrants being disqualified if you’re on a visa, on character grounds?
CHALMERS:
A couple of things about that. First of all, I think that any indication of support for a terrorist organisation is completely and utterly unacceptable, whether it’s Hamas or Hezbollah; these are listed terrorist organisations, and I think any support for a terrorist organisation should and will immediately draw the attention of our security agencies.
Now there is a higher level of scrutiny for people who are on a visa, and the Home Affairs Minister has made it really clear from day one that he will consider refusing and cancelling visas for anyone who seeks to invite discord in Australia.
We might go here, and then Michelle next to you, and then we’ll go back to Shane, then to you.
JOURNALIST:
Just back on Tom’s question on negative gearing, do you think there’s a way that changes to negative gearing could happen in a way that would actually boost supply?
CHALMERS:
Supply is our primary consideration, and that’s what has motivated the $32 billion worth of initiatives that we have announced. One of the reasons why the changes that you’re asking me about are not part of our policy, as the Prime Minister said last week, is that he is unconvinced, and we are unconvinced of the impact on supply.
Overwhelmingly, building more homes for Australians to make it easier for people to find somewhere to rent or buy, that is our North Star here. That’s why we’ve found tens of billions of dollars of investment. That’s why we’ve put all this effort in in the Parliament to try to get it passed, because that, in our view, is how we turn around a housing construction pipeline which is inadequate for Australia’s needs. Michelle and then Shane.
JOURNALIST:
On underspending, were any housing initiatives or housing programs of any sort part of that underspend? And just to follow up on negative gearing, what would be the effect on rents and on house prices of actually capping negative gearing at any level you’d like to nominate?
CHALMERS:
I’ll take the second bit of that, and then Katy will do the underspending bit. I’m obviously not going to get into hypothetical consequences of hypothetical policies which aren’t part of our policy proposals when it comes to housing. Katy?
JOURNALIST:
But people would like to know at least the answers to that question, I think.
CHALMERS:
I think you’re assuming, Michelle, that the answers to those questions are known for the time being. As I said before –
JOURNALIST:
Isn’t that why you do the modelling?
CHALMERS:
You’re assuming that there’s a piece of work that’s been finished. And as I said before, I think it was in response to Tom, I’m obviously not going into the interactions that I have with the Department, but from time to time we get advice on contentious issues. Treasurers of both political persuasions would have done that in one way or another, and our focus, as I’ve said in response to all these questions, is not on negative gearing or capital gains, the focus is on housing supply and rolling out our $32 billion of investment.
GALLAGHER:
On the specifics on the housing, there is one program, and it’s relating to the remote housing – it’s essentially delays in milestones being met through the states on a remote housing program, and a lower‑than‑expected take‑up of HomeBuilder.
JOURNALIST:
Do you have any precision there?
GALLAGHER:
It’s about $300 million.
JOURNALIST:
Treasurer, you just suggested that the work hasn’t been finished on negative gearing. When will it be finished? Will you release it publicly? And most focus has been on negative gearing, but the CGT concession, it was an issue with the Henry Review, the Reserve Bank has raised issues about it in terms of a financial systemic issue. Is there a case to be made, or have you looked at the CGT concession?
CHALMERS:
I’m not going to get into the specifics of my dealings with Treasury.
JOURNALIST:
In terms of the savings, where have they actually come from? Because I think in the payments section, only a billion dollars has been deferred due to lower uptake of grants, and the rest of it seems to be these National Partnership payments. So can we assume that the majority of that $10.3 billion will be spent this financial year if those agreements are finalised?
GALLAGHER:
That depends on a range of factors. So some of it is the demand‑driven programs, and they move about a bit, and then in relation to the agreements with the states, I mean you would imagine the expectation is where it relates to them that if they meet milestones, if they sign up – there’s certainly one in WA where they haven’t signed up to an agreement, there wouldn’t be a mechanism to pay that unless they sign.
So, there’s a few moving parts there, but we’re not pretending that the savings work doesn’t continue in other areas. This is obviously a good result for this year when you look at it in terms of the surplus which the Governor, the Reserve Bank Governor, has said at a time when inflation’s higher than we would like, delivering a surplus budget actually helps. But we continue to look for savings elsewhere, and we’ll do that through the MYEFO process.
CHALMERS:
I think this is one of the areas that is not well recognised or understood, almost $80 billion in savings in our first 3 budgets, compared to precisely zero dollars in savings in the last Coalition budget, and I think from memory about $12 billion of savings in the financial year just finished.
That’s a really important part of it, as is the fact that we have banked 87 per cent of the upward revision to revenue in the year just finished. Our opponents averaged banking about 40 per cent of that. Howard and Costello averaged banking about 30 per cent of that.
We wouldn’t be anywhere near these consecutive surpluses were it not for the savings process that Katy led, were it not for the spending restraint when it came to upward revisions to revenue.
There is part of this which is an under‑spending story, but the foundations of these 2 surpluses are spending restraint and savings, and making sure that we make room for what we really prioritise, which is cost‑of‑living help, investment in Medicare, investment in housing and skills and energy and a Future Made in Australia. We’ll go to John, and then Millie, and then we’ll go over here to Jason, and then we’ll be done.
JOURNALIST:
Thanks, Treasurer. Just on Treasury having a look at the negative gearing and CGT concession, were you disappointed that this actually leaked from some of your peers and/or colleagues?
CHALMERS:
It’s not really worth getting too worried about it. I think you all know me, you know that I would have liked to have spent the last week talking about very encouraging inflation figures, very productive engagement with Chinese counterparts and the fact that we’re delivering 2 consecutive surpluses for the first time in almost 2 decades.
JOURNALIST:
Treasurer, just in terms of the tax revenue side, how much and which tax revenues in particular were down?
CHALMERS:
If you look at the tax receipts number it’s $5.3 billion lower than what we anticipated at budget. Company tax is $1.7 billion of that, excise and customs is another billion of that, less GST, and so it all adds up. So tax revenue is down $5.3 billion, and spending is down twice that, effectively, and that’s a really important part of the story.
Now the other important part of the story is that these numbers, when it comes to things like tax to GDP, this is for the last year before our tax cuts for every taxpayer kick in, and so we’ve managed to do all of this with a tax to GDP take which is lower than what we saw in a couple of the years of the Howard/Costello government. So lower tax to GDP than Howard and Costello. Howard and Costello were the highest taxing governments of the last half century or so, and these figures are before the tax cuts kick in, and the tax cuts are a really important way to support people who are doing it tough. Jason for the last one.
JOURNALIST:
Treasurer, the RBA Governor last week said that the board did not consider an interest rate rise. Do you think that represents a shift in the stance of the board, and how significant is that?
CHALMERS:
I try to let the Reserve Bank Governor speak for herself and speak on behalf of her Board, and I respect and cherish her independence, and I try not to second guess the decisions that the Reserve Bank takes independently or the commentary that they provide around that.
I think it’s a really good development that the Reserve Bank Governor is a more prominent voice in the national economic debate and that her senior officials participate in the national economic debate as well. Because of that we know that the Reserve Bank Governor has said that the 2 surpluses that we’re releasing today and detailing today are helpful in the fight against inflation.
So whether it’s responsible economic management, the way we’ve designed our cost‑of‑living help, the way that we’re getting the budget in much better nick, this is all about playing a helpful role in the fight against inflation, and that will have consequences for future decisions about interest rates.
Now we shouldn’t forget the really quite encouraging numbers that we got last Wednesday. I know that there was another story around at the time, but last Wednesday we saw inflation in monthly terms, 2.7 per cent down from 3.5. The trimmed mean was down, the non‑volatile was down, the non‑tradables was down, services was down when it comes to inflation, these are really good developments.
We are working very hard in conjunction with the Governor of the Reserve Bank to get on top of this inflation challenge without ignoring the risks to growth. We are looking for a soft landing in our economy. Our fiscal strategy plays a really important role in that, and that’s why we’re proud of the 2 surpluses that we’re detailing for you today.
Thanks very much.