JIM CHALMERS:
The Budget is less than four weeks away now. It will be a pretty solid Budget focused on cost‑of‑living relief with an economic dividend, investing in people - their skills, their energy and their future, and starting to deal with this legacy of waste and rorts, which has been a hallmark of Budgets for too long now. Less than four weeks away, we will hand down a Budget which is all about delivering the investments that we promised at the election, dealing meaningfully with cost‑of‑living relief without making the job of the Reserve Bank even harder, and beginning to trim some of the spending from wasteful areas so that we can redirect it to more productive areas.
Today, we've got a range of tasks. First of all, to provide the Final Budget Outcome that we spoke to you about last week, and Katy will do the bulk of that. Then I want to talk about the petrol excise relief, which comes off tonight, and then I wanted to update you on some of the work that we've been doing in our portfolio as it relates to the Optus data breach as well. And obviously happy to take your questions.
When it comes to the Final Budget Outcome, this is about last year and we told you most of it last week but today we formally release the full Final Budget Outcome in the usual way. I think it speaks volumes about the Budget that we inherited that even with an improvement of this magnitude, we still have $30 billion of deficit, we still have around a trillion dollars of debt, and the pressures on the Budget are intensifying rather than easing. I think it's important that we have that perspective as we go through the documents for the Final Budget Outcome today. There is a combination of improvements to the tax take for a range of reasons, but a big part of what we're presenting today is also the fact that a number of the programs were under spent in the last year and some of those pressures now cascade into subsequent years and for much of those pressures we need to find room for that. But Katy will talk us through the Final Budget Outcome in a bit more detail and then I'll do fuel and then Optus.
KATY GALLAGHER:
Thanks very much, Jim. Jim has given you the headline figures and you can see - we did cover some of that [last week] - but it is looking backwards. Obviously the deficit has improved. I thought it might be most useful if I concentrate some of my remarks on the lower payments side and particularly the underspend and some of the other issues we are identifying with expiring measures as we're going through the Budget process because that's a looking‑forward problem. But certainly, we've seen billions of dollars in underspends in terms of money that was promised for last financial year that didn't get out the door by our predecessors. We've seen that in the COVID‑related programs - so $2.8 billion from delays in contracting vaccines and PPE; delays in road and rail projects and associated payments of three and a half billion partly from disruptions to supply chains, skill shortages and capacity constraints; and lower demand for health, NDIS and aged care services, which also combined to around $4.6 billion. We do expect that many of the underspend and payment delays, which are reflected in this document, will flow over into this year and future years. Some of those include the infrastructure programs, some of the payments to flood‑affected communities, there's $2 billion there. Some of those payments around purchases of PPE, rapid antigen tests for aged care facilities - $800 million there. There are some delays in the modern manufacturing grants, which were committed to but not paid under the former government, and some of the support for businesses impacted by lockdowns and funding, which will be available in future years. We are still working through all of the details in the Budget around this but with these types of delays, we expect to see about $10 billion of those underspends in the Budget to flow into the coming year.
Obviously, there's still those long‑term structural pressures that are on the Budget. One of those obviously is a higher cost of servicing government debt. We're seeing that have a significant impact on the forward estimates so managing that is going to be a challenge. We've got the higher indexation flowing through because of the inflation figures and also those key programs - NDIS, health, aged care and defence - presenting challenges going forward. I think you'll see in the Budget some of the work we're also trying to address around these expiring measures which are a real problem. Many of the programs we're finding that are ongoing - and there is no doubt they are ongoing - but weren't funded to dress up essentially the out years of the previous government's forward estimates which we're going to have to address because they simply aren't expiring programs.
CHALMERS:
Thanks very much, Katy. On petrol, as you know, overnight the petrol excise relief will come off on the timetable legislated by our predecessors. We're under no illusions about the impact that this will have on family budgets. We don't pretend that this won't make things more difficult for a lot of Australian motorists. Our responsibility to the Australian people is to manage the Budget responsibly, and to be upfront about what we can and can't afford to do. The reason that this petrol excise relief is expiring tonight, on the former government's timetable, is because it would be too expensive to extend it indefinitely. Even to extend it for six months would cost the Budget about $3 billion. There are substantial pressures already on the Budget. We've still got around a trillion dollars in gross debt in the Budget and so we can't fund everything that Australians would like us to fund. All along before the election, during the election, and after the election, we've said to the Australian people in an upfront and honest way that we can't afford to extend this petrol excise relief. We are aware of the pressures and we understand the pressures that Australians are under all around Australia. We will provide responsible cost‑of‑living relief in areas like child care, and medicines and TAFE fees, and we will get wages moving again. But we can't afford to fund every bit of cost‑of‑living relief indefinitely that people would like us to - that's just the reality of the situation.
I spoke this morning at 7am with Gina Cass‑Gottlieb, the chair of the ACCC. I have asked the chair of the ACCC to maximise their role in the fuel market to make sure that servos and suppliers aren't treating Australians as mugs as this petrol excise relief comes off. We want to make sure that servos and suppliers are doing the right thing. The ACCC is on the case. They will take action if people are behaving in the wrong fashion as this petrol excise relief comes off. As I've pointed out before, and as the various associations have pointed out, over the course of the last week or two, there are hundreds of millions of litres of petrol in tanks underground paid for under the existing excise regime. And so the ACCC will be particularly attentive to the fact that a lot of that fuel was bought at the cheaper price rather than the more expensive price and so there should not be an automatic 23 cents a litre increase overnight. It depends on how much fuel service stations have under the ground in these tanks bought at the cheaper price. Now, to the ACCC I say thanks for the work that they've been doing. I know that Australians are experiencing pretty volatile petrol prices at the moment. Even in the last few days, we've seen a number of the big capital cities come up near the peak of the petrol price cycle, the normal cycle, but the ACCC will be very attentive to all that as well.
Finally, and thank you for the opportunity to run through a bit of this in some detail. I wanted to thank and acknowledge and commend Minister O'Neil and Minister Rowland and the Attorney General for the work that they've been leading in our Government when it comes to this very concerning Optus data breach. Myself, Stephen Jones, Bill Shorten, Mark Butler now with the disclosure about the Medicare issues, the whole government, but particularly a handful of ministers, have been working almost around the clock for some days now to make sure that we're doing what we responsibly can to make sure that we're protecting these Optus consumers who are the unwilling victims of this data breach that we've seen. I wanted to tell you in the Treasury portfolio about the actions that we've been taking and the consultation that we have been engaged in. Now first of all, we do expect Optus to do whatever they can to protect their customers and to provide the necessary support. I think we've made that clear in recent days. Since Saturday, when I spoke to the Governor of the Reserve Bank, the chair of APRA and the CEO of one of the big four banks, we've made sure that we've been working closely with the financial system and with the regulators to ensure that any steps that could be appropriately taken by the government or by the regulators in the financial system are being taken. What we want to do here is to make sure that if there's more that can be done by financial institutions to monitor risks and protect consumers, then that should be done. And we don't currently see this as an issue of financial stability. But obviously, it's an issue about public confidence and that matters greatly to us as well.
At my instigation, early on Monday morning, the Governor of the Reserve Bank convened the Council of Financial Regulators - which is obviously the Reserve Bank, APRA, ASIC, ACCC were there, the ATO, the Treasury - to make sure that we were combining and that we were working together, cooperating to make sure that we can deal with all of the issues that have been thrown up by this data breach for Optus customers. Again, at my instigation, on Monday the Treasury convened a meeting of several of the banks as well as the Australian Banking Association, the Customer Owned Banking Association, APRA, ACCC, and the Australian Financial Crimes Exchange to better understand any options and considerations that we needed to be working through as well. One of the big focuses of these discussions and the discussions that are ongoing - including again, between myself and the ACCC Chair this morning - is the safe and secure sharing of data between Optus and regulated financial institutions with the appropriate safeguards to allow those institutions to undertake enhanced monitoring for the purposes of best protecting their consumers from any bad behaviour following this data breach. And obviously, financial institutions can play a really important role here, using that data if we can work out the best way to get it to them to protect their customers who are at greatest risk of what's gone on here. The reason that we are in these conversations in an ongoing way is because there are a number of considerations to work through. Privacy is obviously an important consideration working with the Attorney‑General. Which institutions can receive this data and under what terms and with what assurances, and the legal mechanisms required to facilitate this transfer, working closely with the Minister for Communications. So, these discussions have had input from all of those regulators, the Treasury as well and other institutions. Those conversations are ongoing. They've been happening since Saturday. We'll do our best to resolve these issues as soon as we can as part of a suite of broader efforts that the government is undertaking to respond adequately to what's happened here with this Optus data breach.
Happy to take your questions. Andrew and then Greg and then we'll go here.
JOURNALIST:
You keep saying we need a national conversation about how the Budget is funded going forward. What sort of tax changes are you trying to soften us up for?
CHALMERS:
In the October Budget, there will be changes to multinational taxes. I flagged those before the election and subsequently after the election, that we will be taking steps on the multinational tax front. We have not changed our position on some of the other taxes that we get asked about from time to time in this place. Our focus is on the multinational tax arrangements. And we've got other issues to focus on and I've run through a couple of those today. Greg.
JOURNALIST:
Stage three - you said it's your policy. And inevitably, when you say you can't fund things this gets raised, but you haven't told us why you believe in it. So can you tell us - why is it the right policy? And what are the benefits for the Australian economy? And secondly, there is a debate at the moment about the $5 note. As Treasurer, will you be advocating King Charles go on the $5 note or do you think it should be an Australian?
CHALMERS:
First of all, on the tax cuts - as you know, our position on those tax cuts hasn't changed for all of the reasons that we've spoken about in this room and elsewhere for some time.
When it comes to the $5 note, my personal view is that it shouldn't be beyond us to consider and to consult on the best way to change the $5 note when that's necessary. I don't see a massive rush to change the $5 note, but nor do I think it should be especially controversial for a country like ours to consider and consult on what we want to do with the $5 note going forward. I had a preliminary discussion last night with the Governor of the Reserve Bank about this. We will take the necessary time to consult and consider and we will make our position known in due course.
JOURNALIST:
Treasurer should we expect any fiscal tightening or overall fiscal tightening in this upcoming October Budget? And how long are you sort of vaguely estimating until we might see a surplus?
CHALMERS:
Katy might want to add to this. But in terms of the overarching fiscal position, we need to recognise that the pressures on the Budget are intensifying rather than easing and Katy did a great job of running through some of those pressures which are on the Budget. What has mattered most to us, really for some time now, is not just the overarching bottom line, but what we actually get for the investments that we are making. And even since the election, you think about the additional health costs, the additional flood costs, and some of the other pressures on the Budget that Katy has run through, our job is to really try and redirect unproductive spending into areas where it's productive, or areas where it's unavoidable, frankly. And so we will account for that in the usual way in October. But there are more ways to measure the quality of a Budget than necessarily the bottom line. Katy, do you want to add to any of that?
GALLAGHER:
I don't think so. I think I've answered that, he's answered it.
CHALMERS:
We're going to go Ron, then Shane, then Pat, and then Phil and then Clare.
JOURNALIST:
Treasurer, I might just expand on that question. Is there any plausible scenario that you deliver a Budget surplus between now and the next election? And just - the RBA, around October last year, said that effectively, it was only a matter of time before a major financial institution was hacked in a similar way Optus was. Do you agree with that?
CHALMERS:
In reverse order, the banks and other financial institutions have done a mountain of work to protect their customers from hacking and from other cyber security threats. And that work is ongoing, and they need to be vigilant in an ongoing way. And many of the conversations that I have with the various financial institutions are about their preparations for cyber attacks or other threats of that nature. If there's more that they can do, they should be doing it. I am relatively confident that they are alive to the risks even before this Optus data breach, but they can't be complacent about it, they need to be vigilant about it in an ongoing way.
When it comes to a surplus this term of the Parliament, I think we need to be realistic about the fiscal situation and I don't think that Australians should expect that the Budget that I hand down in October will have a surplus in any of the forward years. And I want to be upfront about that. And one of the reasons why we've tried to be as upfront and honest and level with people about the fiscal situation is we want people to understand these pressures that are on the Budget. So in October, I would encourage people not to anticipate a surplus Budget even in the out years. The situation is more difficult than that. I think Australians understand that given the fiscal and Budget circumstances that we've inherited, it will take much more than one Budget to turn that around. Shane.
JOURNALIST:
Treasurer, today the AOFM sold a 2033 bond line at 4.12 per cent - the highest interest rate since 2014 which is at recognition of what's going on globally. Are you worried about the settings that you're going to have to incorporate into the Budget, that things are moving so quickly globally, that the Budget that you produce could be unwound, or undermined within weeks or months?
CHALMERS:
Yes, I think there are two really important parts of that. First of all, interest costs are growing quickly and that's a big concern to us as we try and make room for some of our other priorities. As you know and you've written about, and many of you in this room have written about, the big five spending pressures - the cost of servicing the debt, the health system, the NDIS, the aged care system and defence. And that is a combination of desirable spending and unavoidable spending. And one of the fastest growing areas of spending in the Commonwealth Budget is the cost of servicing the debt that we've inherited. And today was another reminder of that, with that dramatically higher interest rate on the debt that the AOFM has issued today. The global conditions, I think, will provide a really important backdrop to the Budget I hand down in October. I'll have an opportunity at the start of next month to confer with my international counterparts about the situation in the global economy. The global economy is deteriorating and there are real fears for a number of the major economies and our major trading partners and that will have a big impact on the Budget that we had down in October, and we've made no secret of that as well. The context for the Budget in October will be a deteriorating global economy, intensifying spending pressures and pressures on Australians which can only be dealt with if we provide that cost‑of‑living relief in a way that also provides an economic dividend. And that's our strategy. Pat, then Phil, then Clare.
JOURNALIST:
We've had the OECD come out this week and talk about how rates here could reach 3.6 per cent. The Reserve Bank is expected to raise rates by another half a percentage point next Tuesday. RBA researchers said there are going to be a lot of mortgage holders who will be paying up to 40 per cent more on their repayments. Now, how worried are you that the Reserve Bank in its fight to contain inflation, is going to sink too many mortgage holders, and it's going to undermine the economy as well?
CHALMERS:
First of all, as you know, I try not to pre‑empt decisions of the independent Reserve Bank, and I try not to second guess the decisions that they've taken so far. I think it's self‑evident that rising interest rates will put real strain on Australians and on their economy. I think that's self‑evident. I don't think anybody thinks otherwise. And at some point, as interest rates go higher and higher, those interest rate hikes will begin to bite. And what we're seeing around the world in other countries, as central banks in other comparable countries take even more drastic action, there are fears elsewhere about the impact of those interest rate rises on economies, like in the US, the UK and elsewhere. So obviously, we are monitoring that. Obviously we don't pretend that rising interest rates don't have the capacity to slow our own economy, but we've got a lot going for us in this country, too. We've got low unemployment, we've got relatively high prices for our commodities, even though they've come off a little bit. We had reasonably solid growth in those last quarterly figures that everyone here has written about. So we've got a lot going for us. I am personally confident and upbeat and optimistic about the future of our country and the future of our economy. But we've got to tread this pretty perilous terrain in the interim. Phil, then Clare, then Sarah.
JOURNALIST:
Treasurer, in Parliament yesterday you said a couple of things. One, we've got to prepare for some hard choices, was the term you used. I assume going towards the next election. And you also mentioned, the Budget predictions on the PRRT revenue, which have gone from about 780 million, to one and a half to two <billion>. It's a bit of money, but it's fairly small beer compared to how much-
CHALMERS:
We'll take it when we can get it.
JOURNALIST:
I know, but is it not one of these hard choices? Is there not a case, especially if these commodity prices stay high for longer, to revisit the PRRT, at least as a super profits type, because I know you've ruled it out. But surely, given the amount of money being made, and the contribution to the Budget, is it something you might take to the next election?
CHALMERS:
That's not our intention. You'd be aware that the Treasury began a piece of work for my predecessor about the PRRT, which was paused because of the pandemic, and at some point that the Treasury Secretary will make a decision about restarting that work or not. But it's not something that we've been talking about. It's not our intention.
JOURNALIST:
So you've repeatedly said you're under no illusion about the impact the end of the fuel excise will have on Australians. So can you explain why you believe households are better place to absorb that three billion cost than the Government, particularly given the inflationary impact this will have, and that the cost‑of‑living measures you're touting - childcare, cheaper medicines - aren't immediate, and won't help all Australians who are struggling if they don't need the medicines or have a child in child care?
CHALMERS:
I think it's just important that we're upfront with people about the Budget's capacity to fund some of these temporary measures in an ongoing way. And it's not like we have been anything other than very clear, since this was announced. And since our predecessors legislated to end tonight, that we have always thought that three billion dollars for every six months is too much for the Commonwealth Budget to bear. And the reason why we think that there are other better ways to provide cost‑of‑living relief, is because we need to find ways to provide that cost‑of‑living relief, which also has an economic dividend. In childcare, that economic dividend is obvious, people being able to work more and earn more, and deal with some of these skills and labour shortages which are holding our economy back. Cheaper medicine obviously has a public health benefit as well, and benefits for the economy. Cheaper TAFE fees obviously makes it more affordable for people to study to fill some of these skills shortages and to earn more in higher skilled, higher wage jobs, getting wages moving again, these are our priorities. We don't pretend that any of this is easy. It goes back to what Phil was saying before about hard decisions. In this instance, we don't think it's responsible to put another six billion dollars a year on the national credit card, to provide this relief in an ongoing way. We think there are other better ways to provide that cost‑of‑living relief. Sarah, then Andrew.
JOURNALIST:
Treasurer, just on your refrain that the Government's position has not changed on stage three tax cuts. In 2019, when you passed stage three tax cuts, you said then that they were irresponsible and that in the future, you would consider all the economic and fiscal circumstances at the time. So is that still the Government's position? Can you just clarify whether that is the case? And if so, surely, the Government has to assess the potential inflationary impact of going ahead with stage three tax cuts in 24‑25?
CHALMERS:
Well, two things about that. First of all, we are taking into consideration the economic conditions that we confront. And the biggest issues in the economy right now are inflation and falling real wages, and skills and labour shortages, and problems in our supply chains. And that's why the Budget that we hand down next month, in this place, will be all about providing responsible cost‑of‑living relief, investing in our supply chains, trying to make the skills system, the energy market work more effectively, and to start to deal with some of this wasteful spending in the Budget. That's what it looks like, to take into consideration, the complex combination of economic conditions that we confront right now.
JOURNALIST:
When you say the Government's position on stage three tax cuts has not changed, is it still the Government's position that you think those tax cuts are irresponsible, as you did in 2019? And that the Government's position was to consider the economic and fiscal circumstances closer to the time, towards your position? What do you mean when you say 'our position' hasn't changed?
CHALMERS:
I mean that we are taking into account the economic conditions that we confront right now, for all the reasons that I've just run through. What the economy needs right now and what the Budget will reflect, is responsible cost‑of‑living relief, investment in our supply chains, investment skills, and energy and the future, and to deal with some of this wasteful spending. That's what it looks like to take into consideration the economic conditions at the time, you mentioned inflation in your first question I recall now. The reason that we point out that these tax cuts are a couple of years away, as they're currently legislated, is because even if we took some of the steps that people have been urging us to do on stage three tax cuts, that would not change the inflationary environment that we confront right now. And not by you, but others, I think, in the public conversation sometimes, don't quite understand that knocking off these tax cuts two years down the track, wouldn't have an impact on inflation in the interim. That, I think, that's just an obvious economic point.
JOURNALIST:
Two years down the track, inflation is still a problem, surely given what we've seen in the UK, going ahead with these tax cuts would further fuel the fire of inflation, would it not?
CHALMERS:
We haven't changed our position on the tax cuts. We're taking into consideration the economic conditions now. We are concerned frankly, about developments in the United Kingdom. We don't we make no judgement about the domestic politics of another country. But obviously, we pay close attention to what's happening in comparable countries and the situation in the UK is concerning. Andrew.
JOURNALIST:
There's quite a contrast between what the Optus chief says about the hack and what your Government says. Clare O'Neil says it was a rather basic hack, whereas the Optus chief says that it was sophisticated one. Now I take it that you would back‑in Clare O'Neil's version given that she would be advised by cyber spooks. So that would suggest that the Optus chief has misled the public. Do you think that she should be in that job?
CHALMERS:
I'm not interested in a war of words with the CEO of Optus-
JOURNALIST:
It's not a war of words, it's about misleading the public.
CHALMERS:
Obviously, I have the same view as Minister O'Neil has. And I acknowledge and pay tribute to Clare for the work that she's been doing around the clock, to deal with what is a really concerning issue. And I do have the same advice that Clare O'Neil has, about the nature of this breach. And it's of concern to all of us that a breach of this kind was possible. And the onus is on Optus to do what they can to explain what's happened here, and to take the necessary steps to protect their customers. The job of the Government is to take some of the steps that I ran through in some detail before, and that's what we're doing.
JOURNALIST:
In your own words. What is the nature of the advice that you received? That this was a 'what' attack?
CHALMERS:
My advice is consistent with Clare O'Neil.
JOURNALIST:
Just on the five dollar note, the Bank of England announced overnight that it is planning to release a King Charles version image by the end of this year with the idea to print a new five pound note by 2024. Does that mean if your discussion about a new five dollar note is something that has to happen within the next 18 months or so?
CHALMERS:
Well, that seems to me to be an especially comfortable timeframe with which to come to a view. We will consult, we will consider. I'll have ongoing conversations with the Governor of the Reserve Bank. It is frankly not our highest priority right now.
JOURNALIST:
[inaudible] Isn't it the Bank's decision?
CHALMERS:
He will consult with us as he has been already. I'm going to put Phil (Coorey) on it <laughs> Thanks very much everyone.