Treasurer, it felt like a slightly more sobering tone today. I think there has been a general sense, perhaps, that things were turning and there was good news ahead, but it sounded like you were reminding people that there are still some challenges. So are you feeling optimistic about achieving a soft landing and growth?
JIM CHALMERS:
I am optimistic about that and I feel like we’ve got a lot coming at us but we’ve got a lot going for us. What I tried to do today is to give people an insight into how we grapple with what’s coming at us and how – as we spoke about in Brisbane the last time we spent time together – how we turn those headwinds into tailwinds.
And so that’s really our focus – not because we think that the challenges in our economy, global and domestic, are insurmountable or because we don’t recognise the advantages that we have. My job and Katy’s job in our government is to make sure not just that we can make the budget add up but that it is the best possible combination or calibration of things that we can do now to buffer ourselves against uncertainty but also to act with confidence and optimism about our opportunities into the future. And there will be a big emphasis in the budget on investment for that reason. People want to invest in our country for good reason. We want to make it easier. We want to make it possible for people to find the workers they need, the approvals that they need and the stability that they need so that we can grab the opportunities that are before us.
SPURIO:
One of the things you mentioned in your remarks was getting the balance right between the cost‑of‑living relief but in a way that doesn’t add to inflation. Can you talk a little bit more about that?
CHALMERS:
As you would expect, cost‑of‑living pressures have been the dominant feature of our economy not just in the last couple of years but a little bit before the election as well, and inflation really started to gallop in that March quarter of 2022. And we spent a lot of time making sure that anything we do when it comes to cost‑of‑living help isn’t counterproductive. There are lots of ways that you can provide cost‑of‑living help which makes the problem worse rather than better, and we are determined to avoid that. And so if you look at some of those big pieces that the ABS has been kind enough to feature when they talk about the inflation numbers, the ABS has isolated for us the impact of our cost‑of‑living measures, and the three big ones that they often identify are cheaper early childhood education, the energy bill rebates and the rent assistance. Combined, that took about half a point off the CPI and that for us is encouraging. It’s encouraging that you can design this cost‑of‑living help in a way that makes the problem better rather than worse.
SPURIO:
And so that would be the theme that you’re taking into the budget?
CHALMERS:
What I tried to say and be upfront about again is the biggest piece by far when it comes to cost of living are the tax cuts – by far, by many multiples. And we are trying to work out is there a meaningful but affordable way that we can do a bit more. I’d like to if we can find room for that but when we design that, we will be encouraged and motivated by what we’ve been able to do here to get that inflation number down rather than putting upward pressure on it because the balance of risk shifting in our economy is not an invitation to go from a sole focus on inflation to a sole focus on growth. Every budget asks us or requires us to strike a series of fine balances, the same as it would around the boardroom tables in your businesses and in your universities. You’re always looking to find that balanced point that best addresses all of your priorities. And so the Budget will be a little bit different but not a lot different in that regard. It’s not mission accomplished on inflation. We need to be so careful about that. The American number the other night and in lots of other places where inflation has moderated, it hasn’t come down in a straight line. We’re very focused on that and so anything we do will be helpful rather than harmful in that fight.
SPURIO:
You mentioned the US then, and also in your remarks you talked about the strength of the US economy as being something positive and that’s helped. You didn’t talk about the China economy. I wonder if you want to talk a little bit more about how you see the US going forward and then also China?
CHALMERS:
The US economy has defied expectations, and not even just the gloomiest expectations. Really, the central case not that long ago was that the American economy would be much weaker, and it has outperformed those expectations. That’s a good thing for the global economy and we’ve got that going for us. You all know, particularly those of you here in the financial system, you know that when Silicon Valley Bank hit the fence and when Credit Suisse went through its challenges in Europe, there was a lot of justified concern about the strength of the global banking system. It turned out that those issues have been quite well contained. That’s a good thing as well. Inflation coming down around the world is a good thing. But we do have the Chinese economy quite a bit softer. The Chinese authorities last week came out and said they expect that softness in the Chinese economy to continue for a bit longer. That is challenging. Obviously the UK is in recession, Japan and other big economies have had particularly weak growth. These are all the sorts of concerning developments in the global economy as well. The US has been a standout. China has been especially concerning. But there’s an element of weakness in most of the big economies in the world.
SPURIO:
And nothing coming up in the US that causes you concerns?
CHALMERS:
Nothing we can’t deal with.
SPURIO:
A bit of controversy this week around the GST and the Commonwealth Grants Commission decision. I wonder if you’d like to weigh in on that?
CHALMERS:
First of all, it’s not unprecedented that the states would like more money. That is a story as old as the Federation. And I’m very fortunate that I’ve got – I work with a group of quite good people who are Treasurers in the states and territories, very well motivated, very good people and I enjoy working with them. But I acknowledge and recognise that in a world where everyone’s budget is under pressure in one way or another that the states and territories would like more money and that they are dealing with their own pressures, which are a bit like some of the pressures that I ran through in the Commonwealth context. I had a good chat with Treasurer Mookhey this morning. Again, a very good person, very well motivated. I had a good conversation this morning when I spoke with Treasurer Mullighan from South Australia, another good state treasurer.
Our interest here is in working with the states rather than against them. When it comes in particular to the issues that Daniel Mookhey has been raising about the Commonwealth Grants Commission process, I mean, that process is entirely at arm’s length from us. That is an independent process. Every time there’s a determination about the distribution of the GST there are inevitably some states and territories who are happy, some states and territories who are not especially happy. And that’s what happened on this occasion as well.
We will always try and do what we can for the people of New South Wales but also for state and territory governments to try and help them deal with these pressures that they’re under. They need to recognise that our budget is under pressure too. But I believe – and I know the Prime Minister believes, this is his kind of defining instinct – is that we get more done when we work together than when we work at cross purposes. I’ll be meeting with the state and territory treasurers tomorrow. We will no doubt be talking about some of these sorts of issues. But we’ll do the best we can for them. We recognise the pressures that their budgets are under, and we ask them to recognise the pressure that we’re under.
SPURIO:
That brings up the topic of tax reform – difficult, complex. Do you see any realistic possibility that there might be, you know, a significant long‑term structural tax reform look at our system, the tax base, what could be better?
CHALMERS:
The way we’ve gone about that – and we recognise that the tax base is not what it could be and so the way that we’ve gone about that is instead of having some kind of big bang review we’ve tried to identify the areas where we can make some progress this parliamentary term – changes to the PRRT, changes to high balance superannuation, a big multinational tax reform agenda, we’ve got personal income tax cuts, we’ve cut taxes on EVs, we’ve cut taxes for small business and energy efficiency, we’re engaged in conversation with the states and territories, including tomorrow, about the future of fuel excise. So there is a big agenda on tax, which I don’t think is always recognised when people are thinking about and talking about tax and our political system. We’ve actually got a lot before the parliament right now. If you made a list of tax reform efforts over recent times, what we’re doing is probably the biggest agenda certainly for 15 years, maybe for 25 years. And that’s because we think you make more progress by identifying where we can do something meaningful and try and legislate to bed it down. So that’s our focus rather than the kind of big‑bang changes that people have proposed. And we just find that that’s more effective. We are practical, we are pragmatists, and we try to get as much done as we can. That requires bringing people along with you and bringing the parliament along with you, and that’s not always the easiest thing to do. And the parallel I would draw here so that people don’t think this is just the way we’re going about tax reform, is competition policy as well. We’ve got this big competition policy review going on right now. It’s got a two‑year window, but what we’ve said to people is don’t expect us to wait until the end of that two‑year period to get a nice, glossy bound report, to do a little bit of it and then put the thing on the shelf. We’ve said if there is progress that can be made at any point in that two‑year period while we’re doing all this work on competition policy, then we’re interested in doing that.
So whether it’s non‑compete clauses, whether it’s mergers and acquisitions, whether it’s the work that we announced during the week about tariff reform – the biggest tariff reform in two decades – what we try to do is we try and reform the economy in an ongoing way, identifying where we can make progress, making progress and then considering the next step.
SPURIO:
Talking about structural reform, perhaps in the context of the Intergenerational Report, which talks about productivity growth, it talked about longer term productivity trend of 2 per cent growth for Australia, I think you’ve already said publicly you think we should be aiming higher than that. But what are the sort of things we need to do to be able to get that number higher?
CHALMERS:
First of all, I’m delighted that people are focused on the Intergenerational Report and projections in there. And what we try to do is we try to say yes, the Intergenerational Report is about pressures on the budget as our society ages, but it’s also about these other big shifts in our economy and our society, from hydrocarbons to renewables, from IT to AI, from globalisation to fragmentation. I want people engaged in these sorts of questions. And part of that is working out are we okay with 40 years of weak growth, 40 years of weak productivity growth. And I’m not and I hope you’re not – I don’t think you are. And so this focus on the IGR is really welcome.
I think the answer to our productivity challenge – and I foreshadowed this when we hung out in Brisbane – is I think we need a much broader conception of the drivers of productivity growth. People have a view about industrial relations. I don’t dismiss those views. But that’s not the only challenge now when it comes to productivity. What will matter for productivity is whether we are any good at adapting and adopting technology, whether we are any good at getting our human capital base right so that people can keep up with change and prosper and be beneficiaries of change rather than victims of change. So whether we get the energy transformation right, whether we deliver care more effectively, whether we harness data and digital in a much more effective way. I think these are the things that will determine whether we get the productivity growth we need to lift living standards, and whether we do better on economic growth and economic progress then the central case at the moment in the IGR.
SPURIO:
You talked about digital in there. AI, everybody has a view and is talking about it. I wonder if you could talk a little bit about not just what AI might do for the economy but I’m interested in actually how you and your department, are you using it, is it helping you?
CHALMERS:
Are you asking if my speech was written by AI? [laughs] We’re getting our head around it like you all are and we’re very fortunate in this regard, we’ve got terrific colleagues like Ed Husic and others who are doing a heap of work in this area on behalf of the government. But I think your question is appreciated because it recognises that AI doesn’t sit in this little kind of portfolio silo. In your businesses too I don’t think anyone here now thinks AI is a kind of quirky little unit out the back of the fifth floor of your office building. You are working out how to make it central. We’re doing that when it comes to government services, when it comes to economic growth, when it comes to how we think about and measure and progress on the productivity front. But thankfully Ed is doing a lot of work for us and we all engage in that in one way or another.
SPURIO:
Sticking with tech, one of the questions that came through from the audience, Matt Comyn perhaps sparked a bit of discussion earlier this week when he was talking about some of the big tech companies and the revenues they earn and maybe the tax they pay. You talked about multinational tax reform, do you see a case for some of those multinationals paying more?
CHALMERS:
I certainly do. I think the way that that is done is still up for grabs. We’ve got this big international agenda that the OECD has been leading to their credit around multinational taxation and Australia under governments of both political persuasions – and again, I tip my lid to Josh and the former government for being enthusiastic about it as well. It shouldn’t be partisan when it comes to reforming the multinational tax system and it hasn’t been and that’s a good thing. We are trying to advance that agenda but we need to recognise that one of the parts of that agenda which has stalled is the part that relates to the tech companies. And I think Matt was reflecting that in his welcome contribution earlier in the week. We’re all trying to work out how can we make the multinational tax regime more effective, how can we make the tax base more sustainable, and where did the tech companies fit in that. And whether that is a kind of a perfect multilateral solution or whether countries are going to have to do more of the heavy lifting at home, I think that is still something that we’re working through.
AUDIENCE MEMBER:
I’ve got a question on infrastructure, because you have gone to productivity and reform and setting up the basics for the economy, and I think infrastructure is a big part of that but you didn’t really talk to it in your presentation. So probably two questions: what’s your general view of the infrastructure pipeline and the money to be invested over the longer term, noting that you did have a bit of a rebalance last year. And secondly, your ideas on productivity because it is a sector that could benefit from productivity.
CHALMERS:
Thank you for the opportunity. What we try to do with the infrastructure pipeline is make it realistic and make it deliverable. We didn’t make it smaller. You would know and others would know that we’ve got this $120 billion infrastructure pipeline over the next 10 years and we didn’t diminish that by a single cent and it’s entirely possible that over time, that pipeline will get bigger than 120 over 10 years. But we didn’t hack into it, we just made sure that the projects were deliverable and affordable within that. We’ve all got an interest in value for money when it comes to the infrastructure build, and part of that is making the sector more productive. And again, a big role for technology, a big role for human capital, and energy and all of the other things that we’ve talked about in the context of productivity more broadly.
SPURIO:
Last week was the ASEAN Conference, which you were at, I wonder whether you could give us a bit of an insight into what some of our regional counterparts are worried about and whether they’re thinking about some of these issues in the same way that you are?
CHALMERS:
Everyone understands and appreciates that the geopolitics of the region are tricky, and that we all have an interest in broadening and deepening our economic ties in that context. I think there was an unanimity on that front. Unanimity is not a common feature of foreign policy but I think in the sense that we can all do much more to invest more deeply in each other’s success I think there was a lot of common ground. And that’s especially important in a world that is fragmenting. There is many of you as I who have been around long enough to see the way that globalisation has kind of waxed and waned over the years, and over the decades, that there is an element of fragmentation. It’s one of the key trends that we identified in the Intergenerational Report for good reason. And for a country like us – reliable, magnificent resource base, wonderful human capital base, trusted partner in the region, wonderful institutions and decision making – this makes us more attractive. In a more fragmented world we are more attractive rather than less. And we don’t want to see this uncertainty, we want the status quo in our region, we want peace and prosperity and stability and security but in a world where people are rethinking their supply chains, we’ve got a big chance to be a much more prominent part of the way that people think about supply chains, which are more robust and more reliable.
SPURIO:
Those threats to global trade and globalisation, they are existential threats for our prosperity?
CHALMERS:
If you made a list of the countries that have got the most to gain from robust trading relationships and supply chains, we’d be at or near the top of that list: relatively big economy in the most dynamic part of the world, all of this opportunity laid out before us, and we would be among the biggest losers of a change to the status quo in the region. That’s why I salute Penny Wong and Don Farrell and Richard Marles and the Prime Minister for the way that they’ve engaged with the region. But one of the reasons why the whole Cabinet is engaged with the region is because we recognise the point that we’ve got a lot to gain and a lot to lose. And that’s why ASEAN was just this perfect opportunity because ASEAN is where the action is. We want to get a bigger slice of that action for all of you and for the country and we bring to the table a lot of advantages in that regard.
SPURIO:
One of the questions from the floor was around the cost of energy and renewable energy, is there in particular? Are you thinking about that as an issue as well? The questions not just at the individual level, but also at the business level?
CHALMERS:
Absolutely. We’ve talked about where does the growth come from, where does the productivity growth come from, what are our opportunities in the defining decade. So much of what we want to achieve together relies on cheaper, cleaner, more reliable, increasingly renewable energy. And so there’ll be a big focus in the Budget on energy as there has been in the first couple of budgets as well. And again this debate, if you want to call it that, about nuclear energy is kind of welcome in a way because it’s focusing the national mind on what our genuine opportunities are here, not what our fake opportunities are here but where the real opportunity lies, and renewable energy for Australia is by far the cheapest source of new energy. Every investor knows that and so you can expect that to be a bigger and bigger part of our agenda, including in the May Budget.
SPURIO:
Do you think we’re making enough progress on the transition?
CHALMERS:
I think there are concerning elements. We are confident that we will hit our targets but we’re certainly not complacent about that. Some of you were at a speech I gave towards the end of last year working, closely with Chris Bowen to put it together, about the risks to us hitting our targets. Some of the policy that has been announced since that speech, whether it’s the work that Chris Bowen has been doing with the states very effectively but in other areas as well has recognised that we need to keep the effort up in order to hit those targets, in order to source and transmit that cleaner and cheaper energy that you all need.
SPURIO:
You mentioned the electoral cycle – four‑year terms?
CHALMERS:
Sign me up. It’s the perfect opportunity for me to recognise a couple of people in the audience who I didn’t realise we’re going to be here today but Sally Sitou, the Member for Reid, is here and Jerome Laxale, the Member for Bennelong. Don’t tell anyone, two of my favourite colleagues have come along the lunch today. I should have acknowledged them at the start but I can see them now from this different perspective. And I’m sure they’re up for four‑year terms as well.
JOURNALIST:
I’ve got a short‑term and a long‑term question. The short‑term one with the coming budget, do you see there’s much need for extra cost‑of‑living relief? We’ve got inflation falling, real wages finally rising, the RBA nearing a move which might be downward. So is there much need for extra cost‑of‑living support, much of the 20 billion is still to be spent if I’m not mistaken of the existing cost‑of‑living relief. And secondly, you said you wanted to get beyond the electoral cycle. And I think you mentioned wonderful decision making. I’m wondering before the election, is there the possibility to hold a serious debate that would look at the real issues facing the structural deficit and how to address that in the economy, so that you can go to the election with a mandate, rather than I guess, trying to fix things afterwards?
CHALMERS:
Thanks, Peter. And thanks for all the ways that you engage with these really serious questions in your writing. On your first question, people are still under the pump. We recognise that. We’ve seen inflation come off in in welcome and encouraging ways, but we know that people are still under pressure, and that’s why the tax cuts are so important. And that’s why they will be no matter what we decide over the course of the next five or six weeks, the tax cuts will be the most substantial cost‑of‑living help in the Budget. But there is a case for some more targeted help if we can afford to do it and we will work through that in the course of the coming weeks. As I said in my prepared remarks and have alluded to a couple of times in the Q&A don’t expect that to be anything like the $107 billion that we’re spending on the tax cuts. But there might be an opportunity to do something more targeted, more akin to the sorts of things that we did before we made the change on tax.
On your second question and this is something I think about a lot as you would expect me to, the structural position of the budget. We are really pleased with the progress that we’ve made in the near term on the budget. The first surplus in 15 years, I can see a second surplus from here, but we’re not there yet. That is really good because we save on one of the five biggest structural pressures on the budget, which is the interest we pay on the already existing debt. You know because you’ll follow it closely and hopefully others in the room understand that our big pressures in a structural sense are the interest we pay on debt, aged care, NDIS, health care and defence. And so we are very focused on how do we make sure that we can deliver those things, how can we get the interest bill down, which is part of the rationale for the near term budget repair, but how can we address those other issues as well. You’re familiar with what we are trying to do on the NDIS, which is important, and you would have seen that my wonderful colleague Anika Wells put out the aged care taskforce report as well, which goes to some of these questions. Long way of saying, yes, we think there is an opportunity for a proper national conversation about structural pressures on the budget, but we’re not waiting for that. We’re making progress on the NDIS. We’re making progress on interest. We’ve had a lot to say about and commitments to make in defence. We’ve invested billions of dollars in Medicare. And we’ve got a piece of work still to do on aged care, following the release of that really important piece of work that Anika put out a few days ago.
SPURIO:
Thanks, Treasurer, I think I’m going to finish up with one last question. We’ve covered a lot of territory today, a lot of complexity and a lot of challenges in front of us but you talked about being optimistic. So I just wonder whether you could just wrap up by reminding us about why you’re optimistic and while we should all also share in your optimism?
CHALMERS:
There’s so much that we can be proud of it. I don’t mean as a government, I mean, as a country. We have seen inflation come off, really quite substantially. We do have real wages growth again. We do only have unemployment, which in historical terms would be seen as incredibly low. We do have people who are engaged with our economic challenges. We are in the dynamic part of the world. We have so much going for us. I really genuinely feel like in 20 or 30 or 40 years’ time, people will look back on the 2020s and that will be the period that they focus on which determines whether we subsequently succeed or fail. And I like to recognise all of the things that we have going for us but I also like to be upfront about the things that are coming at us: global uncertainty, we’re not there yet on inflation, our economy is slowing in ways we do expect, but that doesn’t make it any easier. And so we’ve got a lot of work to do together and what we like to do and the reason why we do these kinds of events a couple of months out from the Budget is because we want to involve you in what we’re grappling with. We want you to understand that not all of these decisions, we don’t pretend that they’re kind of black and white decisions and sitting around the Cabinet table grappling with all this sort of stuff that there are obvious answers. There’s always shades of grey, and there’s always fine balances to be struck. But the reason I appreciate so many of you, and the reason I appreciate this opportunity today, is because from Prime Minister Albanese right through our Cabinet, right through our team, Sally and Jerome, everyone, we recognise that we don’t have all of the answers ourselves. We give ourselves a better chance of succeeding if we involve you in the conversation and that I hope is what you take away from today, as well as some of the hints and tips I’ve given you about the Budget in two months’ time.
