Mark Kenny:
Thank you very much Treasurer; it’s a wide‑ranging speech and a very interesting subject. It does so closely align, as Rebecca [inaudible] was saying, so closely align with the remit of this lecture series to think about Australia in the longer term and its place in the world.
We’re going to go to some questions from our media gathered here. I thought I might just start though with a question that kind of goes to that. You touched on the – how dangerous the world is, how volatile it is, a number of inputs that make predictions highly problematic, that make planning necessarily a dynamic thing.
I wonder, is there a tension inherent in the long‑term focus of a thing like an Intergenerational Report and the short‑term exigencies of the political cycle? And how do you ensure that the advice that you’ve got, the studies that are to be done, the thinking that’s gone into this report, can continually inform the decisions that you’re making?
Jim Chalmers:
Well, here I want to pay tribute to Peter Costello, who began these intergenerational reports. I’ve done that before because I think in our political system, which does encourage shorter and shorter‑term thinking, a media cycle that operates on much faster cycles even than when you were knocking around the parliamentary press gallery, Mark. So much of the incentive in our political system encourages people to think in shorter and shorter‑term ways and shorter and shorter‑term cycles.
So the reason why I have always been a big supporter of the intergenerational report is that it encourages governments – it compels governments – and anyone who reads it to think in bigger, longer‑term cycles. And I know that at a time when the cost‑of‑living pressures are substantial, as we’ve acknowledged, and as we are responding to in the here and now.
I know when those near‑term pressures are serious, as they are right now, it’s harder and harder to focus people and to focus governments on the long‑term. But I think it’s possible to do both. But more than possible, I think it’s imperative that we do both of those things at once.
And so for this government, overwhelmingly, the primary focus is on the pressures that people are confronting right now. The war in the Middle East and its impact on inflation, what that means for borrowing costs at the household level but also for governments, when you see what’s happening with bond yields around the world, when you see what’s happening with expectations for interest rate rises around the world.
That is the government’s focus, but we can maintain that focus at the same time as we share with the country our thinking about how we think this will all play out over the coming decades. And the further you go out, obviously the less certain, the less confident you can be about some of these projections. But that doesn’t mean it’s not worth the effort, because if you make a list of all the things that Australians are good at, I believe they’re good at navigating the here and now at the same time as they plan for the future. And that at its core is what the IGR is all about.
Kenny:
Thank you. Now, first question, I think from Clare Armstrong, although it may be from James Massola. Is Clare here? No. James Massola.
Journalist:
Thanks, Mark, and thanks, Treasurer. Look, I might ask one for Clare as well as myself, given she’s absent. The first is around the productivity assumptions in this document. It’s estimated we will return to around about 1.2 per cent productivity growth per year over the next 40 years. The document says a large part of that is because of AI. It’s short on detail; we are at the dawn of AI, I do understand that, but quite short on detail how that will actually come about.
If you go to page 195 of the document, the estimate of gross debt to GDP, the ratio at a 1.2 per cent rate, is about 30 per cent, 28 per cent, which is, you know, quite a good position for us as a country to be in. If it’s .8 per cent, which is the figure Labor has been using until recently, gross debt to GDP, and I know that’s only one measure, but gross debt to GDP is around 60 per cent, which is a much less comfortable position for this country to be in.
So I guess my question is how confident are you, or how can you be confident that we will continue to hit that 1.2 per cent?
And then my second question for Clare, the document also notes the significant decline in indirect tax revenues, things like excises. Would you under any circumstances consider altering the GST, raising it?
Chalmers:
In reverse order, so Clare’s question first, that’s not something we’ve contemplated really at any point.
On your first question about the productivity assumption, I understand and accept that for you and for a couple of your colleagues this has been a big focus of how people are grappling with the Intergenerational Report.
The first point is, I think, an obvious one, which is that every number in the document is sensitive to assumptions and uncertainties. And the further you go out into the 40‑year horizon, obviously it becomes harder and harder to make concrete predictions. We acknowledge that. I think every Treasurer who’s presented an IGR has acknowledged that in one way or another.
But on the productivity assumption, obviously we have grappled with this quite a bit as well. I think quite early in the life of the new government, late in 2022, I remember talking to Patrick actually about the early advice that I got to take the productivity assumption down from 1.5 to 1.2. I don’t know if you remember that meeting in the office, Patrick, but that was when we were grappling with bringing it down. We thought 1.2 was more realistic. We’ve maintained it in budgets since, and we’ve maintained it in the IGR for a couple of good reasons.
First of all, we shouldn’t assume that the risks to that 1.2 productivity number are all to the downside. As you can see in that scenario we’ve presented for AI in particular, there are upside risks as well to that productivity number, and so we think the 1.2 strikes a pretty effective balance.
It also represents not the precise midpoint, but it is below some other comparable countries’ assumptions, and it’s above others. So it’s below the US and the UK; I think the UK is 1.5, and the US is 1.4, the Kiwis have got .9, so we are broadly in the kind of middle range of the productivity assumption.
There are also some other kind of more complex considerations. For example, one way we compare ourselves to the US, which is relevant to productivity, is how we calculate our relative living standards with the US relative living standards. And so it would take a little longer to explain that relativity, but it’s something that we’ve been talking about with the Treasury.
All of that means we think that 1.2 is appropriate. Not because any economist can bet their life on an outcome 40 years down the track, but because we think it best balances all of these different considerations.
Kenny:
Jade Gailberger.
Chalmers:
Not everybody gets to ask one for Clare as well, Jade.
Journalist:
Thank you, Treasurer, for your speech. Your report states that if home-ownership levels had remained at 1981 levels, around 250,000 more households aged 25 to 34 would own their own houses. What percentage of the coming generations does the government want to see on the homeownership ladder to reduce the rising aged care burden on taxpayers? And should those new homeowners essentially accept that the great Australian dream of a house with a backyard and a Hills Hoist is dead?
Chalmers:
Well, not on our watch, and you might have noticed that we’ve taken some very substantial political risks in order to meet our intergenerational obligations and responsibilities.
You know, here again I shout out a wonderful group of students I met with before I came here to give the speech, because I was able to look them in the eye and tell them what I’m prepared to say again now. Which is that in all of the 20 or so budgets that I’ve worked on or responded to in my time in politics, there hasn’t been a Budget that has been more serious about meeting our intergenerational obligations. And I think the pointiest part of that, the defining part of that is really the housing market, which has locked young people out for too long.
So we’re not targeting a particular percentage, but we do want to shift the needle over time because one of the key conclusions I’m hoping that you draw from this Intergenerational Report when you’ve gone through it in detail is that every page of this IGR in one way or another justifies, validates, and I hope one day, vindicates the difficult decisions that we’ve taken reforming the housing market and reforming the tax system.
And one of the reasons why I think the IGR is so important, it goes back to Mark’s first question: we do have obligations to each other, not just in the here and now, as important as they are, but down the generations as well. And so if we are to look young people in the eye and tell them that we are doing the best for them, you can’t do that without doing something about housing; I’m convinced of that. We were convinced of that before the Budget, and we knew that that would be contentious and contested. Of course it was going to be.
But no objective reading of the IGR or anything like it would conclude that the housing market was doing justice to the dreams and aspirations of young Australians in particular, and that’s why we’re changing it.
Kenny:
John Kehoe.
Journalist:
Thanks, Treasurer. John Kehoe from the Australian Financial Review. Thanks for the opportunity to ask some questions today. The Intergenerational Report, it puts a technical cap on tax receipts at 24.2 per cent of GDP, whereas your Budget document doesn’t. I think tax receipts keep rising for more than 25 per cent of GDP over the medium term. Could you just explain the thinking behind the difference there? And are you able to give us any indication approximately how much AI is thought to contribute to productivity; are we talking like .1, .2, .3 over the medium term?
Chalmers:
Yep. Well, on the second part of your question, there’s an analytical box in the document which goes to that precisely, the different range of possibilities from AI, and so I’d direct you to that.
On the first part of your question about tax to GDP, I mean every Intergenerational Report has had to make an assumption on tax to GDP, as you know. I suspect you’ve probably read all 7 of them more closely than most, and so you’re forced to make an assumption so that the tax‑to‑GDP doesn’t just climb forever.
In this document, what we’ve chosen is the 24.2, which reflects tax‑to‑GDP no higher than it was in the Howard years. But I accept that different governments have chosen different levels.
In the Budget, because it was a shorter time period, we let the tax‑to‑GDP assumption run. I think the fundamental point about the 24.2, or tax‑to‑GDP, in this IGR and any of the previous 6 IGRs is it’s an assumption that governments – I think a worthy assumption, a fair assumption, that governments of both political persuasions – whenever they can afford to do that, return as much bracket creep as they can. And I say that as a Treasurer who’s done that 5 times in 3 different ways.
And so tax to GDP is always a focus of these IGRs. You have to make an assumption. We’ve chosen to pick a number which is no higher than a couple of those years that we saw under Howard and Costello.
Kenny:
Patrick Commins.
Journalist:
Thanks very much, Treasurer. One of the most striking forecasts or predictions is that there will be more deaths than births by the time you get to the 2060s, which is the first time the IGR has projected this outcome. It feels like I think a lot of Australians might read that and be a bit alarmed and think, ‘Well, in a world where there are more deaths than births, in a country where there’s more deaths than births, it feels like it’s a symptom that something is going wrong’. How worried are you about this forecast, about falling fertility rates? Is this something that, you point out in the IGR this is happening all around the world, but is this something that we should be actively taking steps to avoid, or is it not a major issue in your eyes?
Chalmers:
Yeah, I mean I think this combination of issues is really important in the IGR. The first point is to inject a bit of perspective in that. You’re right that for the first time the IGR will project that, but that will be much later, in some cases decades later than other, you know, really quite good economies where they expect deaths to outnumber births much, much sooner. That’s the first bit of perspective.
But on the issues that underpin it, on fertility rates, I think that is one of the big changes in this IGR compared to 2023. We expect fertility rates to fall further and faster. That’s one of the key conclusions, one of the reasons why population growth will be slower than we anticipated and the overall population number lower by the mid‑60s.
Now when it comes to fertility rates, I do not and will not give people free advice about these very personal decisions that they make about whether to start a family and when to start a family. You can see in those fertility rates that more people are choosing to have kids later, and that means that families will be smaller. If you look at the decline in the fertility rate, I think almost half of it is because of fewer families where there are 3 or more kids. So I’m not giving free advice to people.
Our job, the responsibility that we embrace and have embraced, is to make it easier for people to make that choice if they would like to. So the early childhood education reforms are key to that. Expanding paid parental leave is key to that. Paying super on paid parental leave, really important part of that as well. And so those are our efforts to make it easier for people to make those choices if they would like to, in the context of people making a decision to have smaller families later in life.
Kenny:
Dana Daniel. Dana Daniel, we’ll come to you, sorry. I’m running a dynamic list here. It’s a bit like dynamic pricing, you know, it’s changing all the time.
Journalist:
Thanks, Mark. Thank you, Treasurer, for your speech. The IGR, I’ve just got some questions around the forecasts around lower government spending. How much of this depends on NDIS savings being realised? And could you also share what is being forecast for the size of the Australian Public Service? The report says AI will reduce the cost of the public service. Have you modelled what proportion of GDP will be spent on the APS? Will it be less than 3.5 per cent? And will fewer public servants be needed as a proportion of the population?
Chalmers:
The second part of your question wasn’t a big focus of the IGR. You know that we think with technological improvements but also increasing responsibilities that we think that the size of the public service is broadly right. And so it hasn’t been a big focus of our thinking in the IGR, but the growth in the care economy has been. And that’s why the NDIS reforms are really important. A really, really important part of the story here. And, you know, one of the reasons why we engaged in that NDIS reform really is to save the NDIS from itself. Because absent that reform, over time it would have tempted governments perhaps of a different political persuasion than ours then to cut harder than we think is wise. And so NDIS reform is key.
Getting interest repayments cost down from saving $200 billion off the debt trajectory we inherited is key. Ongoing effort in aged care is obviously key. Making sure that we continue to manage the budget in the most responsible way that we can.
It is quite remarkable, as I said, that even with these gathering pressures we are seeing the budget better than we anticipated in 2023, but again that doesn’t make us complacent because the growth in the care economy and in other areas will put very substantial pressure on the budget.
Kenny:
James Mayger.
Journalist:
Thanks, Treasurer, for your speech today. Looking at the AI investment in the last, say, 3 years from 2023, if you exclude investment into data centres from the capital investment data and the GDP data, business investment’s been bumping up and down around about $43 billion a quarter, and so all of the growth we’re seeing in the economy is coming from data centres. Now, excluding obviously the AI revolution you’re talking about, what else does business need to do to increase their investment and their productivity gains? Because obviously, you know, productivity’s not just a matter for the government action and you can’t control all the productivity gains that you’re speaking about today.
Chalmers:
Yeah. I mean, first of all, it’s always true, not to be flippant about it, but it’s always true if you take a big part of investment out of the investment calculation, investment will be smaller. Yes, AI infrastructure’s been doing a lot of the heavy lifting in those business investment numbers, which have been very strong.
It hasn’t been the whole story. Obviously, energy investment, even dwelling investment in the most recent national accounts, we saw pretty strong in welcome ways. But the broader challenge is still there, and the broader challenge is to attract the kind of investment where we can get that capital deepening to make our economy more productive. That was one of the key things out of the reform roundtable; one of the key elements of the productivity package in the Budget is attracting more investment.
And so, yes, overwhelmingly it relies on decisions taken by the private sector, but we’ve got a role to play in this, and we are playing it. You know, we’re consulting right now on another big tranche of foreign investment reform. Whether it’s environmental approvals or other kinds of approvals, we’re speeding them up because investors tell us that’s a big challenge: how long it takes to get a project approved and up and running.
We’re working with the states, you know, doing a heap of work with the states trying to make the national economy more seamless.
All of this is about attracting more investment, because we do acknowledge, whether it’s in AI or in other areas, we’ve got huge advantages. Australia’s extremely attractive in the world right now. Investors love our stability, they love our geography, they love our combination, our unique combination of advantages. But there’s work that we will continue to do to attract that investment in our national interest, whether it’s in AI or in other areas too.
Kenny:
Sarah Ison.
Journalist:
Sarah Ison from The Australian. You’ll note that I’m now going to introduce myself fully as opposed to when we first met. In the Intergenerational Report, personal income tax as a percentage of GDP is going up. Are you happy with that, and how can you restrict that growth?
Chalmers:
Well, no, I’m not, and that’s why we’re cutting income taxes. And, you know, if you consider that as our population gets older and proportionally fewer workers are doing heavier lifting in the tax system, then the responsibility that I’ve embraced and the responsibility of future governments over that 40‑year period will be to cut income taxes where we can afford to do that.
You know, we’ve cut income taxes 5 times, and because we’ve done that, the share of personal income taxes paid by workers is a couple of percentage points lower in this IGR than it would otherwise be.
Now I understand that there will always be those who want us to cut income taxes further and faster. I’m enthusiastic about that. You’ve got to make sure that you can pay for it. So over time, whether it’s our government or subsequent governments, I’m not pretending that we’ll be in office for the next 4 decades; I think every government will look seriously at taking as much of the burden off workers as it can afford to do in the context of all of these other pressures.
And again, to come back to some of the parts of Jade’s question before one of the reasons why we took some difficult decisions in the 2026 Budget about better aligning the tax treatment of income from work and income from assets, knowing that there would be a reaction to that, is because we can see this issue coming at us and accelerating over time.
And so in order to fund those tax cuts for workers we made difficult decisions elsewhere in the Budget, and that’s to try and strike a better balance which recognises the pressures on workers in particular.
Journalist:
Does the IGR take into account, though, that desire to continue cutting income tax cuts as you say, does it capture that?
Chalmers:
It does in the sense that, and this goes to John’s question before, about assuming that the tax‑to‑GDP number doesn’t climb forever. And so imposing a realistic assumption about the return of bracket creep in the IG is part of that. But also, I mean, look at our record of cutting taxes. That’s the other thing I would encourage you to look at. If it weren’t for our efforts to cut taxes, the problem identified in the IGR would be much worse.
Our government and other governments of both political persuasions, I suspect, will look to cut income taxes further when the budget can afford it.
Journalist:
Thank you.
Kenny:
Treasurer, we’re pretty well out of time. Can I just ask you one question without notice before we wrap up, and that is if we think back to John Howard’s answer to a question, I think it was from Liz Jackson where he talked about a country where he wanted to be comfortable and relaxed. When you think about this Intergenerational Report, when you think about the country in the long‑term, when you think about the political divisions we see in the country at the moment, what sort of country do you want to see over the next coming decades?
Chalmers:
Well, I think my motivation, whether it’s in the IGR or in the reason I’m here more or less, is because I want more Australians to be beneficiaries of change, and as the pace of that change picks up, so does the pace of our intergenerational obligations.
And so the country I want to see is a country which has the capacity to be the world’s most successful in the context of all of this change that’s happening around us. And, you know, a country which is much more modern, a country where we find much more opportunity in all of the uncertainty, and much more security as well.
And it comes back to your original question if we have the ability to focus on the here and now and think about the future, we give ourselves a really good chance of making our people beneficiaries, not victims of all of the change that you can see in this IGR today.
Thank you.
