Will the budget make inflation worse? Are its boosts to welfare payments just the first step for the Labor government? Could the projected one-off surplus be followed by another one or more? What (if any) of the budget measures will the Coalition oppose? There’s quite a bit about this budget that, as the saying goes, “only time will tell”.
In this podcast, Treasurer Jim Chalmers defends his budget from those economists who claim it will be inflationary, and strongly rejects suggestions it doesn’t have much for middle income Australians struggling with rising mortgage payments. Chalmers also promises that, given the current tight labour market, a priority in coming months will be finding ways to help more of the long-term unemployed into jobs.
Shadow treasurer Angus Taylor lists some of the measures the opposition supports but will not commit on the changes to the Petroleum Resource Rent Tax, despite the sector’s benign attitude to the cautious revamp.
E&OE TRANSCRIPT PODCAST INTERVIEW THE CONVERSATION THURSDAY, 11 MAY 2023
SUBJECTS: May Budget, inflation, interest rates, cost of living, NDIS, Petroleum Resource Rent Tax, JobSeeker, welfare increases, stage three tax cuts, surplus, labour market.
MICHELLE GRATTAN, HOST: Jim Chalmers, the economic argument about this Budget has come down to whether it will or will not add to inflation. A number of economists say it will, but you strongly reject that. Can you just take us through briefly your argument about why those economists are wrong.
JIM CHALMERS, TREASURER: Well, first after all there’s a lot of economists who have my view, including the considered advice of the Treasury. And the reason for that is because what we’ve done is we’ve designed the cost-of-living package in particular, to be particularly cognisant of the inflationary pressures in the economy. It’s spread out over four years – not all of the money hits the economy at once. And if you think about the next year, which is the year that the Opposition is focused on, a big chunk of the money we’re spending next year is the funding for the programs which are obviously ongoing but weren’t funded in an ongoing way. There’s also the impact of the small business tax breaks and some other reasons. So, overall, our Budget is designed to take some of the edge off these cost-of-living pressures, not add to the inflationary pressures in the economy, and you can see that in the Treasury’s forecasts.
GRATTAN: So you’re confident that the Reserve Bank will think that you’ve helped it, not hindered it in its push to contain inflation?
CHALMERS: Well, I’m always careful, as you know, Michelle, I don’t want to put words in the Reserve Bank Governor’s mouth in particular, they take their decisions independently. But obviously I wouldn’t be handing down a Budget that made their job more difficult. And in the context of the energy plan, the energy relief payments and some of the other measures in the Budget, we’re going out of our way to make their job easier.
GRATTAN: Now, in the Budget you’ve increased JobSeeker and related payments by a small amount. Do you see this as a first step only in raising these payments? You know you’ll have more advocacy from your inclusion advisory group next year, because that’s an ongoing exercise?
CHALMERS: Two quick things about that, I mean, first of all, having just handed down a Budget with an increase to the base rate of JobSeeker and the associated payments - and I’m not flagging what we might do in 364 days’ time in the next Budget or whenever it is - but the second point I’d make is that as a Labor government – and the Prime Minister makes this point repeatedly – we’re always looking to do what we can to help people, but we do that within the constraints of a really responsible Government and a really responsible Budget. And I think the overwhelming story out of this Budget is the fact that we’ve been able to be responsible and compassionate at the same time.
GRATTAN: Now, of course, we always seem to return to the stage three tax cuts. We’ve had two Budgets now where there’s been pressure, to which the Government hasn’t responded, to refashion those tax cuts. I know you say you’ve got no plans to do this, but can we take this as a never-ever pledge – that they’re definitely here to stay?
CHALMERS: Well, the point that I would make about that, Michelle, is similar to the point I’ve made all the other times I’ve been asked, including at the National Press Club after the Budget – and that is, changing these tax cuts wasn’t even part of our deliberations in this Budget. And our position hasn’t changed. That’s why the Budget doesn’t reflect any change. And they come in in more than a year’s time, but it hasn’t been something that we’ve been contemplating. I get asked from time to time from both directions – people want me to either guarantee it or they want me to say that they we will abolish them. We haven’t changed our position despite all the pressure coming at us from both directions. We think it’s important that you return bracket creep, particularly for people on lower and middle incomes - I said that at the Press Club as well. And we need to remember that these tax cuts kick in 45 grand, and we’ve always supported tax relief for people on modest incomes.
GRATTAN: You’d always have the option of going to an election to promise to do something later, of course.
CHALMERS: I’m not speculating about that. We haven’t changed our position. We’ve got a Budget which has done as much as we can, frankly, for the most vulnerable people, the people on the lowest incomes, and I’m proud of that.
GRATTAN: You’ve been a bit sensitive today when people have pointed out that the Budget doesn’t have anything particularly special for middle-income, mortgage-stressed people. Why do you refute that proposition?
CHALMERS: I don’t feel like I’m especially sensitive about it, but I do think it’s complete and utter rubbish. And the reason I think that is because we’ve been really careful in prioritising the most vulnerable. We haven’t neglected middle Australia. For example, big changes to bulk billing, a centrepiece of the Budget. A lot of people with kids under 16 will benefit from that right up and down the income scale. Cheaper early childhood education. We’ve actually copped a lot of flak for being too kind to middle Australia in our early childhood policies. They kick in on the 1st of July. Energy efficiency measures, the training package, the home guarantee, there’s a whole bunch – there are a whole bunch of policies in the Budget for middle Australia. It’s just that the focus of a lot of the commentary has been what we’re doing for the most vulnerable people. That’s a good thing from my point of view, we are doing what we can there but that doesn’t mean we’re neglecting middle Australia.
GRATTAN: The Budget forecasts some $15 billion in savings from the National Disability Insurance Scheme. That’s a big amount of money. What will be involved, and do you think people on the scheme will be alarmed, because this is a particularly delicate area for obvious reasons?
CHALMERS: Look, it is. I acknowledge that. And that’s why both in the Budget speech and in the speech the following day I’ve gone out of my way to say that our objective here – our number one objective – is to make sure that people are getting the care that they need and deserve and that was intended when we designed the scheme in the first place. But we need to get a handle on some of these increasing costs in the system. And Bill Shorten has been doing a terrific job working with the NDIA and the sector and others, and Anthony Albanese with the state and territory leaders to try and moderate the growth in the program, not because we want to cut it for its own sake but because we want to make sure we’re getting value for money for people who need it and rely on it.
GRATTAN: But you’re pointing to these savings, and that inquiry into the scheme hasn’t even reported – won’t report for a few months yet.
CHALMERS: But, I mean, as you would appreciate from – you know, you would have seen some of these processes before, there’s often kind of iterations, there’s often engagement with the review panel as it continues its work. And what we saw – what we would have seen in the Budget is about a $17 billion increase in the cost of the NDIS. There’s about $15 billion of savings that were able to be found to moderate that growth.
GRATTAN: That’s pretty huge.
CHALMERS: Well, I think it shows –
GRATTAN: 15 out of 17.
CHALMERS: Well, I think it shows that if you put the effort into it, making sure that every dollar goes to the people who need it in the scheme, you can make the scheme more sustainable. You can put it on a more sustainable footing. That’s what I want to see, because I believe in the NDIS. I want it to be here to stay, and in order for it to be here to stay we’ve got to moderate some of these costs.
GRATTAN: As Treasurer you give the impression that you’ve been much influenced by working for a Treasurer. And as a staffer, of course, you went through the Labor Government’s trauma with its resources tax. In undertaking changes announced in this Budget to the Petroleum Resource Rent Tax, you treated the sector really very much with kid gloves. You’ve engaged with that industry. How much were you influenced by your own experience before?
CHALMERS: I think everybody is in one way or another. I like to think that I’ve got my eyes forward in the job that I want to do and not trying to –
GRATTAN: But you’ve got a few scars from the past.
CHALMERS: I think everyone does, from their own experiences. I don’t want to pretend that I haven’t learned a lot in that pretty remarkable apprenticeship that I was fortunate to have. I mean, nobody’s come to this job –
GRATTAN: Don’t mention tax inquiry.
CHALMERS: Well, nobody’s come to this job with the kind of apprenticeship that I had for it, and I’m grateful for that. And most days I reflect on something I’ve learned, as people would in all walks of life in their work. But I try and look forward. I want to make my time in this job really count, and one of the things that I’m pleased about in extracting $2.4 billion of extra tax sooner out of offshore LNG projects -yes I went about it in a consultative way, that’s the tone that Anthony Albanese sets for his Government. That’s his expectations of us. If you can get a good outcome from working with people rather than against them, then I would have thought the onus is on all of us in all of our portfolios to try.
GRATTAN: Now, you’re celebrating a surplus for this financial year, although there are a couple of months to go.
CHALMERS: You won’t be seeing any Back in Black mugs or anything from me, Michelle, or any self-congratulation. There’s good reasons to be cautious.
GRATTAN: Just fingers crossed. But the Budget then projects deficits in the later years. But I’m just wondering whether there might be, not a trick here, but some optimism that’s not reflected in those figures – in other words, is it not possible, certainly next financial year, that with the savings, with the stream of revenue that’s still to come you could, in fact, get a surplus next financial year?
CHALMERS: Well, I’m not prepared to pre-empt that, and I don’t want to get ahead of ourselves. And I think there are genuinely good reasons to be cautious and careful and conservative, including, the history of my immediate predecessor that I just joked about. There is no point over promising and under delivering here. I’d rather avoid that.
GRATTAN: But you might over-deliver after the under-promising?
CHALMERS: Well, it remains to be seen what happens with the labour market, what happens with commodity prices and a range of other influences on the Budget. But I think there’s a good reason to be cautious and conservative, and that’s what I’m being.
GRATTAN: Now, I just want to finish on the labour market, and something that I asked you earlier at the Press Club, because I think it’s important and something our listeners would be interested in. The Budget does not focus much attention, even with this tight labour market, on getting the long-term unemployed into jobs. What priority are you giving this? What more can you do about it? And what’s your thinking ahead?
CHALMERS: Yeah, very important priority; very, very high on our list. And one of the reasons I’m so proud of the place-based initiatives for communities where we’ve had entrenched disadvantage and intergenerational long-term unemployment is we need to think differently about the communities, frankly, like the one I grew up in and the one that I represent now.
GRATTAN: Just explain that place-based community program.
CHALMERS: So there are programs around Australia which find the communities with a lot of disadvantage and they try and apply a hyperlocal approach with great local leaders backed by the Commonwealth Government to try and break the cycle of intergenerational disadvantage. And it involves the philanthropic sector, it involves all of the community organisations, support from all three levels of government. And what I’ve seen in my own community, a program called Logan Together and a guy called Matthew Cox, who’s been central to all my thinking on this, is if we get a good model and we can apply it to other communities like Logan around Australia, we give ourselves a chance of breaking this cycle so that we have fewer long-term unemployed people. And so we intervene early in people’s lives and all of these sorts of things that are really important. So that’s part of the thinking. You’ve asked me before about employment services. That’s important too. Surely we can do better there. I mean, surely. And so we’ve got an Employment White Paper. My colleague Julian Hill and others are doing a heap of work at the committee level to see if we can do that better. Tony Burke is in charge of that as the Employment Minister, and so I’d happily work very closely with him to see if we can make improvements there. But I think the overall objective is really important. When we’ve got unemployment three and a half per cent, even if it gets to four and a half per cent on the Budget forecasts, we need to do a much better job of actually hooking people up with the opportunities of a growing job-creating economy. Employment services, the Employment White Paper, the place’s based programs, the participation agenda we have around early childhood education, all of these things are important. We’ve done a heap of work, but there will be more to do.
GRATTAN: Jim Chalmers, thanks very much for talking with us today.
CHALMERS: Thanks for the opportunity, Michelle.
ENDS
TRANSCRIPT INTERVIEW WITH MICHELLE GRATTAN, THE CONVERSATION Wednesday 10th May 2023 Topics: Budget 2023 E&OE
MICHELLE GRATTAN: Angus Taylor, you’ve condemned this as a high taxing, high spending Labor budget, to what degree and where should the taxing and spending have been lower?
ANGUS TAYLOR: Well, can we start with the facts because it’s very important to understand the baseline here. Labor’s added $185 billion of spending since they got into government and crucially, in the new initiatives they’re pursuing. There’s $2 of spending for every dollar of revenue. And so, at a time when we need a budget that’s responsible to take pressure off inflation, that’s not what’s needed. Now, there’s many areas where we’ve already outlined our view, that spending is not appropriate at the moment. $45 billion of spending we’ve opposed in the Parliament in recent months, about $18 billion of interest cost attached to that. We do think that adding over 10,000 new public servants at the moment is not the right answer, particularly at a time when we do need to put this downward pressure on inflation. Outside of national security and frontline services there’s real questions about whether that is needed.
MICHELLE GRATTON: Well, what about the welfare spending, though? You’re saying there should be less of that, those initiatives?
ANGUS TAYLOR: Well, we’ll work through all of these, and we have our own processes as you know.
MICHELLE GRATTON: Sure, but they’re pretty obvious.
ANGUS TAYLOR: Well, no, because you’ve got to go through your process and make decisions as a Shadow Cabinet and I always respect that process and we should, you know, that’s how these things work. What I would say in general, as a matter of principle right now is that what really is needed is dealing with inflation at the source, not dealing with it through the symptoms. There’s no point putting a band aid on a bullet wound, you’ve got to go to the source and a budget that puts downward pressure on inflation is good for all Australians. Everybody is better off including the most vulnerable, you don’t have to pick and choose. We all benefit from the prices of the goods and services we buy being lower than they otherwise would be.
MICHELLE GRATTAN: But even taking that point, nevertheless, we’re in a situation where the very vulnerable people on JobSeeker and so on are needing more money, needing more assistance. Are you saying that was inappropriate?
ANGUS TAYLOR: I’m saying that the risk with this strategy is that you give with one hand and take away more with the other and we are seeing, we’ve got stagnant real wages in this election cycle over three years. They’re not growing, and that’s in the Budget papers. It’s very clear.
MICHELLE GRATTAN: But they are starting to grow over this next year.
ANGUS TAYLOR: In this election cycle, under Labor’s government real wages are flat. Over the three years and you know, this is real pain that’s being felt. There’ll be people listening to this out there now who feel substantially worse off than they were a year ago. And the truth is, if you’re a family with a mortgage right now, a typical family will be $25,000 a year worse off than they were a year ago. That is that is what inflationary pressures and interest rate pressures do to people’s standard of living. And the key here is to go to the source with a budget that is good for all Australians. You don’t need to discriminate. Everyone is better off. If you can take pressure off inflation. That should have been the focus of this budget, and it wasn’t.
MICHELLE GRATTAN: Now let’s go to this question of inflation and dig down. Jim Chalmers claims that the budget won’t put pressure on inflation. The Opposition says it will. What is your evidence? What is your argument that it will be inflationary?
ANGUS TAYLOR: Well, a couple of things I’d say, first is you’ve got two independent economists saying it will be inflationary people like Chris Richardson and Stephen Hamilton, have all made this point. Chris Richardson was very strong last night straight out of the box, saying that this will be inflationary.
MICHELLE GRATTAN: He’s had a bit of a clip around the ear from the Prime Minister.
ANGUS TAYLOR: Well, I mean, you know that’s how Labor works. If someone says something that Labor doesn’t like, they clip people around the year. That’s unfortunate, but the truth is, he is speaking out because if you have $185 billion of new spending since, they got into government, $2 of spending initiatives versus every dollar of revenue initiative, that is expansionary. Now, right now, we don’t need that. I mean, we know historically, if you want to deal with inflation, you’ve got to see fiscal consolidation. We also know the best kind of fiscal consolidation is to make sure your economy grows faster than you spend. We confronted this in the past. If you don’t have that you end up where we ended up in the 70s and 80s where central banks have to do all the work and the pain is enormous, Michelle, we, many of us, certainly my age and older remember that only too well and that’s not where we want to be in the coming months and years.
MICHELLE GRATTAN: So, do you think that this budget will push up interest rates?
ANGUS TAYLOR: I’m not going to make a forecast on interest rates. I mean, the Treasurer loves to make forecasts. Lots of people have been trying to forecast inflation and interest rates and frankly, they’ve largely been wrong. We saw, even last week, the Reserve Bank raised interest rates, the pundits, the capital markets, they all had it wrong. Economists had it wrong. So, the truth of the matter is the inflationary pressures have been stronger than has been predicted, substantially stronger than has been predicted and that’s why now it’s incumbent on the Government to take that risk away, to take those pressures off every Australian. There was an opportunity here to unite Australians behind the one thing that is hurting all of us. There was an opportunity to do that. They’ve missed that opportunity and I think both in terms of what’s right for Australia and politically frankly, there’s been a real opportunity missed, and it’s incredibly disappointing.
MICHELLE GRATTAN: But when you say there was an opportunity, what positively should have been done?
ANGUS TAYLOR: Well, I’ve already said a number of things, but I’ll add to that. The first and most striking thing of all, when you read the Budget papers is one of the first things I look to. So, when you look at the fiscal strategy, there is no commitment to budget balance in this fiscal strategy. Now since the charter of budget honesty was put in place in the 1990’s under Peter Costello, there has always been a commitment to budget balance. It’s gone. And the reason is…
MICHELLE GRATTAN: Well, we’ve got it now though.
ANGUS TAYLOR: Well, hang on, for a year after an $80 billion windfall, when as I think I’ve said to you before, we had a budget coming out of the pandemic through to the May election that was already in balance, but from here on in the Treasury is taking it over a cliff, going out to an over $36 billion deficit. That’s not expansionary, that’s inflationary. If you take a budget that’s in balance, and then you turn it into a big deficit. It’s pretty it’s pretty straightforward. I don’t know how you can argue that that’s not expansionary.
MICHELLE GRATTAN: Isn’t it possible, though – and we’ve seen changes over forward estimates, incredibly, over recent years – isn’t it possible that the deficit that’s forecast could be reined in a lot with spending cuts, for example to the NDIS?
ANGUS TAYLOR: Look I don’t know. Look I read the budget and I assume that’s the Government’s plan. I don’t have any other plan to work on Michelle. So that is their plan. That’s what they put out. They just put out all the details and I think that’s what we’ve got to assume that their plan is right now. Now if they plan, more spending and more taxes, they should tell us.
MICHELLE GRATTAN: Now, I heard you say last night that the Opposition supported the energy price help and had done so all along. But in fact, you opposed the legislation that was part of that.
ANGUS TAYLOR: Oh, well, you know, Labor plays tricky games with these things. They put and they’re doing this time and time again. They put two pieces of legislation together. One they know we can’t support, and one they know we do support and they put us in those positions. We support that energy price relief. I’ll tell you why, Labor promised a $275 reduction in electricity bills. We now know from these Budget papers, that for a typical Australian family, there’s going to be a $500 energy price increase even after that relief. So, they’ve completely failed in their promise. Australians worked on the assumption that the promise was going to be kept. It hasn’t been kept. They deserve better than that. And that’s why unfortunately, and we do it with regret because it’s not this is not where we want it to be, but the truth of the matter is Australians deserved better than that, and Labor’s had to deal with it.
MICHELLE GRATTAN: Now you’ve seen the details of the changes to the petroleum resource rent tax. Are you going to support that?
ANGUS TAYLOR: We haven’t seen the details? That’s not right. We’ve seen a top line number and the thing about resource rent taxes, and we learnt this with the mining tax, is they are incredibly complex?
MICHELLE GRATTAN: Well, the industry supports them.
ANGUS TAYLOR: Well hang on. We are interested in what’s right for Australia and Australians. I hear a lot of commentators who wouldn’t normally say that the mining industry should be supported in whatever they say or the resources industry. We will make a judgement on this as we always do on what’s right for Australia. Again, I have to say if you want the price of something to go down, you don’t normally hit it with a tax. That being said, we will work through this carefully. I saw the mining resource rent tax way back in the in the last Labor government completely fail. Jim Chalmers was in Wayne Swans office at the time, it was a dog’s breakfast, a complete disaster. They are very complex taxes and are they going down? Is this going to be a bad tax? I don’t know. You’ve got to get into the detail. We’ll no doubt, we’ll get briefings on this over the coming weeks.
MICHELLE GRATTAN: Like you, I remember that big tax, and the big difference is that the mining industry opposed it very, very strongly. This time the industry is going along with it.
ANGUS TAYLOR: Well, a couple of things. Just because the mining industry supports something, doesn’t mean it’s right. And I think all people should understand that. We’re interested in what’s right for Australia and Australians and for energy prices for Australians in particular. So that’s got to be the test. As you know from that last mining tax, actually, the final version, the mining industry did support it, but it was a complete dog’s breakfast and we got rid of it because of that. It wasn’t helping. It was deterring investment, because it was sending the wrong signal to investors. So, it was a bad tax, and it was abolished as a result, but we’ll look at this one with all its complexity, and we’ll make a judgment about whether it’s good for Australia and Australians.
MICHELLE GRATTAN: Just finally, and I know you say you work through the whole budget but is there anything now that the Opposition will fight, will resist in Parliament?
ANGUS TAYLOR: Can I start by saying the things we’re going to support. There are some things in this budget we are going to support. So, we do support the instant asset write off, it’s only $20,000, but that’s important for small businesses. We do support the initiative on women’s safety. We think that’s really positive. The veteran’s payments, and the extension of the work bonus for pensioners. I think these are important initiatives. We proposed that sometime back, it’s not the full version of it, we’d prefer more, but it’s something for an extra six months and that will encourage pensioners into the workforce, and we like that. We’ll work our way through all the other initiatives. We have to say making government bigger in Canberra. It’s not necessarily the answer right now, particularly with these inflationary pressures at work, whether there’s any legislation on that probably not but there’s some initiatives around bigger government that we were concerned about, and we’ll work our way through that.
MICHELLE GRATTAN: Well talking about bigger government, just to finish off, what about the extra staff for politicians?
ANGUS TAYLOR: Well, it’s good question. So, the first thing I’ll say about it, is we’re pleased that there’s no budget for extra politicians in the budget. And whilst Albanese has been talking about more politicians, as you will remember a few weeks back he was saying maybe we need more politicians. We don’t agree with that.
MICHELLE GRATTAN: But what about the staff?
ANGUS TAYLOR: The staff issue, again we’ll work our way through that. It’s far more modest, I have to say, than more politicians…
MICHELLE GRATTAN: I’d be very surprised if you end up saying no.
ANGUS TAYLOR: Well, Michelle, I mean every penny has to be scrutinized right now because every penny risks raising inflation for Australians, and that’s why we’re taking a very principled approach to this.
MICHELLE GRATTAN: Angus Taylor, thank you very much for talking with us.
ANGUS TAYLOR: Thanks Michelle.
ENDS