Shadow Treasurer Jim Chalmers says it’s time to change Australia’s economic course “in a responsible and affordable way which doesn’t jeopardise the surplus”.
Chalmers predicts the budget outcome for last financial year, forecast to be a deficit at budget time, could possibly show a surplus, because of high iron ore prices and other factors including an underspend on the NDIS.
He argues the government can have both a more stimulatory policy and a surplus going forward, given the various boosts to the budget’s bottom line. “I don’t think the government has come to a fork in the road where it’s a choice between a surplus or doing something responsible to stimulate the economy.
"As it stands right now it’s possible to do both and we think the government should do both”.
The government should boost Newstart, Chalmers tells Michelle Grattan, although he wouldn’t oppose it first holding “a short sharp review” to examine interactions with other payments.
On Labor’s way ahead, now being debated within the party, Chalmers says “we’d be mad not to learn the lessons” of the election result.
With some of the opposition’s most controversial election policies in his portfolio, notably on franking credits and negative gearing, Chalmers is already consulting widely.
There’s agreement on two things, he says. “Nobody expects us to finalise our policies three years before the next election […] and nobody expects us to take an absolutely identical set of policies to the 2022 election”.
Transcript (edited for clarity)
Michelle Grattan: Amid the toing and froing of political combat and issues coming and going, for the average person in the street, as the phrase goes, it’s a case of “the economy, stupid”. The government has been talking for months about the storm clouds hanging over the international economy. The Reserve Bank has been urging it to do more of the heavy lifting to get growth improving. The June quarter growth figures released recently were bad but the government doesn’t want to jeopardise it’s projected surplus by engaging in any premature spending. The opposition insists that its fundamental attack front against the government is over economic management, not the day-to-day other issues. And it claims the government is failing at that management. Here with us today to unpack Labor’s criticisms and to outline its prescriptions is Shadow Treasurer Jim Chalmers.
Jim Chalmers, let’s cut to the chase. Precisely what is the Government not doing that it should be doing?
Jim Chalmers: First and foremost Michelle, they don’t have a plan to deal with an economy which is growing at its slowest pace for 10 years now and all of the associated parts of that: record household debt, stagnant wages, declining productivity, declining living standards, the lowest business investment since the early 90s recession. What we’re calling for the government to do is to bring forward a plan. We’ve made some constructive suggestions about what that plan might entail. They could bring forward part of stage two of their tax cuts; they could review and responsibly increase Newstart, they could bring forward some infrastructure investment; they could come up with a proper energy policy which has been a drag on growth over the last sixteen iterations of that energy policy; and they should also come up with an incentive for business investment. We took to the election a policy for accelerated depreciation for business investment. We call on the government to come up with a similar policy. If they do and if it’s good we’ll support it.
MG: What’s wrong with the government’s argument that it should wait until after the September quarter - and those figures are released in November - to see the full impact of monetary policy and to see the effect of the tax cuts? Why inject stimulus - which is what you’ve been talking about - at this point?
JC: The government’s always got an excuse to do nothing, not to have a plan, not to deal with these issues which have been around for a substantial amount of time now. They want to pretend that it’s just about the June quarter, or it’s just about the September quarter, but when it comes to stagnant wages or weak business investment or declining productivity these challenges have been around for a long time and their excuse is always either it’s somebody else’s fault or things will fix itself. But crossing your fingers and hoping for things to turn up is not an economic policy and it’s not an economic plan. We hope that the economy does pick up, all sides of the parliament want the economy to pick up, but all of the policy settings that the government has had so far have been a recipe for the slowest growth in a decade and so we think that they should change course. Now in calling for that we’re not saying it’s the same as 10 years ago. We’re not saying the government should throw the kitchen sink at this economic weakness. We’re just calling on them, like many businesses, and like the Reserve Bank governor, to say that the economy has been weak for some time now, it’s time to change course in a responsible and affordable way which doesn’t jeopardise the surplus and if they do that then they give this country an opportunity or a chance or some incentive or impetus to turn around what has been a pretty troubling combination of economic conditions.
MG: The government will soon announce the budget outcome for last financial year. Do you think it will show the budget is back in balance thanks to high iron ore prices? That is, that the budget’s in better shape than projected at budget time?
JC: The budget should be in much, much better shape than it was expected to be.
MG: So it will be in balance, you think?
JC: I think it’ll be close, either just short or even possibly just over…
JC: I think that’s a possibility because we have been getting extraordinarily high prices for our iron ore for example, our broader resources have been going well, the dollar at 67 or 68 US cents. All of those things, they boost business profits and that boosts the budget bottom line. I think the budget will have recovered substantially. We’ve still got net debt more than double what the government inherited but I think there will be a big improvement. The other thing that people haven’t focussed on - and that’s right you focus on iron ore, resource prices, and there’s also the dollar - but we’ve got in that financial year something like a $AU3.4 billion underspend in the NDIS. So when the government gets up and gives themselves a big round of applause for the budget being in a stronger position remember two things. One, a lot of it’s been good luck rather than good design when it comes to minerals prices, but also balancing the budget is likely to have come at the expense of Australians with a disability and those big underspends in the NDIS have got the government much closer to budget balance than they would otherwise be. The point that we’ve made repeatedly is that it is good to have surpluses. We want to make sure that they are not built on the back of selling Australians with a disability short.
MG: Now just to clarify on the NDIS money, I thought I heard the other day the government saying that that money was going to be put back into the NDIS. Is that not right?
JC: Well we’re talking about an underspend in the year that’s finished…
MG: Yes, I know your timing point, but the money is not being lost to the scheme entirely, is that correct?
JC: I doubt that will be the case. You know, not to be over the top about it, I don’t think this government has Australians with disabilities interests’ at heart. They got sprung with these big underspends which are propping up the budget. Labor, in pointing to them, has made it an issue that the government would prefer people weren’t talking about.
MG: Now if you were in the treasurer’s chair now, would you be continuing to push for a surplus in this financial year or would you be open to abandoning that if necessary to better manage the economy?
JC: I don’t think the government has to choose. A treasurer of either political persuasion - if you look at the conditions in front of us, you look at the strengthening of the budget for all those reasons we just mentioned around resource prices, the low dollar, profits are high, that’s all boosting the budget bottom line - I don’t think the government has come to a fork in the road where it’s a choice between a surplus or doing something responsible to stimulate the economy. I think as it stands right now it’s possible to do both and we think the government should do both.
MG: Now you did mention a whole range of things that would put some stimulus in, but if and when stimulus has to come, what are your preferred forms of stimulus? Should there be some sort of cash splash, or a ramping up of infrastructure, or both? And in terms of infrastructure, are there enough projects that are shovel ready to be brought forward?
JC: Well there’s lots in that question, Michelle. I think I’d start answering that question by saying that the stimulus that is in the system, whether it be stage one of the tax cuts, the interest rate cuts, changes to lending regulations, all of those things will help, but I think increasingly the smart economic commentators are saying that that won’t help enough and so we’ll need to look at what else we might be able to do. In presenting a handful of steps that the government should take and in playing that constructive role we’re just saying to the government, pick up any or all of these suggestions. The stage one of the tax cuts is already effectively a cheque because it comes as a refund. We think if you increase Newstart, 100% of that would be spent in the economy so that would be advantageous. There’s tax cuts which don’t come in until 2022 which could be brought forward. Infrastructure, obviously we agree with the governor of the Reserve Bank that there is substantial opportunity to bring forward some of that infrastructure investment which is already planned, and some of that will be shovel-ready - not all of it, but some of it. And also the incentives for business investment. So there’s so many things the government should be contemplating but because they want to play silly political games here in Canberra, because they want to pick fights and shift the blame and point the finger, these are all excuses for not coming up with a plan. I think a lot of people out there who are struggling, no matter how hard they work they just can’t get ahead, the price for childcare, and energy, and private health insurance and all these sorts of things are going up, and they look at what’s happening in Canberra from their government now in its third term, now in its seventh year, still with absolutely no plan to turn the economy around.
MG: Now just on this question of Newstart. In the election you promised a review, and one reason why you said a review is necessary rather than an immediate increase was that one should look at the effect of an increase in relation to other welfare payments and so on. Now you say, increase it immediately. Are you just using this as a macroeconomic measure, or why otherwise change? Why not say we’ll review it and look at its impact in terms of other measures as well?
JC: In lots of ways an increase in Newstart has the potential to tick a couple of boxes. Good for the economy because it will be spent in our shops. Good for people from a social justice point of view, there hasn’t been an increase for a long time now - a real increase anyway in Newstart. Also because if you want people to be job ready, and ready to go to interviews and to dust themselves off and get themselves back in the labour market, then you need to make sure that they’ve got an adequate standard of living to do that. So I think it ticks a range of boxes…
MG: But all this applied when you said, let’s have a review.
JC: Yea and you’re right to say that we took to the election a review. Obviously we weren’t going to review it with an eye to cutting the payment. Obviously we have said for some time now, not just this term, that Newstart’s inadequate. $40 a day is not enough. We think that with the resources of government we could have done a good job reviewing it, responsibly increasing it. That’s what we’re calling for the government to do now. There’s nothing preventing them from doing a short sharp review followed by a responsible increase. They should do that. Members of their own party are calling for them to do that. John Howard, the Business Council, you know a whole bunch of people who haven’t traditionally argued for an increase in Newstart are now doing so.
MG: So you would support a short sharp review before they actually did something?
JC: Yes I would do that but not a review that kicks the can far down the road, but something which gets the interactions right and understands all of the issues. We know what most of the issues are now. The debate has advanced a fair way since the election. I think that is an accurate observation that you made. The government should review Newstart, responsibly increase it. If they did that sooner rather than later that would give an increase in Newstart the opportunity to help the economy which is floundering.
MG: Now consumer spending is very weak and the measures that we’ve been talking about would obviously go some way to encouraging more spending, but do you think consumers are also having a mind change? They’re feeling insecure, they’re hearing all this negative talk about the economy, and they’re saying, I’d better save any extra money I get?
JC: You’re right that consumption’s remarkably weak. Consumption is most of the economy. You’re right that people have changed their behaviour. The retail sector is extraordinarily weak, even in that September quarter that the government keeps hanging their hopes on. So there is a big problem there. There’s an issue around confidence too, and we acknowledge that. And the change in behaviour is, you know, if you look at the National Australia Bank analysis that they put out they said that a big chunk of the tax cuts are being saved or used to retire debt - household debt’s at record highs - 190% of people’s income. Yes I think there has been a change in behaviour, but that doesn’t mean that you pretend away all of the challenges in our economy. The reason we raise these issues is because we want the government to come up with a plan to deal with them.
MG: Are you worried at all that in scoring points against the government in saying it’s managing things badly, you are in fact at some risk of damaging the economy, damaging confidence?
JC: I completely reject it, because the alternative as I just said is to pretend that there are no challenges in the economy. The government might want to pretend that everything is hunky dory in the economy. I think that does Australians a disservice because it’s an excuse to do nothing about it. I think Australians are smart when it comes to their money, when it comes to the broader economy, they don’t get the credit they deserve. They see the Reserve Bank cut the cash rate to one per cent which is a third of what it was during the worst of the Global Financial Crisis and they know something’s going on here. They see the ‘for lease’ signs in the supermarket. They see all of these things in their own lives. They see in their own pay packets that wages haven’t kept up with some of those costs that I mentioned before. They are not stupid and the government treats them as stupid when they try and pretend that just because the opposition says, hey maybe you should have a plan for the fact the economy’s growing at its lowest rate in 10 years, they want to say that’s talking the economy down. I just couldn’t disagree with that more.
MG: So on the wages front, you went to the election with a raft of policies including topping up childcare workers’ wages from government funds. Is that still an option for Labor and what do you think, apart from that that should be done about wages?
JC: Well all of our policies are up for a review as you know Michelle, and we’ll take our time to go through. We took a heap of policy to the last election. Some of it was controversial, and we’ll consult on the set of policies we take to the next election. They won’t be identical in every way to what we took to the last election. I think that’s obvious and it self-evident. When it comes to early childhood educators, I think they’re doing one of the most important jobs you can do in the community and they’re among the worst paid. The idea that people who look after our kids can be paid that little, I think a lot of Australians are concerned about that. More broadly on wages, we had ideas around the minimum wage, around cracking down on dodgy visas, cracking down on dodgy labour hire, and most importantly restoring penalty rates. All of these sorts of issues. We can attack stagnant wages in a range of ways. The government doesn’t seem to want to pick up and run with any of those ways.
MG: Now 10 days ago or so, ALP president Wayne Swan said that at the election Labor had, and I quote “an agenda to be proud of, not resile from” after a narrow loss, but a week ago your frontbench colleague Mark Butler said and I quote again “our policy and campaign review must be ruthless and unsparing”. Which is closer to your view?
JC: Well first of all when it comes to the review, both Wayne Swan and Mark Butler have an identical view that we need to have a proper look at what went wrong in the election, and clearly when we had an outcome like that we didn’t get everything right. If we got everything right we wouldn’t be in opposition, we’d be in government. So I think they both understand that we need to have a robust look at what went wrong and what we can learn from it. My own view is that we’d be mad not to listen to the message that was sent to us on election night. We’d be mad not to learn the lessons of that election outcome. We’ve all got a contribution to make to that review. That’s what Wayne was doing, it’s what Mark was doing and that’s what I’ve been doing in my way. My contribution is to consult widely particularly on our tax policies to make sure that we get those right. My objective is to go to the 2022 election with a better set of policies than 2019. Policies which deal with some of the same issues but can be broadly supported. I think if we do that, we give ourselves every chance of learning the lessons and doing better next time.
MG: Now of course, 2 of the most controversial of Labor’s policies on franking credits and negative gearing fall squarely in your area. I know you won’t pre-empt a review of them and can’t do that but just tell us about this consultation process. How are you going about it, or will you go about it? Are you going to hold roundtables? Seek submissions? What are you doing?
JC: What I’ve been doing so far is I’ve consulted with a pretty big number of colleagues in our team to see what their feedback has been like on the ground. I’ve done a 2800 kilometre road trip with Senator Chisholm throughout regional Queensland to pick up views in what was a really important state - what will always be an important state not just electorally, but I think economically. I’ve done a lot of consultation with the broader community. I’ve spent time with all of the peak groups, business peak groups but others as well, community organisations, to get their views. So I’ve been consulting widely. I’ve resisted making it, you know, a really formal process with an end date because I want to take the time to get it right. People have been very good and forthcoming with their views. People aren’t unanimous about it. I think one thing everyone agrees on which is that nobody expects 2 things: nobody expects us to finalise our policies 3 years before the next election, 3 months after the last one; and nobody expects us to take an absolutely identical set of policies to the 2022 election that we took to 2019. When you start from that basis what you’re left with is my job, which is to come up with the best tax and economy policies that we can. Policies which can be broadly supported, repair the budget in a fair way, and get the place growing again.
MG: Even though you’ve got no formal timetable, would you expect the policy announcements in these major areas to be in the last year before the election?
JC: Not necessarily…
MG: It could be earlier?
JC: It hasn’t been determined and I think it’s true to say that when you look at volatility in the economy, when you look at global uncertainty, when you look at all of these things together, obviously it would make sense not to finalise everything at the very beginning of the term. We need to preserve the ability to come up with the best set of policies which suit the times. I think the guidance and the leadership from Anthony Albanese on this has been spot on. We will hasten slowly to get things right. There’s no point rushing to some kind of arbitrary timetable and then leaving yourself without the flexibility later in the term to come up with the absolute best set of policies. So I’m guided by that, I think that’s exactly the right guidance and leadership.
MG: The government’s been very sharp in the last little while about big business’ activism on various issues, social responsibility issues, climate, I guess what you could roughly call moral type issues too. What do you think about business being more active in these areas?
JC: Well it’s a matter for them Michelle and the reason I’m sort of chuckling about that question, I mean the government desperately wants people to think the economy is growing slowly because businesses are talking about social issues not because the government doesn’t have a plan to deal with the economy. They’ve got form here, and I think this question is a really neat encapsulation of their entire political strategy, which is to say, how do we pick fights and point the finger and shift the blame? How do we create controversy elsewhere to distract from the government’s failures on the economy? Scott Morrison bragged about that not so long ago on a Saturday at a Liberal Party convention, I think in Sydney. He said he likes to spend his time setting tests for the Labor Party. If only we had a prime minister and a government which liked to spend their time fixing an ailing economy and not sitting around making all this kind of, playing all these sorts of silly political games. I see this issue with business leaders talking about marriage equality or whatever they like to talk about, that’s a matter for them. It’s not the reason why the economy is slowing. Scott Morrison needs to take responsibility for that.
MG: The government’s planning an inquiry into retirement incomes and central to that is presumably the role of superannuation within the system. Is Labor totally wedded to the current timetable for increases in the compulsory super contributions or is that policy one that’s also up for review? And would you be prepared to reconsider it in light of whatever the inquiry finds?
JC: Look we’re very keen to see the trajectory of the Super Guarantee increases maintained. We are very worried that this retirement incomes review will be used as a stalking horse for what’s being pushed by some of the crazies in the Liberal Party which is to make superannuation voluntary, or to have more cuts to superannuation. We think the answer to people having inadequate retirement incomes isn’t to cut their retirement incomes by attacking super so we’re very worried about that. We’ve also had government backbenchers say that the review should conclude that the family home should be included in the assets test. There’s a whole range of issues here where we don’t want to see people go backwards. Superannuation is a proud Labor creation. You were here in this building when Labor created it, compulsory super, and you’ve seen its trajectory. It’s very important to us and we can’t see it diminished.
MG: So that is not up for review, that move to the 12% is set in stone in your policy?
JC: Clearly we think that superannuation should go 12% on at least the current trajectory that it’s on now. We’re very concerned. What always happens in the Liberal Party is one of the crazies gets up and puts a view. All of a sudden that becomes government policy because in this Liberal Party and with this treasurer, the tail wags the treasurer, and so we want to defend superannuation from these kind of attacks. We want people to retire with dignified secure incomes. The way to achieve that isn’t to cut super again, or to make superannuation voluntary.
MG: We’re seeing tensions between the US and China grow progressively and Australia’s economic interests are likely to suffer. How do we minimise this or inoculate ourselves? We obviously can’t affect the big picture much - how do we deal with it?
JC: Well I think you’re right to point to, there is some global uncertainty. Obviously China-US trade tensions, China-Hong Kong, Brexit, the Straits of Hormuz, more recently attacks on Saudi oil infrastructure. These things are all concerning, but at least for the time being our challenges are primarily homegrown. We need to make sure that we can deal with our domestic economic challenges. Slowing growth, stagnant wages, declining productivity, very low business investment, all of those things that I’ve run through earlier on in the interview. Not having a plan to deal with those domestic challenges leaves us more exposed, unnecessarily exposed, dangerously exposed, to some of this volatility in the global economy. So a reason to deal with domestic challenges which have grown up and magnified over the last six years into the third term of this government, if we deal with those domestic challenges we give ourselves a better chance of riding out and withstanding what are concerning international developments.
MG: Just finally, shadow treasurer is a big job with a lot ahead of you. I just wonder who your mentors - we spoke before about what Wayne Swan was saying, you once worked for him when he was treasurer. Do you still keep in touch with him closely, and who else do you take advice and guidance from?
JC: Yes, I take advice from a broad range of people. One of the benefits of working in economic policy now for, well really a decade and a half, is I’ve got a network of people I can call on. Clearly I talk to Wayne Swan. I also spend a lot of time with Paul Keating and I’m very grateful for that engagement. So there’s at least 2 former Labor treasurers there. I speak to business leaders, I speak to a whole range of people, because my view is that there’s no one person in this building who knows it all. You need to be proactive in seeking out views and that’s what I do. I speak to Wayne, I speak to Paul, I speak to a whole range of people and I think that gives me the best opportunity to assess these conditions as they are right now and to play a constructive role in suggesting where the government’s plan could include some of the things that we’ve talked about.
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