It’s been a difficult year for the economy, and the year ahead also is looking challenging. Treasurer Jim Chalmers, overseer of the government’s economic policy, joins us on the podcast to talk about the latest budget numbers, interest rates, changes to the Reserve Bank board, Australia’s debt, cost of living measures and more.
On 2024, Chalmers expects Australians to be better off this time next year:
That’s certainly the expectation.[…] If you look at the forecasts in the mid-year budget update, the Treasury expects inflation to moderate further, they expect wages to grow, and we expect annual real wages growth as well.
The budget update, released this week, projects a tiny $1.1 billion deficit for this financial year. This is likely in the May budget to turn into the government’s second surplus in a row. Chalmers explains why he won’t make that call just yet:
I’m careful. I’m cautious. The Treasury takes a deliberately conservative view of revenue, and that’s a good thing. There are good reasons to do that. We are very, very close to a second surplus, but we’re not there yet.
With many families struggling with their grocery bills, the Senate recently set up a committee to investigate potential price gouging by supermarket chains. Chalmers strongly supports the inquiry:
I support it completely because more transparency when it comes to the sorts of prices which have such a deep impact on family budgets, the more transparency the better as far as I’m concerned. And so I think this is a really important inquiry and that’s why we voted for it. The supermarkets obviously shouldn’t be above having their pricing strategies held up to the light.
On stage 3 tax cuts Chalmers, while reiterating no change in policy, says he enjoys the engagement the debate brings:
I don’t shy away from a public conversation about the priorities that people want to see in the budget. I know that those tax cuts are contested. I know that there’s a range of views about them […] My position is that when people are engaged and they’ve got a view about economic policies and budget priorities, that’s generally a good thing.
That’s all from our Politics podcast for 2023. Thank you for listening. We’ll be back with more interviews in 2024. In the meantime, best wishes from Michelle Grattan and producer Ben Roper.
E&OE TRANSCRIPT PODCAST THE CONVERSATION – POLITICS WITH MICHELLE GRATTAN SATURDAY, 16 DECEMBER 2023
SUBJECTS: Mid-year budget update, budget repair, cost-of-living relief, inflation, deficit, debt inherited from the Coalition, stage three tax cuts, interest rates, Reserve Bank Review, migration, modernising Australia’s economy, Senate inquiry into supermarket prices, outlook for 2024, Albanese Government, The Monthly essay.
MICHELLE GRATTAN, HOST: Jim Chalmers you’ve placed great stress on the need for budget repair in your budgets and again in this update but what do you say to critics who argue that the government is too focused on repair at a time when many Australians are struggling and need help? Why is it so important that you have put most of the revenue upgrades to the budget bottom line?
JIM CHALMERS, TREASURER: Well, because we’ve got this inflation challenge in our economy and that’s what’s doing such damage to family budgets right around the country and one of the ways that we put downward pressure on inflation is to run a tight ship when it comes to the budget.
One of the things that I’m proudest about in this quite historic turnaround in the budget position that we’ve helped engineer with our responsible economic management, is it hasn’t come at the expense of helping people. We’re getting the budget in much better nick at the same time as we’re rolling out tens of billions of dollars in cost‑of‑living help and investing in housing and skills and Medicare and the energy transformation.
And so what we’ve demonstrated with our savings, with the way that we’ve approached these revenue upgrades, with the responsible approach that we’ve taken to the budget, is we can do all of these things at once, and that’s what we’re seeing at the same time as the budget’s in much better nick. It’s not coming at the expense of those other important priorities.
GRATTAN: At the same time though, I think you’ve flagged that you will look at more cost‑of‑living measures before the May budget. Is this timing driven by the inflationary issue that inflation would have come down a bit more by then, or is it a political timing?
CHALMERS: It’s economic and it’s partly because of the inflation challenge, and you’re right that we expect inflation will have moderated further by the time of the May budget and that’s obviously a good thing but it’s also because we’ve still got cost‑of‑living help rolling out right now.
The package that I announced in the budget is still rolling out right now. It’s helpful, and we know from the Bureau of Statistics that it is helping to take some of the edge off these cost‑of‑living pressures still rolling out right now - some of it’s permanent, some of it is still rolling out, whether it’s the electricity bill relief or in other areas.
And so we never intended the mid‑year budget update to be a mini budget, we intended it to be a stocktake, a genuine update rather than another budget and we will consider whether the economic circumstances, the budget pressures, and most importantly, the pressures on ordinary people around the country - we will consider all of that in the lead up to the May budget and if there’s more that we need to do and more that we can do, obviously we’ll look to do it.
GRATTAN: I want to take you to the very small deficit for this financial year that’s forecast in the update. Are you being a bit coy here? Surely we are in fact headed to a surplus?
CHALMERS: I don’t do coy, Michelle. I’m pretty blunt about ‑
GRATTAN: Are you sure about that?
CHALMERS: Well, I’m pretty blunt about the situation as I see it. There is a very small deficit in the mid‑year budget update for this year but I’ve been honest with people and said it puts us within striking distance of a second surplus but we’re not there yet and there are good reasons to be really careful about these revenue projections. My predecessor I think, frankly, humiliated himself wandering around this building with back in black mugs before a budget surplus was assured. I’m not into that. I’m careful, I’m cautious. The Treasury takes a deliberately conservative view of revenue, and that’s a good thing. There are good reasons to do that. We are very, very close to a second surplus but we’re not there yet. It could still go either way and that’s why we’re being careful about it.
GRATTAN: Of course we should be politically fair here, shouldn’t we? Your old employer, Wayne Swan, when Treasurer predicted surpluses and ended up with deficits, right?
CHALMERS: I think that was a lesson, a demonstration, an example of how revenue forecasts can be wrong in either direction and I’m determined to be cautious and conservative about it. I’ve been upfront with people and said we are within striking distance of a second surplus.
The one we delivered last year was the first one in 15 years, as you know, helping to take pressure off inflation when inflation was at its peak, and so we’re within striking distance, but we’re genuinely not there yet - we’ve got more work to do between now and May.
GRATTAN: Now on the question of debt, you inherited a big lot of debt when you came to government but when will we see debt in a satisfactory position, do you think?
CHALMERS: Well, we’ve still got a lot of debt in the budget but much, much less than what we were left with. We’ve made stunning inroads, frankly, into the expected debt levels in our budget and that means that over the course of the next decade or so because of our efforts we expect to avoid I think $145 billion in interest repayments.
And so when you run a tight ship, when you’re responsible and disciplined about the budget, one of the benefits of that is you can avoid some of this debt that our predecessors left us with and that will save us on interest costs. We expect debt as a proportion of the economy to peak much lower than what we inherited and that’s a good thing, that’s one of our motivations for getting the budget in better shape.
GRATTAN: Now we all know the government’s line about the stage three tax cuts - that you say you plan no changes and anyway, it must be getting a bit late to make any changes, but you did try to get them recalibrated in your first budget and the PM said no. In retrospect, do you still regret that you missed out then? Was this a missed opportunity?
CHALMERS: No, I don’t see it that way and I would challenge the characterisation of those early months in office. I thought it was really important then and I still think it’s really important that we give people a sense of the sorts of pressures on the budget that we’re grappling with and I don’t shy away from a public conversation about the priorities that people want to see in the budget and I know that those tax cuts are contested, I know that there’s a range of views about them, a full spectrum of views. My position is that when people are engaged and they’ve got a view about economic policies and budget priorities, that’s generally a good thing and - as I did around the time of our first budget - I try and give people a bit of a sense of the sorts of things that we’re grappling with to invite that national debate, that public conversation about our priorities.
GRATTAN: You almost speak as though this is still a live discussion that we should be having but the government’s message is that this discussion is over?
CHALMERS: I just get asked about it a lot and I think as you were intimating in your earlier question, our position hasn’t changed on them but I get asked about them a lot. And one of the key questions around the mid‑year budget update because we’ve had this recovery in tax revenues is people are focused on bracket creep and I have said that governments from time to time have a role to play in giving back some bracket creep and we’ll see that in the first weeks of July in the coming year. The reason why people are talking about bracket creep, the reason why there’s a recovery in income taxes in the budget is because more people are working and they’re earning more, and both of those things are good things.
We learnt in this week’s unemployment figures that under this government, more than 700,000 new jobs have been created - that’s a record for a first term government and we’re only halfway through. We’ve got wages moving again - wages are growing at four per cent, the highest for some time and because of the combination of those things - more people working and more people earning more - we see an increase in the income tax take and I think that’s one of the reasons why I get asked so frequently about things like bracket creep.
GRATTAN: Of course though, it’s a question of how much you give back.
CHALMERS: Of course and the other important consideration on that front is that the tax system is not the only way to provide cost‑of‑living relief, it’s an important way but what we’ve demonstrated in the time between the legislation of these tax cuts and when they are to come in in the middle of next year, is we’ve found a whole bunch of other ways to support people on low and middle incomes, we’ve increased income support payments, we’ve changed childcare assistance, we’ve done a whole bunch of things - rent assistance - which are more targeted towards people on low and middle incomes and that’s because there’s more than one way to try and take some of the edge off these cost‑of‑living pressures that people are facing.
GRATTAN: Now for many people this year has been financially all about interest rates. Looking back on the year, did you expect rates to rise so often and so high?
CHALMERS: I don’t really like to second guess or get into the retrospectives on interest rates. Higher interest rates are a reality, they started going up before the election and continued afterwards and they are a big reason why our economy’s slowing. I think that’s self‑evident. My job is to recognise the Reserve Bank’s got their job to do. My job is to engage in this fight against inflation on every front that I can, so cost‑of‑living help, getting the budget into better shape, migration strategy, infrastructure strategy, competition policy, investing in the supply side of the economy. We are engaged on every front in this fight against inflation and that recognises the very different but complementary job that I have to do versus what the Reserve Bank has to do and part of cherishing and acknowledging their independence is to not second‑guess or pre‑empt the decisions that they take independently.
GRATTAN: So you won’t say whether you think they’ve peaked or not?
CHALMERS: No, I don’t get into that kind of forecasting. The market thinks that we are at or near the peak of the cash rate for the time being, but I’m very careful not to make predictions on my own behalf.
GRATTAN: Now of course you’ve made changes to the Reserve Bank. For ordinary Australians, what does this actually mean? Does this mean that monetary policy, setting of rates, will be better?
CHALMERS: Yes, I certainly hope that by adding a new board into the mix, a specialist board to decide on monetary policy, a governance board to run the Bank and a payments board to run the payments system, I think that does give us a better chance to incorporate more views and more expertise and to change the culture of the Reserve Bank so that it is best practice. And that’s not a shot at the Reserve Bank of the past, it’s to recognise that we’ve had this review, it’s given us a whole bunch of really quite smart recommendations that we’re picking up and running with and that is to modernise and renew and refocus the Reserve Bank so that it makes the best decisions it can on behalf of the Australian people in their economy.
GRATTAN: So when will you announce the membership of the monetary policy board and what sort of mix are you looking for there? Wouldn’t it be somewhat counterproductive to just have people who are experts in monetary policy? Wouldn’t that be too narrow?
CHALMERS: Well, we don’t want it to be excessively narrow but we do want it to be people with experience and expertise. We’d be looking to appoint these boards in the first half of next year.
One of the challenges that we now have to deal with is unfortunately the Liberals and Nationals voted with the Greens to delay the implementation of the legislation of these changes by sending it to a committee, I think until about March but we will work away behind the scenes to make sure that we’ve got a really good combination of talents.
A lot of people ‑ in fact we will be asking all of the current board members to serve on one of those two boards - governance or monetary policy boards, because we want an element of continuity at the same time as we renew the bank. And so we’ll look to formalise that in the first half of next year but we’re conscious that the legislation is now delayed because of the politics being played in the Senate.
GRATTAN: But there would be some mix, they wouldn’t all be just experts in monetary policy on this monetary policy board?
CHALMERS: Well, they need the right experience and expertise. I guess it depends how you define that but you can imagine that a number of people from the current board would find their way on to the monetary policy board and perhaps a couple of them on to the governance board. We haven’t finalised that but we want some continuity on both boards and we would be asking the existing members of the board to serve on one of those two new boards that we’re creating.
GRATTAN: The government announced its migration policy this week and essentially that’s designed to halve the intake over a couple of years. What do you see as the economic implications of this and in the long‑term are you a big Australia person?
CHALMERS: No, I don’t use that terminology. I want to really pay attribute to my colleague, Clare O'Neil, and the other colleagues engaged in this Migration Strategy. This is a really important piece of economic reform which recognises that migration’s been a source of strength in our society and in our economy for a long time, not just the last couple of years, but that migration needs to be in our national economic interest. That means getting the settings right when it comes to skills, when it comes to permanency and all of the issues that Clare and the other colleagues have tackled.
So I see this as a really important foundational piece in our economic reform effort. It recognises that migration’s got an important role to play but not as a substitute for training, not as a substitute for Australian workers, but in a complementary way and when we implement the proposals that Clare has put forward earlier this week, I think it will make a major difference to our economy and our society and it will mean that we’ve got our settings carefully calibrated so that migration is in our national and economic interest.
GRATTAN: When you say a major difference, can you just tease this out?
CHALMERS: Yes. Clearly one of the big priorities that Clare’s had is to make our economy more productive, that goes to the skills mix and it goes to the migration mix, for example. The way that there is a streamlining of visas, for example, in areas of high need, that’s obviously going to be really important so long as it’s not a substitute for training or for Australian workers.
There are a whole bunch of ways we’re making the migration system more efficient, more flexible, more responsive to our needs, faster. These are the sorts of things that can shift the needle, I think, when it comes to the kind of economic growth that we want to create as we get out of this period of weakness.
GRATTAN: Now you wrote this week that, and I quote; “everything we do is about making our economy more modern,” and that this would benefit “middle Australia”. What does this actually mean? What are the modernisation priorities?
CHALMERS: If you think about what unites everything that we’re trying to do, we’re trying to modernise the economy so that we can maximise our national advantages in a way that delivers for middle Australia, and what that means is to recognise we’ve wasted a decade when it comes to economic reform, we’ve got an economy which is not sufficiently modern and forward‑looking to make the most of the opportunities that are before us. It’s to recognise that the type of economy which delivered us the last generation of prosperity is not going to be exactly the kind of economy that’s going to deliver us the next one. And so if you go right across our agenda, we need to modernise our human capital base, we need to modernise the way that we generate and transmit energy, we need to modernise our industrial base, our capital flows, our markets and payment systems, our economic institutions, as we were just talking about.
Really right across the board there’s an opportunity for us to modernise and renew and revitalise and make more forward and future focused the key parts of our economy. We broadly know where the opportunities are going to lie for Australia; the energy transformation, adapting and adopting technology, the human capital piece, our superannuation and the way that capital flows in our economy. We’ve got these huge advantages that we need to make the most of but in order to do that, our economy’s got to be more modern, whether it’s our migration settings, whether it’s our skills and training and education systems - there are heaps of opportunities to make our economy more modern and if we do that, we’ll maximise our advantages, we’ll lift living standards in middle Australia.
GRATTAN: On an issue that’s important to many ordinary people, a Senate inquiry has been set up into supermarket prices to investigate potential price gouging. What do you think will come out of this inquiry, and should more be done to limit these companies’ market power?
CHALMERS: Well, I think the Senate inquiry’s a really good step. I support it completely because more transparency when it comes to the sorts of prices which have such a deep impact on family budgets, the more transparency the better as far as I’m concerned. And so I think this is a really important inquiry and that’s why we voted for it.
The supermarkets obviously shouldn’t be above having their pricing strategies held up to the light. I’m relatively engaged in my local community and I know when people are going through the checkout how much anxiety they have about the price of a trolley full of groceries to feed the kids and so this transparency is a good thing.
We want to make sure that the supermarket chains, as inflation moderates for the things that they pay for, we want to make sure that the prices moderate for the things that ordinary people pay for in local communities. We understood that when prices were really galloping for things like shipping and all of those things that supermarkets rely on, those costs were passed on. We want to make sure any savings are passed on as well as inflation moderates.
GRATTAN: Well, just on this question of pressure that people are under, what sort of year do you think Australians will be looking at next year? Will they feel better off in 12 months’ time than they do now?
CHALMERS: That’s certainly the expectation, that if you look at the forecasts in the mid‑year budget update, the Treasury expects inflation to moderate further, they expect wages to grow and we expect annual real wages growth as well.
We’ve had real wages growth for the last two quarters which is pretty good given when we came to office real wages were negative 3.4 per cent. Now we’ve had two positive quarters of real wage growth and we expect real wage growth to be more sustained next year.
And so there will be an element of difficulty in the global economy in 2024, obviously inflation will still be higher than we’d like but it will be moderating. We’re getting wages growing again, real wages are expected to move again and that’s a good thing. But the pressures that people have felt in 2023 won’t miraculously disappear on 1 January 2024 and that’s why we are so focused on rolling out this cost‑of‑living help, getting the budget in better nick and building the kind of economy that lifts living standards into the future.
GRATTAN: Before we finish up, I just want to ask you about how you see your role as Treasurer. Obviously you’ve got a very central job, or your central job is on the economy but you also seem to expand out into other areas - we’ve seen this particularly on energy this year and I notice that you’re not reluctant to comment on other issues, you don’t sort of hide behind; “oh, I won’t say anything on that”. How do you see this role?
CHALMERS: I think - and you know this as well as anybody - that traditionally, the Treasury role has been a relatively expansive one and I don’t see a demarcation when it comes to things like the energy transformation. I work very closely with Chris Bowen, doing a magnificent job as the Minister but that’s a key piece of economic reform and on the energy transformation rests a lot of our prospects for the economy into the future and so I work closely with Chris. I work closely with Clare O'Neil on the migration strategy - that’s a key economic reform as well.
We hunt as a pack in this government. We work very collegiately, very collaboratively on areas where we’ve got an interest and those couple of examples I gave I think are good examples of where the relevant ministers take the lead but I play an enthusiastic role in helping to make sure that the government gets it right. I think there are so many issues before us that involve clusters of ministers in our Cabinet. That’s how we like to work across portfolios, and not ‑
GRATTAN: No sensitive toes?
CHALMERS: No, no ‑ none of these issues kind of fit neatly into some kind of pre‑determined silo of activity and I work respectfully and closely with colleagues on the issues that they care about and the issues that we care about as a government and I like to think I play a helpful role in making sure that we land the policies that they are proposing to the Cabinet.
GRATTAN: Just finally, last year you used some of the summer break to write an essay on the future of capitalism. Do you have any ambitious plans for summer work this time?
CHALMERS: I’ve promised Laura and the kids no essay this summer. So, no, there won’t be a similar bit of work. I will do my best to take it easy this Christmas. I’m not always great at that but I will do my best but I can commit to Laura and Leo and Annabel and Jack and to all of your listeners that I won’t be staying up half the night for a few weeks around Christmas to write another essay for The Monthly.
GRATTAN: Jim Chalmers, good luck with the relaxation project and thank you for being with us in this last politics podcast for the year. Thank you to my producer, Ben Roper. We’ll be back next year with more interviews but goodbye for now and Happy Christmas. Happy New Year to everyone.
ENDS
Michelle Grattan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.
This article was originally published on The Conversation. Read the original article.
