MINISTERIAL STATEMENT ON THE ECONOMY

TREASURER THE HON JIM CHALMERS MP

CANBERRA, 20 NOVEMBER 2024

Speaker −

Australians have been through a lot in the past decade and a half.

But despite a global financial crisis, a pandemic, a global spike in inflation made worse by war in Europe and the Middle East –

They have maintained a very Australian sense of pragmatism, practicality and purpose – and so has this Government.

Today I want to report on the progress we’ve made together.

Not to claim credit but to share it.

It’s been two and half years since I stood at this dispatch box and delivered a Ministerial Statement on the economy.

That was July 2022, the day after June quarter inflation data landed.

It showed inflation at 6.1 per cent and rising very rapidly, interest rates had already started going up in May, and real wages were going backwards by 3.4 per cent.

Productivity growth had suffered its worst full decade in 60 years.

A budget surplus had not been delivered in 15 years.

Cumulative deficits exceeding $225 billion were projected, and debt was on track to exceed $1 trillion in the next year.

Nation-defining challenges like the energy transformation, housing and skills shortages had been allowed to drift for the best part of a decade.

The progress we’ve made since July 2022 is clear.

Inflation has more than halved.

Underlying inflation is falling too.

Real wages are growing again.

The economy is still expanding.

A million new jobs have been created, the majority full-time.

Participation is near record highs; the gender pay gap at a record low.

We’ve turned two huge deficits into two substantial surpluses – the first in nearly two decades.

We’ve found almost $80 billion in savings, banked the majority of revenue upgrades and saved tens of billions of dollars in interest on debt as a result.

At every stage we have been upfront about the nature and magnitude of our economic challenges.

Even with very substantial progress in the aggregate numbers, we know that doesn’t always translate to how people are faring and feeling day-to-day.

We’re not pretending it’s mission accomplished – it isn’t.

We are realistic about this, but optimistic too.

Today as I provide a stocktake of the global and domestic economy –

Preview the mid-year update which we will hand down in December –

And outline our policies and plans –

I will explain why that very cautious confidence and emerging optimism is welcome and warranted.

GLOBAL ECONOMY

Speaker –

That first statement back in July 2022 was delivered soon after I met with G20 economic ministers in Indonesia.

The global economic conditions at the time were complex and confronting.

Slower growth.

Ongoing conflict.

Busted supply chains.

Higher inflation, which had prompted the biggest synchronised tightening of global monetary policy in history.

More than two years on, persistent inflation and higher interest rates have taken their toll everywhere.

Three quarters of the OECD have had one or more negative quarters of growth in the past year and unemployment has increased in most advanced countries.

Global inflation has moderated from its peaks but is lingering – ticking up recently in the Euro area, the US, and overnight in Canada.

Conflict is an even bigger feature of the global landscape and the biggest risk to global growth.

And there is a greater risk of rising trade tensions and geopolitical fragmentation.

In the decade prior to the GFC, the world’s economy grew at an average of 4.1 per cent.

But over the last 15 years, it’s been just 3.1 per cent.

Treasury is still finalising its forecasts for next month’s Mid-Year Economic and Fiscal Outlook but are expecting global growth to remain soft and subdued.

Treasury currently expects global growth to be 3¼ per cent this year and the two years after that, the weakest consecutive three years of growth since the early 1990s.

As a trade exposed economy, we have not been and will not be immune from all these global challenges.

But we are well placed and well prepared to deal with them.

We’ve already seen nearly $20 billion of trade restrictions lifted with China as we stabilise our relationship.

AUSTRALIAN ECONOMY

Speaker –

The inflation challenge has been global, but the Australian economy has performed better than most countries.

Our inflation peaked lower and later than most developed economies.

That means prices have risen less here than in countries like the US, UK and New Zealand.

And our services inflation is lower than the UK and US too.

Interest rates also climbed higher than ours in almost every comparable country, causing worse unemployment, slower job creation, lower growth, or a combination of all three.

And even though rates are coming down slightly in places like the US, UK and New Zealand, they are still higher than ours.

Our number one priority for the past two and half years has been getting on top of inflation.

We’ve gone about it without ignoring risks to growth, and preserving the gains we’ve made in the labour market.

Any objective observer would acknowledge the progress we’ve made with this strategy:

Inflation was 6.1 per cent when we came to office and rising.

It would go on to peak at 7.8 per cent in December 2022.

In the most recent quarterly data, headline inflation was 2.8 per cent, back in the Reserve Bank’s target band for the first time since 2021, and its lowest rate in almost four years.

Trimmed mean inflation also eased by ½ a percentage point – to almost half its peak, and its lowest rate in almost three years.

Headline, underlying, monthly, and non-tradable inflation all came off very substantially.

Government spending is not the main driver of prices and our surpluses are helping in the fight against inflation – two points Governor Bullock has repeatedly made.

The RBA also downgraded its CPI and trimmed mean forecasts across the period they published a fortnight ago.

Treasury’s updated inflation forecasts in MYEFO will be broadly in line with what we anticipated at Budget.

Treasury expected inflation to be back in the band by the end of this year, and that’s what happened.

The economy has continued to grow but barely.

For only the second time in the last half century, growth was below 0.3 per cent in every quarter of the last financial year.

But it would have been negative in the March and June quarters were it not for public final demand.

Treasury’s growth forecasts at MYEFO will show it expects slow growth in our economy to continue in the near-term.

But any growth at all in these circumstances is welcome given many other countries have gone backwards.

Treasury is expecting a gradual recovery in the economy driven by rising real incomes thanks to our cost-of-living relief, jobs growth and progress bringing inflation down.

We’ve already seen a modest recovery in consumer confidence, with the ANZ Roy-Morgan measure at near two-year highs and showing households are now feeling more confident about the next twelve months.

This is the soft landing we have been planning for and preparing for.

Inflation coming back to band, an economy still growing and unemployment with a 4 in front of it.

The unemployment rate is on track to average below 4 per cent for this parliamentary term for the first time since monthly records began.

Youth unemployment has averaged 9 per cent since May 2022, which is two thirds of its pre-pandemic average.

More than a million jobs have been created – another term record and stronger growth than any major advanced economy.

This is the equivalent of more than 1,000 new jobs every day since May 2022 – mostly full-time.

Workforce participation is near record highs, and the mid-year update will confirm upgrades to participation and employment growth forecasts for this year.

We’ve supported wage rises and wages are now growing almost double what they did in the years leading up to the pandemic, on average.

Wages are growing but inflation is falling.

This means real wages are growing again – they were going backwards by 3.4 per cent when we came to office.

Real wages grew by 0.7 per cent in the year to September, the largest annual increase in over four years, and there’s now been four consecutive quarters of real wages growth. 

The average full-time worker is now earning $159 more per week since when we came to office, for women it’s $173 per week more.

Since we came to Government, wages in industries dominated by women have risen by more than 8 per cent.

This is one of the reasons why the gender pay gap is the closest it’s ever been.

After plateauing for almost four years, the gender pay gap has narrowed by 2.6 percentage points since May 2022.

All of this means more Australians are in more jobs, earning more and keeping more of what they earn.

COST OF LIVING RELIEF

Speaker –

Our tax cuts for every taxpayer are part of this but not the only part.

They are one element of a very comprehensive and considered strategy of relief, repair and reform.

We’ve pursued all three of these objectives in ways that are complementary, not in conflict.

Providing cost-of-living relief for people doing it tough; repairing the budget; and reforming our economy.

We have come at this cost-of-living challenge from every conceivable and responsible angle.

Energy bill relief for around 10 million households and 1 million small businesses.

Increasing Child Care Subsidy rates and expanding Paid Parental Leave.

Increasing the maximum rates of Commonwealth Rent Assistance by 45 per cent.

Tripling bulk billing incentives and lowering the cost of PBS medicines.

Boosting eligible working age and student income support payments.

Delivering 500,000 Free TAFE places.

Helping small business by extending the instant asset write-off and improving payment times.

Helping Australians get fairer supermarket prices through stronger protections and greater competition.

Looking to cut close to $20 billion in student debt for more than three million Australians.

And tax cuts for all 13.6 million Australian taxpayers. 

Cutting two rates and lifting two thresholds is how we’ve kept tax to GDP far below 24.2 per cent, which was its peak in the early-2000s.

This financial year, tax to GDP is expected to fall to around 23.4 per cent of GDP, down from 23.7 per cent of GDP.

BUDGET REPAIR

Speaker –

We have delivered this responsible and substantial cost-of-living relief at the same time as repairing the budget, not instead of repairing the budget.

We don't see surpluses, savings and a substantial turnaround in the budget as an end in itself – but how we take pressure off inflation and make room for things that we really value as a government and society.

These are the facts about the fiscal position when we came to office.

Gross debt was projected to be at levels not seen since the aftermath of World War II.

Deficits over the forward estimates totalled $225 billion, the highest in any pre-election outlook.

And programs that Australians rely on everyday like aged care and the NDIS were facing real risks of exploding in cost.

We have made good progress and I’d like to particularly acknowledge and thank the Minister for Finance and other Ministers for their work here.

That work – in the Expenditure Review Committee and the Cabinet – has helped oversee the biggest ever fiscal turnaround in a single term.

The first surplus in 2022-23 was followed by a second in the year just gone, the first back-to-back surpluses in almost two decades.

The largest nominal back-to-back surpluses on record, meaning the budget was $172 billion better off.

This record turnaround hasn’t been accidental or incidental.

Banking 82 per cent, or $285 billion, of revenue upgrades; delivering almost $80 billion in savings; and restraining real spending growth to less than half its 30-year average, was intentional.

And it hasn’t just been cyclical but structural too.

Bringing down our debt burden is making a meaningful structural difference and so are our reforms to aged care and the NDIS.

Gross debt was almost $150 billion lower at the end of 2023-24 than was forecast at PEFO and is expected to remain lower than PEFO across the forward estimates and medium-term.

This progress means we have been able to save around $80 billion in interest payments compared to the 2022 PEFO over the decade to 2032-33.

Our reforms in the care economy will see aged care spending grow at 5.2 per cent over the next decade, not 5.7 per cent, and the NDIS at around 8 per cent instead of 19 per cent.

This very substantial progress is even more important as the fiscal outlook becomes more, not less, challenging. 

In recent years, the resilience of the labour market has been one of the main reasons why revenue upgrades in budgets have been the norm.

In each of our four budget updates there were $80 billion in revenue upgrades, on average.

But with the labour market softening around the edges, this trend is diminishing.

This has been compounded by structural challenges in the Chinese economy weighing on key commodity prices – iron ore prices are down 30 per cent since the start of the year.

As a result of these factors, I can inform the House that Treasury expects any revenue upgrades in the mid-year outlook will be much smaller.

There’s still a fair bit of data to land before MYEFO, including National Accounts and tax collections, but Treasury’s latest estimate is that any upgrade will be a sliver of what we saw in those first four budget updates.

At this stage, Treasury is also expecting to revise down company tax receipts – for the first time since 2020.

This is why we’ve been so focused on improving the structural position of the budget – so we can build buffers against the global economic uncertainty we’re facing while also investing in the future.

ECONOMIC REFORM

Speaker −

In 2022, it was already clear it wasn’t just structural challenges in the budget that had been neglected, but structural challenges in the economy too.

In areas like climate change and the net zero transformation, housing and skills. 

Our productivity performance was languishing, averaging just 1.1 per cent a year in the decade to 2020 – worse than the decade before and barely half the rate in the 1990s.

We’re implementing a broad and ambitious reform agenda to turn this around but it will take time.

It is all about managing and maximising the five major shifts in our economies and societies.

From globalisation to fragmentation; information technology to artificial intelligence; hydrocarbons to renewables; younger to older; and the rapid growth in services.

We’re building a more dynamic, competitive and productive fourth economy powered by cleaner and cheaper energy; indispensable to the global net zero transformation; where we teach and train our people to better adopt technology, and where capital flows more efficiently and effectively.

Here again we’ve made substantial progress together.

On delivering cleaner and cheaper energy by legislating a commitment to net zero by 2050, unlocking $67 billion in private investment through the Capacity Investment Scheme, introducing a new vehicle fuel efficiency standard, providing low-cost finance for household energy upgrades and reforming the safeguard mechanism.

On modernising and diversifying our industrial base, including through the National Reconstruction Fund, and our $22.7 billion Future Made in Australia agenda.

This includes a new front door to make it easier to invest in Australia, production tax incentives, and programs to support solar and battery manufacturing.

On investing in our people with university reforms, free TAFE, record investment in skills, reforms to income tax and student loan repayments that support participation, and changes to the migration system.

And investing in new technologies and the digital economy by unlocking access to advanced satellites and national data assets, investing in quantum computing and robotics, and expanding the Digital ID.

On getting capital to flow more efficiently with better designed and informed capital markets, including our foreign investment framework reforms, sustainable finance, and modernising payments infrastructure and regulation.

And finally, making our economy more dynamic and competitive by abolishing almost 500 nuisance tariffs, introducing comprehensive competition reforms, including the biggest overhaul to merger settings in 50 years, and improving competition in the supermarket sector.

MYEFO will budget for measures we’ve recently announced, such as our $900 million investment in a National Productivity Fund to boost competition and productivity across the economy.

THE ROAD AHEAD

Speaker –

Our reform agenda is about modernising our economy, managing pressures, and maximising our advantages.

It’s also about making up the ground that’s been lost over the past decade and a half.

This is not just about:

The biggest fiscal turnaround in a term on record.

The biggest nominal back-to-back surpluses in history.

The most jobs created in a term ever.

The lowest average unemployment rate in over half a century.

Or the fastest turnaround in real wage growth on record.

It’s about what all of this means for our people.

We know Australians are still under pressure but we’re confident not complacent that the worst of the inflation challenge is now behind us.

There’s still more to do and plenty to lose if we don’t do more.

Our vision is to push further and farther.

To use our progress as a platform not a destination.

To be optimistic but realistic about the future we’re making together in a defining decade ahead.

To ensure our people, businesses and communities are beneficiaries not victims of churn and change.

The Albanese Labor Government is proud of the record I’ve set out today.

But prouder of the Australian people to whom the credit really belongs.

I thank the House.