BARRIE CASSIDY: Jim Chalmers, good morning, welcome.
 
JIM CHALMERS, SHADOW MINISTER FOR FINANCE: Good morning, Barrie.

CASSIDY: First of all, on the treatment of WA, and do you accept that the Government has found the right solution by coming up with this 75% floor?

CHALMERS: Well, the GST floor was our idea in the first place, Barrie, so of course we support that outcome for Western Australia. We've been saying for some time now that WA has got the rough end of the pineapple when it comes to the GST distribution in the last few years, and we've said that fixing that challenge or addressing that challenge shouldn't come at the expense of smashing the budgets of the other states. So what we're saying now is effectively what all of the states and territories are also saying, is that it should be possible to legislate the GST floor for Western Australia at the same time as we legislate a guarantee that the other states don't go backwards. State budgets are notoriously sensitive to changes in GST distribution, we understand that. We think there is a way forward. If only Scott Morrison will actually legislate the guarantee that says the others won't go backwards as we go about fixing these concerns that WA has legitimately raised.

CASSIDY: How can it smash the economy of the states, as you put it, though, with Scott Morrison putting in an extra billion dollars a year?

CHALMERS: I said smash the budgets of the other states, but what I mean is fixing that problem in WA shouldn't come at the expense of the other states. We obviously welcome...

CASSIDY: How is it with this extra billion dollars?

CHALMERS: We obviously welcome the top-up payments that have been suggested by the Government. Indeed, we led the argument on that as well. All we're saying is that Scott Morrison and Josh Frydenberg should legislate that guarantee that the other states won't go backwards. They've got legitimate concerns that should be addressed and you can understand where they're coming from, the other states and territories. They look across the table at a government now led by Scott Morrison who was the most enthusiastic cutter of things like health and education when he was Treasurer and when he was a senior Cabinet minister, and so the states are very nervous and we understand where they are coming from. They are unanimously, Labor and Liberal, Tassie, WA, the big states on the east coast all unanimously calling for that guarantee that they won't be worse off to be legislated. We agree with them and will be prosecuting that case.

CASSIDY: Is it just a trust issue? You know the money is there, they’re promising the money. Is it just a trust issue?

CHALMERS: It is a trust issue because Scott Morrison was the most enthusiastic cutter of the services that states provide across health and education and other areas. So if he says states will be better off, then he should be prepared to guarantee that in the legislation. That's our view and that’s the states’ and territories’  view as well.

CASSIDY: As a potential future Finance Minister, are you comfortable locking in something like this permanently?

CHALMERS: We need to give the states the certainty that they need to deliver key services, essential services to the people that we all represent. I'm entirely comfortable with us taking a position to the Parliament in the next few weeks that says if Scott Morrison is prepared to say that states won't go backwards and the states legitimately don't trust him to follow through on that, then that should be legislated.

CASSIDY: The Government, though, says what you are doing here is supporting two systems - you want the current system and you want the new system as well. It is sort of the states wanting it both ways?

CHALMERS: Oh, look, they’ve got a bit of form on this, Barrie, as you've probably recognised over time. We called for the GST floor, they said it was a bad idea, and then they came around. We called for that floor to be legislated. They said that a bad idea, and then they came around. It’s entirely possible given that we have led the debate on this issue, working closely with the states and territories, that they will come around on this as well. And if they don't, it is entirely possible that the Senate will, and we will have discussions with the crossbenchers. This is the fair outcome. It addresses the legitimate concerns that the states and territories and indeed the people in those states and territories have right around Australia. We have been consistently winning this argument and leading this debate and we will continue to do so.

CASSIDY: How is this not two systems operating at once and it’s just the states picking what system at the time?

CHALMERS: No Barrie, it is simply legislating the commitment that Scott Morrison has made. If Scott Morrison is fair dinkum about this commitment that states won't be worse off, he should be prepared to legislate it. They are understandably sceptical given the Prime Minister's form in his other roles that he would like us to forget. They are sceptical about his bona fides here and he should be prepared to put his money where his mouth is and legislate it in the Parliament. That’s our view and that's the unanimous view of the treasurers of all the states and territories as well.

CASSIDY: How do you proceed with this? You support the 75% floor but then you put up an amendment demanding the guarantee. What if the guarantee fails? Will the whole thing fall over?

CHALMERS: It would be premature to think about all of those kinds of scenarios, Barrie. We are pretty confident that we can win the argument, we've won it on multiple occasions before, as I've just outlined. We will be talking to the Senate crossbench. We will be seeking support for our amendments and we are confident that our view will prevail as it has prevailed in the past.

CASSIDY: And if it doesn't, then the Government will go to Western Australia and say "Well, you're not getting the extra money and it is all Labor's fault" ?

CHALMERS: I think the West Australians will see through that, Barrie. They will see that as the usual sort of petty politicking that Scott Morrison and Josh Frydenberg are into. The people of Western Australia and certainly the Government of Western Australia know that we are the most enthusiastic supporters of the GST floor. We are the ones who proposed it in the first place. They know that we are committed to it. We think we can get that outcome for the people of WA at the same time as we get the guarantee that the other states and territories need and deserve.

CASSIDY: On this early education initiative for preschoolers, 3 years old, it relies on states coming in behind it. In fact, they need to tip in probably twice as much as the Federal Government is prepared to do. Are you confident that that will happen?

CHALMERS: Yes, we are, Barrie. One of the reasons why the game‑changing announcement that Bill Shorten and Amanda Rishworth made during the week has been so enthusiastically supported is because all of the stakeholder groups, lots of people around Australia, including the states and territories, understand that this will make a big difference to Australian kids, to their families and to the economy. Already we've had very positive indications and announcements from the Victorians, from the Queenslanders, the ACT have got a good system in place as well.  So we are confident that we can work with the states and negotiate with the states, to get this game-changing policy in place so that we can give 3-year-olds and 4-year-olds access to 15 hours a week of subsidised early childhood education. Another reason that we are confident we can get it in place, Barrie, is because we've done it before. It was Labor that introduced the 4‑year-old policy, to give 4-year-olds access to subsidised early childhood education. We worked very successfully with the states and territories in 2009 to make that a reality and we intend to do that again.

CASSIDY: The Government, of course, is raising the question about cost and how you pay for it, and of course you are paying for it in part with negative gearing changes. That's happening at a time that house prices are starting to fall in major capital cities. It will make your argument around negative gearing that much harder to prosecute?

CHALMERS: I will come to negative gearing, Barrie, but it is pathetic that the Government won’t just front up and say they don't think 3 and 4-year-olds shouldn't get subsidised 15 hours of early childhood education. If that's their position, they should just say so. They shouldn't just lie about the costings of our policy. Our policy has been independently costed by the Parliamentary Budget Office. We've done a lot of work on that. It all adds up. The reason we can pay for such a game-changing policy such as this one is because we have made a number of difficult decisions and policy announcements over the last few years to make sure we can do this. We haven't done that for its own sake. We've done that because we want to make the tax system fairer. We want to pay down debt, which is double what the Liberals inherited from Labor. And we also want make room for the things that we as a society should truly value, things like educating our young people, getting them ready for school, these are important things that we need to make room for.

CASSIDY: Getting back to negative gearing?

CHALMERS: Yes, negative gearing is an important part of that effort. Now, the housing market is softening in some of the major markets, but we don't make this policy for one market or another or one set of market conditions or another. You make housing policy as a Federal Government over the medium to long term. There are other levers available to others for the immediate term. One of the reasons why we are not abolishing negative gearing entirely, we are grandfathering it so that if people are doing it now they can continue to do so, and one of the reasons we are still making it available for new properties is because we wanted to make sure there wasn't a shock to the system.

CASSIDY: Just on the shock to the system, there are real estate agents and some financial experts saying just the prospect of you introducing these changes to negative gearing has impacted on the house prices and that is why you are getting this softening?

CHALMERS: I don't accept that for one minute, Barrie. One of the reasons we are getting this softening is because the macroprudential arrangements put in place by regulators, by APRA has had a bit of an impact. It means that there is less appetite and less finance available to investors and there is an argument that introducing our policy at that time is actually a more favourable thing as investors are already slowly softening their appetite for some of these investment properties. The issue of housing affordability is not going away, Barrie. Even if the market is softening a little in some of the key markets. If you are a first home buyer in this country, we need to make policy over the medium and longer term, in the interests of levelling the playing field so that when people who want to get into their first home go to an auction, they are not competing unfairly with investors who might have 6, 7, 8 properties already. There is another reason why we are just as keen on our negative gearing policy as we have ever been and it's not often talked about, but just in the last couple of weeks, the Bank of International Settlements has said that Australia has the second highest level of household debt in the world. When you combine that with the fact that we have the most generous tax breaks for debt, you can see that there is a problem here. Our policy settings around negative gearing as they stand right now under the current government are actually encouraging more and more household debt in this country when we already have the second highest in the world. That's another important reason for us to proceed.

CASSIDY: We're out of time. Thank you, Jim Chalmers.

CHALMERS: Thank you, Barrie.