E&OE TRANSCRIPT
RADIO INTERVIEW
ABC RADIO NATIONAL BREAKFAST
THURSDAY, 5 MARCH 2020

SUBJECTS: Impact of Coronavirus on the economy; National Accounts; Stimulus.

FRAN KELLY, ABC RADIO NATIONAL: Jim Chalmers is the Shadow Treasurer; he joins us in our Parliament House studios. Jim Chalmers, welcome back to Breakfast.

JIM CHALMERS, SHADOW TREASURER: Thanks very much, Fran.

KELLY: Treasury will update Parliament today on the economic impact of the spread of the COVID19 virus, likely to be half a percentage point hit to growth. Is that going to push the economy into negative territory? Is a recession looming?

CHALMERS: The impact of the Coronavirus on the economy will be substantial, Fran, we've said that for some time. Most economists expect the March quarter will be extremely weak, likely negative. That's the expectation certainly in the markets. The big unknown is how long this thing will drag out for, and whether or not there'll be negative quarters after that remains to be seen. What we do know is growth will be weak this quarter. It wasn't strong enough last quarter either and we'll hear more from the Treasury about all this later today.

KELLY: Okay. How weak are you hearing it is expected to get? The Reserve Bank's also expecting growth to be down half a percent in the three months to March but that forecast is based only on the impact of the Coronavirus on tourism and education. Other sectors are vulnerable. Do you think the impact on GDP in the March quarter could even be higher than that? What are you hearing?

CHALMERS: I saw the forecast that the Reserve Bank put out last night and we'll see what the Treasury does later on today. It will be difficult to predict all of the damage done by this Coronavirus and by the fires before it. I've done a lot of engagement with business in Far North Queensland and North Queensland and they are expecting the impact to be horrific – on tourism, education, aquaculture and retail. There's going to be a lot of weakness in the March quarter. I don't like getting into the prediction game. I don't like talking about or predicting whether or not we're in recession, I don't think that's helpful, but certainly the expectation from the Reserve Bank, Treasury, and all the credible economists is that this quarter is weak and we don't yet know how long that weakness will endure.

KELLY: It turns out the December quarter wasn't as bad or weak as thought. GDP figures yesterday showed a lift in the December quarter by half a per cent. That brings it to 2.2 per cent growth over the year. Doesn't that show that the interest rate cut and the tax cuts the Government put in are working and have done their job?

CHALMERS: The interest rate cuts and the tax cuts are helping, but not enough. I don't agree with your characterisation of the last quarter. Economic growth actually slowed in the December quarter compared to the quarter before it.

KELLY: But it was forecast to slow even further and 2.2 per cent over the year is better than the 1.8 per cent that we were heading to.

CHALMERS: But what matters is the outcome. The outcome was still relatively weak. It slowed from the quarter before. If you want to use the annual number then that was well below average, well below trend, and well below what Scott Morrison and Josh Frydenberg inherited when they became Prime Minister and Treasurer. What matters isn't how it compares to the expectations. Some economists were expecting it to be a little bit stronger, many economists were expecting it to be a little bit weaker. And it's not just the headline number; wages were weak, business investment went backwards for the third consecutive quarter, and consumption was weak. Right across the board there were a number of troubling indicators in those National Accounts which mean that we enter this difficult period from a position of relative weakness, not strength.

KELLY: Confidence is vital at a time like this. The Treasurer says the economy is resilient and “it's defying all those who seek to talk it down”. Presumably he's referring to you. I mean you are talking the economy down. Are you conscious of confidence?

CHALMERS: Of course I'm not doing that. Of course we're conscious of confidence but I completely reject this lazy accusation that says we're not allowed to acknowledge the challenges in the economy which have been hanging around for a long time now. The problems that we have in the economy didn't just show up the day that the Coronavirus showed up and they won't disappear when the Coronavirus does either. This denial of our problems with business investment, growth, wages, and household debt has been a recipe for an economy which has been weaker than it should be because the Government hasn't acknowledged those difficulties and hasn't come up with a plan to deal with them not just in the last few months but in the last few years.

KELLY: We're going to get a stimulus package from the Government over the next few days. Labor has been in lock-step with the Government over the broader response to Coronavirus. Will that bipartisanship extend to the stimulus package?

CHALMERS: We would like to find a way to support what the Government does but we can't do that without seeing what the contents of the package are. We'll look to see if it's sufficient and if it's the right magnitude.

KELLY: What would be sufficient? The treasurer said it'll start with a 'b'. How many billions do you think? $4 billion? $5 billion?

CHALMERS: Let's see what they announce and then we’ll respond to it. We all want the economy to grow because when the economy grows it creates jobs and opportunities for people in our communities. That's the overarching goal. We want to support the Government where we can. If it turns out that it's insufficient or poorly designed then we have a responsibility to point that out too. Our default position is to do what we can and to work with the Government to get Australia through a difficult period.

KELLY: There's one element you're likely to support is a tax deduction for business investment. That's an idea very similar to the one Labor took to the last election. Is the Government right to keep the focus on the supply part of the economy rather than the demand side, and rather than handing out $10 billion of cash as Labor did post GFC?

CHALMERS: There are all kinds of ways that you can support consumption in the economy. We've talked about this before, Fran. You can do something about Newstart. You can do something about the timing of the tax cuts -

KELLY: Do you think the Government should lift Newstart now? You've been proposing that for many months now. That's going to cost around $3 billion. Do you think that should be part of a stimulus package?

CHALMERS: There's a very good case to do that because it would be good from a social justice point of view and very good for the economy because every dollar would find its way into the economy. You began by talking about the business tax investment. You're right that we've been calling for that for some time. The problem is that Josh Frydenberg flagged this in September but we're now into March and still nothing. One of the reasons we've had three consecutive quarters of negative growth in business investment is because businesses have heard what the Treasurer said in September and they've decided to put their hands in their pockets and wait to see what that investment incentive looks like. It's actually been a counterproductive, ham-fisted marketing effort rather than a real attempt to boost business investment and that's been costly.

KELLY: So just if you were making up the stimulus package now it would include that offset, it would include a Newstart increase? What else would include?

CHALMERS: We've said for some time that Newstart's an option. Infrastructure is an option and it's a bit disappointing that the Deputy Prime Minister is just now writing to the States and asking them for projects. Business tax incentives should be on the table. There's an issue around the timing of the tax cuts that they could look at. We need to settle an energy policy because having 19 energy policies in seven years has been a handbrake on growth. All of these things would help. We put them on the table in the middle of last year. They're obviously more urgent now because the Coronavirus is exacerbating some of those challenges we've had for some time. The Government needs to come to the table. We'll look at what they propose. If it's good we will back it but if it's insufficient or poorly designed then we will make those points as well.

KELLY: Does Labor have any thoughts about whether it was wrong to block the company tax cuts when they came up two years ago in order to help business, given how things are playing out?

CHALMERS: No that was a good decision because you can target help for business in a much more cost effective way. Those company tax cuts were mostly going to spray around overseas in the form of share buybacks, dividends and executive pay and that wouldn't have been an effective way to boost the Australian economy. We had a better idea which was the business tax incentive that Josh Frydenberg is now looking at after criticizing it when we proposed it. That's a far more effective way to support businesses.

KELLY: It's 7:45. Our guest is the Shadow Treasurer, Jim Chalmers. It's almost certain there won't be a Budget surplus this year as promised. In fact, PricewaterhouseCoopers is predicting a deficit of around $25 billion. We'll see. But people have much bigger things on their mind at the moment including their health and their jobs than 'Back in Black' promises and 'Back in Black' coffee mugs. I'm guessing this is personal for you. You were an advisor to the then Treasurer, Wayne Swan, when his promised surplus got wiped out by the GFC. The Coalition never let Wayne Swan forget that. Do you intend to hound Josh Frydenberg for the rest of his days for that promise if they can't deliver the surplus?

CHALMERS: I intend to be far more responsible about it than the Liberals and Nationals were. The highest priority is to support the economy through a difficult period. At the same time we do need to make sure that they are held to the same standard that they held Labor to. Josh Frydenberg got mugs printed that said ‘back in the black’. He said the economy was ‘back on track’. We now know that both of those things were unlikely to be true. All we're asking for is that they be held to the standard that they set for themselves. They asked the Australian public to judge them on whether or not they could hit a surplus and on whether or not they could keep the economy growing. Both of those things are in jeopardy -

KELLY: Yeah but they couldn't foresee the COVID19 virus.

CHALMERS: But the point that cannot be lost when we talk about this is that we enter this period from a position of weakness because for some years now we've had a problem with growth, wages, underemployment, business investment, productivity and consumption. In the Budget net debt has more than doubled on their watch so that most of the debt is actually Liberal National debt. The Government's got to acknowledge that they have mishandled and mismanaged the economy. We need them to do a better job. Every Australian has an interest in getting through this period. We'll do what we can to be constructive but we'll also point out where they have fallen short of the standards that they asked to be judged on.

KELLY: Jim Chalmers thanks very much for joining us.

CHALMERS: Thank you, Fran.

ENDS