Interview with Kieran Gilbert, Sunday Agenda, Sky News

KIERAN GILBERT:

Thanks so much for your time, Treasurer. We heard Andrew report there that the New South Wales Government is planning to spend hundreds of millions of dollars in buying back properties in flood zones, would you go half in that?

JIM CHALMERS:

Good morning, Kieran. We received a formal proposal along these lines towards the end of last week, and we'll go through it in the usual considered and cooperative way. The people of northern New South Wales have obviously been through a horrific time when it comes to these natural disasters and the Federal Government has been there for them under Anthony Albanese's leadership. So we'll do what we can subject to the pretty substantial Budget constraints that we have, recognising that the funding of natural disaster relief is one of the big pressures on the Budget as we finalise it heading towards [this] month's handing down of the Budget.

GILBERT:

We saw the Final Budget Outcome during the week. The Coalition says it's left you in a strong position and if the Budget is to have a worse position when you hand it down in three weeks then that's your decision.

CHALMERS:

I don't think the Opposition is awash with credibility when it comes to the Budget when you consider the trillion dollars of debt that they left us, deficits as far as the eye can see, and the combination of economic challenges that's been left to us to deal with. We take responsibility for that. We've got some things going for us but the backdrop for this Budget that I hand down [this] month will be really three things. First of all, a global situation which has deteriorated substantially in the last couple of months; high and rising inflation and interest rates; and thirdly, the pretty substantial pressures that are on the Budget right now when it comes to funding things like the rising cost of debt, health, NDIS, aged care and defence. So in the Final Budget Outcome - even with a fairly substantial and welcome improvement in the prices that we're getting for our exports - hasn't gone anywhere near making up for some of those persistent structural pressures in the Budget that we've inherited.

GILBERT:

Mr Taylor, the Shadow Treasurer, says on the revenue side, it's not just from commodity prices, he says business more generally is in a very healthy state. He says that you've inherited an extremely strong position across a diversified range of improvements, which were all about the V-shaped recovery, you reject that?

CHALMERS:

There hasn't been a less credible, less coherent economic spokesperson from either side of politics in my memory. Even with the improvement in the Budget, even with those substantial under-spends where the former government had over-promised and under-delivered on investment, even with the prices we've been getting for our commodities, which will continue to make a welcome contribution to the Budget, even though those prices have come off a bit, even with all of that, the deficit for last year was $30 billion. We've got deficits as far as the eye can see, we've got a trillion dollars in debt and rising interest rates, which means that that's getting more and more expensive to service. So that's the backdrop for the Budget - the deteriorating global conditions, high and rising inflation and interest rates, and trying to build buffers not just against this global situation, but being able to fund some of these services that Australians have a legitimate right to expect into the future.

GILBERT:

Yes, and on that, you've said repeatedly that we need a national conversation and you can see the structural points you're making on the NDIS, on defence, on aged care, on child care. Do you have any initial thoughts on where you want that conversation to head?

CHALMERS:

Clearly, we've got this combination of spending pressures - those big five spending pressures that we keep referring to, whether it's the unavoidable ones, like the rising cost of servicing the trillion dollars in debt, whether it's the desirable investments that we want to make in people's health care, or the NDIS, or aged care, or in strengthening our national security - these are all important investments as well. And I think that's broadly understood and accepted across the Australian community. The conversation that we need is what is the best combination of spending restraint in other areas, trimming back on wasteful spending, how do we need to change our tax arrangements in areas like multinational taxes, how do we get the economy growing the right way by investing in skills and cleaner and cheaper energy and childcare, and all of these ways that we can grow the economy and strengthen our Budget at the same time - that's the national conversation that we're interested in. The October Budget will be the beginning of that, but not the end of that. The October Budget won't be a fancy budget, it won't be some kind of vanity exercise, it will be all about difficult decisions in difficult times. We are prepared to take the right and responsible path and not just the path of least resistance when it comes to trimming spending, when it comes to making sure that our spending is affordable, sustainable and responsible and as targeted as possible, so that we can rebuild those buffers against that global turbulence which has gotten worse even in the course of the last month or two.

GILBERT:

That cap on tax as a percentage of GDP that the Coalition put in place of just under 24 per cent. Does that have to go in terms of funding those big items that you referred to?

CHALMERS:

Not on the current numbers before me as I currently have them, Kieran, we don't expect to hit that cap but obviously, all the numbers will be finalised over the course of the next few weeks. I've said really for some time, including before the election and during the election campaign, I see that cap is largely an abstract thing that was plucked out of the air by our predecessors. Our job is to make sure that we're doing the right and responsible thing when it comes to spending, when it comes to tax, when it comes to growing the economy the right way. And part of that consideration is understanding what's happening around the world. What are the services that Australians have got a right to expect us to fund? What are these intensifying structural pressures on the Budget? When you come at it that way, we are prepared to take the right and responsible decisions to make sure that we're doing the right thing by people and their economy and the Budget.

GILBERT:

Have you got thoughts on what those other tax options are? Because fundamentally, that's what it comes down to - it's revenue to fund those structural growth areas.

CHALMERS:

Your viewers should expect to see in October, Kieran, the beginnings of our multinational tax policy. We've got discussion papers out there at the moment about implementing our commitments on multinational tax. I think that's the best place to start because Australians do recognise that multinationals need to pay a fairer share of tax in the countries where they make their profits and that's how we fund the services that Australians rely on. That'll be the beginning of the conversation but as I've said I think people are up for a broader conversation, whether it's savings, trimming spending, whether it's the best optimal tax arrangements, whether it's how we grow the economy the right way - I think Australians are up for a real conversation about that. My job is to tell them how I see the economy, what they need to know about global developments in particular, and not just what they want to hear. And I think part of that is recognising that our Budget is more vulnerable than it should be. We need to make it more resilient, we need to rebuild those buffers against international turbulence, and that's part of the task in October - but the task doesn't finish then.

GILBERT:

The recent inflation number - I know that it's the first of the monthly series and for most economists not a moment too soon for the RBA to have current numbers to be looking at when they make their rates decision - but did that number give you any hope that we might escape the worst of it as we are seeing unfold internationally on the inflation front?

CHALMERS:

I think inflation numbers with a six in front of them or a seven in front of them are obviously still incredibly concerning. We expect our inflation challenge to get a bit worse before it gets better but it will get better. You look around the world and even where in some countries where inflation has come off the peak, it's still extraordinarily high by historical standards. So we're not out of the woods by any measure when it comes to the cost of living. That's why a key task of the Budget next month will be providing that cost-of-living relief in a way that provides an economic dividend, and doesn't make the job of the independent Reserve Bank that much harder.

GILBERT:

We're seeing a real-life example of how that unfolds - those extraordinary events and immediate shocks off the back of the mini-budget in the UK under the Truss Government. What does it tell you about how precarious the international environment is right now?

CHALMERS:

The global environment is a dangerous and difficult place right now. Even in the last month or two, the global situation has deteriorated dramatically in many of the major economies that we monitor most closely, the chance of a recession has edged over from possible to probable. We're reluctant to comment or weigh in on the domestic policy policies of countries like the UK but what's happening there I think is a cautionary tale about the costs and consequences of getting government policy and central bank policy out of whack, having fiscal and monetary policy working at cross purposes. It is a cautionary tale about what it looks like when you risk getting that wrong. And so that's not irrelevant to us as we put together our own Budget to hand down this month.

GILBERT:

Just three weeks away - does it give you and Katy Gallagher pause for thought to have another look at the way the Budget has been put together?

CHALMERS:

It's not irrelevant to us, to be upfront with you Kieran. I think anybody putting budgets together at the moment is looking at what's happening in the UK. As I said, I do consider it a bit of a cautionary tale. If you don't get the cost-of-living relief right, if you don't rebuild those fiscal buffers against global turbulence, if you don't get those things right, there are costs and consequences. So it's not irrelevant to Katy and I as we finalise the Budget to hand down this month, but not just the UK really right around the world. The situation, as I said, it's deteriorated over the last month or two in the US, in China, in Europe and in the United Kingdom as well, and no responsible government could ignore that.

GILBERT:

On the stage three tax cuts - to borrow a phrase - do they remain a core promise?

CHALMERS:

As you know, Kieran, we haven't changed our policy on the stage three tax cuts for all the reasons that we've talked about on earlier occasions. Our job in the Budget more broadly is to make sure that our spending is affordable and responsible and sustainable, and as targeted as it can be for all the reasons we've talked about. Even in the last month or two, you think about those inflation numbers, you think about what's happening with interest rates, what's happening around the world, and our responsibility is to always try and do the right thing by people in the Budget and in the economy, to take the right and responsible path and not just the path of least resistance, and that's what people can expect to see.

GILBERT:

You're going to make a trip to Washington to meet with your counterparts on Tuesday of next week. It is quite close to the Federal Budget, why have you made a decision to undertake that visit so close to the first big commitment of your own domestically as Treasurer?

CHALMERS:

Even when budgets are in May, it's not unusual. In fact, it's common for treasurers to attend meetings of the G20 and the IMF and the World Bank, and that will be the case this time as well. This trip will be perfectly timed to make sure that we can factor in the most recent global developments into the Budget that we will finalise as soon as I get back from DC. It's a really valuable opportunity to confer with my counterparts. I'll be meeting with the Chair of the US Federal Reserve and others from around the world to make sure that our Budget is informed by the most recent, most candid assessment of what's going on in the global economy and what that means for Australia at home. We've got a lot of things going for us, Kieran, in our economy, but we won't be spared a global downturn. We are at risk of a global recession as the OECD, the IMF and the World Bank have pointed out in recent weeks. We won't be completely spared from that. My responsibility is to make sure that I can factor in the most recent conversations with my counterparts as we put the finishing touches on the Budget.

GILBERT:

There's a very clear connection between the impact of the international events and our own economy. You see with the US rate rises continuing, it does put further pressure on our own central bank to help shore up our currency.

CHALMERS:

That will be one of the considerations that the Reserve Bank weighs up when they meet on Tuesday, Kieran. The market is expecting another interest rate rise on Tuesday - I try not to pre-empt decisions taken by the independent Reserve Bank, but that is the universal expectation. That will make things harder for Australians with a mortgage and it will have implications for growth in the Australian economy. There's no use pretending otherwise, but they take those decisions independently and when they do, they do factor in movements in interest rates around the world and especially in the United States because it does have implications for our currency, which is currently in the low to mid 60s which is by the standards of the last couple of decades quite low.

GILBERT:

Just finally on the economy - before I ask you about a few other issues - is a surplus a chance across the forward estimates?

CHALMERS:

We're not expecting that or forecasting that at the moment, Kieran. We've got really still quite persistent deficits. In the last Intergenerational Report handed down by our predecessors, they had deficits as far as the eye can see. And you can't just flick a switch and make that turn around. We will see some contribution made by the prices of our exports in an ongoing way, even though the prices of a lot of our commodities have come off. But that goes nowhere near making up for some of these persistent structural issues that we've talked about today. And so I wouldn't expect that the Budget that I hand down in October will have a surplus in any of the years of the forward estimates. We'll do what we can to strengthen the Budget within that but in terms of the underlying cash balance, the deficit number, your viewers should still expect there to be deficits over the forward estimates.

GILBERT:

We saw the anti-corruption commission introduced this week. The Prime Minister says that the standards are going to be really important for your government to honour the ministerial code and so on. One of your junior ministers has had a few issues to respond to. Kristy McBain was asked in the parliament if she'd received or her husband dividends from shares that they were offloading. She said no - did she mislead parliament?

CHALMERS:

I don't think so, Kieran. My understanding of this and obviously I don't have the same detailed understanding as others, my focus has been elsewhere, but my understanding is that Kristy has complied with the ministerial code and as she's become aware of steps that she's needed to take, she's taken them. Frankly, to cop lectures from the Opposition, from the dregs of the former government about these issues is a bit rich. Kristy McBain has more integrity in her little finger than her critics from the opposition have in their whole body. I think people know what's going on here. The former government, the Opposition, they don't want to contest us on some of these issues around the Budget, around the situation that we've been left with, with a trillion dollars of debt and all these other important issues we've talked about today. That's why they're focused on Kristy, who has taken the necessary steps at the necessary time to comply with the code.

GILBERT:

On the Optus hack, do you fear that that breach reflects a broader complacency in the corporate world when it comes to cybersecurity?

CHALMERS:

Certainly it's been a wake-up call, Kieran. There have been deficiencies clearly in Optus's defences. And there have also been deficiencies in the legislative arrangements and the arrangements which were put in place by Paul Fletcher and others. When it comes to dealing with breaches of this nature. We want to work with Optus so that they can fix these problems that have emerged. For my part, that means working with the financial system and with the financial regulators to make sure that we can protect customers and protect consumers. That's been my focus. But clearly what's happened here has exposed deficiencies in the company's approach. It's exposed some deficiencies in the legislative framework and the regime that governments can use to respond to these issues. And so we will do what we can in the near term to work with Optus, and we'll do what we can in the medium term as well to tighten up these arrangements so that Australians can have their data better protected than what we've seen here in this episode.

GILBERT:

Treasurer Jim Chalmers, appreciate your time. Thanks.

CHALMERS:

Thanks very much, Kieran.