Interview with Laura Tingle, 7.30, ABC
LAURA TINGLE:
Jim Chalmers, you say the darkening international outlook is now framing your preparations for the Budget. We've got the IMF and the OECD making pretty dire warnings about the outlook in the past week, and the financial markets being savage in their response to the massive tax cuts announced in the UK. How do these developments affect your Budget preparations?
JIM CHALMERS:
Good evening, Laura. It's pretty clear that the international situation is deteriorating, rather than improving. The OECD, the IMF, the World Bank and others are unable to rule out a significant global downturn. I think it's true to say that in a number of our major trading partners the chances of a recession have edged over from possible and closer to probable if they're not there already. That's the backdrop for the Budget that I'll hand down next month. There's no use pretending that the global situation isn't anything other than a pretty dangerous place right now, and so the task for us is to tread and to navigate pretty difficult terrain. I'm still upbeat and optimistic about the future of our own economy here in Australia. I think we've got a lot going for us but we've got some difficult global conditions to navigate in the meantime.
TINGLE:
The OECD for the moment is not forecasting recession for Australia but it is saying growth is going to be only two per cent instead of two and a half. In earlier times, that would have almost certainly meant higher unemployment. Is that another woe Australians have to brace for, along with rising interest rates and inflation?
CHALMERS:
Certainly our economy is growing but so are the challenges to that economy both global and domestic. The global situation is as we've described it. You asked me about the United Kingdom a moment ago and obviously we don't comment on the domestic policies of another country but it's a pretty important reminder of trying to strike that right balance between monetary and fiscal policy, and also a bit of a cautionary tale about what happens or what could potentially happen - the costs and consequences - of possibly getting that balance wrong. So the task for us here in Australia is to strike that right balance in the lead-up to and in the Budget and after the Budget as well. These are difficult global conditions and it is feeding through to higher inflation, falling real wages and rising interest rates at home. That will have an impact on our own growth prospects in the domestic economy, and that has consequences for unemployment as well. I think you'll see that in the forecasts in the Budget, which are being finalised as we speak.
TINGLE:
With the economic outlook so adrift, what should be the guideposts that voters look for in the Budget? Both sides of politics set various rules for spending and taxing as a proportion of the budget under the Charter of Budget Honesty. Will there be a new set of rules to reflect both the new government and the very different times?
CHALMERS:
They'll certainly be a Budget strategy, a fiscal strategy, and the difference between what we will propose in the October Budget and what we've seen for the best part of a decade is ours will be a realistic strategy, which is right for the economy and which is achievable. We've had an improvement in the prices that people are paying for our commodities - that's provided a welcome boost to the Budget - but we've also had a lot of under spending, a lot of over-promising and under-delivering in previous Budgets, which means that while last year's Budget was an improvement, some of that spending has cascaded into the years afterwards. And so we need to take all of that into consideration. There will be a Budget strategy - it will be realistic. The Budget will be about difficult decisions in difficult times. It will provide responsible cost-of-living relief with an economic dividend. It will invest in skills and cleaner and cheaper energy. And it will begin to deal with this legacy of waste and rorts, which has been a hallmark of Budgets for the best part of a decade now.
TINGLE:
One of the Coalition's budget rules was 23.9 per cent of GDP as revenue or taxes. It was basically just a political number. Is that a completely irrelevant number for the times now?
CHALMERS:
I've said previously, Laura, and I still think that that number was more or less plucked out of the air by our predecessors. It was done so for political reasons and not economic reasons. And I had the courage, if I can say that, to say that before the election as well as during the election campaign. Subsequently, our task is to make sure that the Budget fits the economic conditions that we confront: rising inflation, falling real wages, rising interest rates, and all of the implications that a slowing global economy has on our own economy here at home. So we will take the necessary decisions, we'll take the right and responsible decisions in the Budget. There's no reason to change that tax cap that our predecessors had. We don't currently expect to hit it on the numbers currently before me, and our focus is less on those kinds of abstract numbers and more on the actual outcomes being right for the economic conditions that we face right now.
TINGLE:
Doesn't the financial markets trashing of the pound and the UK bond market, and the IMF criticisms that quote – “we don't recommend large and untargeted fiscal packages at this juncture” - give you cause for pause about the stage three tax cuts? I know you keep saying we're focused on current events, but those tax cuts are now in the scope of the out years of the Budget, not out in the never-never. And markets and international agencies will now be starting say: `why are they the right policy? What are the benefits they produce for the economy?’
CHALMERS:
First of all, as you know, Laura, our policy on those tax cuts hasn't changed. But I think some of the broader points that you make are right. You do need to make sure that you've got fiscal and monetary policy working together. The fact that that's not currently the case in the United Kingdom, I think is a cautionary tale about the possible costs and consequences of not striking the right balance there. And so we're obviously conscious of that.
TINGLE:
The debate about the tax cuts tends to be framed as an either-or proposition. Is there merit - given that you're focusing in this Budget on getting maximum bang for your buck - in considering reframing them or better targeting them, just as you're trying to do by eliminating waste and maximising the efficiency of how the Government spends its money and allocates taxes?
CHALMERS:
As I said, Laura, our position on the tax cuts hasn't changed. Our policy is as it has been but I think your point about targeting spending and getting bang for buck really is a guiding principle of the Budget that Katy Gallagher and I are finalising with the Expenditure Review Committee, with the Cabinet, and with other colleagues. We do need to make sure that the money that we invest from the Budget in the Australian people and in their economy does get maximum bang for buck. That's why we are focused on these skills shortages, training Australians with free TAFE. It's why we're focused on cleaner and cheaper energy because that is such a crucial part of the future economy. It's why the cost of living that we are offering and budgeting for is responsible and has an economic dividend so that it doesn't make the job of the independent Reserve Bank even harder. So that is the guiding light of the Budget: to invest people's money wisely and responsibly; to make the Budget and the economy and our communities more resilient after a wasted decade has made us more vulnerable; and to make sure we get to the other side of these global and domestic economic challenges in a way that is worthy of the sacrifices that the Australian people have made over recent years.
TINGLE:
Treasurer, thanks so much for your time tonight.
CHALMERS:
Thanks very much, Laura.
