Interview with Patricia Karvelas, RN Breakfast, ABC

PATRICIA KARVELAS:

Two weeks from today, the Federal Treasurer Jim Chalmers will hand down his first Budget. For weeks it's been a message of doom and gloom from the government on the state of the international economy and the Budget bottom line which the Treasurer says is riddled with debt that's increasing with rising interest rates. Overnight, the heads of the World Bank and the International Monetary Fund warned of the rising risk of a global recession but said central banks should make fighting inflation their core mission. Later this week, the Federal Treasurer Jim Chalmers heads to Washington to meet G20 Finance Ministers but before that, he joins you on RN Breakfast. Treasurer, welcome.

JIM CHALMERS:

Good morning, Patricia. Thanks.

KARVELAS:

Treasurer, the World Bank, the IMF and the OECD have all downgraded global forecasts. They all say a global recession is becoming more likely. Where does this leave Australia?

CHALMERS:

The world is bracing for another global downturn, I think that's pretty clear and that's the backdrop for the Budget that I'll hand down in two weeks' time. And in that Budget, we will also quite substantially revise down our expectations for the global economy. I am optimistic about our country, I am optimistic about our economy, but first we're going to have to navigate what are increasingly difficult, global conditions. We go into that with a lot going for us, but we will not be spared another global downturn.

KARVELAS:

We go into it with a lot going for us and all of the experts are saying the same thing. But is it getting harder, Treasurer, for Australia to avoid a recession?

CHALMERS:

It's not our expectation that Australia's economy will go that way but it's increasingly becoming the expectation of the global economic community that we could be facing what would be the third, substantial global economic downturn in the past decade and a half. But this one, if it happens, will be very different. The first one was a financial crisis that became a demand shock. The second one was a health crisis that became effectively a supply shock. This one is an inflation problem right around the world which risks a hard landing when central banks act as they have been in a pretty blunt and brutal way to put up interest rates to slow down this inflation. And I think increasingly, the expectation around the world is that recessions in some of these big economies have edged over from a possibility to a probability.

KARVELAS:

The head of the World Bank and the IMF say fighting inflation is still core business. The RBA has slowed the pace of interest rate rises. This week, you'll meet with the head of the US Federal Reserve. Is the RBA right to be deviating from the Fed's path?

CHALMERS:

I'm not going to give advice to the Australian Reserve Bank. But clearly, one of the things that they factor in is the interest rate environment around the world, and particularly, in the United States. And I will have an opportunity to talk about this with the Chair of the US Federal Reserve, as well as, as you said in your introduction, the finance ministers from Canada and Korea, the UK, India and the US, and the heads of the World Bank and the IMF, as well. And I think everybody is focused on the same thing, which is ‑ what are the implications of the biggest tightening in interest rates around the world that we've seen in modern days and what that means for our own economies. And for Australia, what happens is if there's a big and widening gap between US interest rates and Australian interest rates that puts some downward pressure on the Australian dollar, and that's what we're seeing at the moment as well.

KARVELAS:

The message to advanced economies is to get your debt problems under control. Do you take that to mean that wealthy countries shouldn't be loading themselves up with debt to pay for things like tax cuts?

CHALMERS:

I think the advice around the world is pretty clear that we need to get our budgets in order. That's certainly a priority here in Australia. We've got that trillion dollars in debt, we need to rebuild buffers where we can, we need to trim spending that's wasteful which is a big priority for the Budget that I'll be handing down in two weeks' time. If we all anticipate ‑ and we do ‑ that the global economy is going to deteriorate further, perhaps even sharply, then we need to make sure that the spending in the Budget is targeted to those conditions. And not just those conditions ‑ the global situation is deteriorating, we've got an inflation problem in our own country, as people know, they don't need that explained to them and we've got these persistent structural spending pressures in the Budget as well in health and aged care and NDIS and defence and the increasing cost of servicing that trillion dollars in debt. And so, those are all factors to the Budget, not just the Budget in two weeks' time, but subsequent Budgets after that as well.

KARVELAS:

You've said the government would put the economy above politics, can you really say that's what you're doing if you leave the stage three tax cuts in place as they are?

CHALMERS:

I can say that. And I think what people will see in the Budget in two weeks' time are some difficult decisions in difficult times around things like this culture of largesse and waste and rorts which has built up over the best part of a decade. We need to start to address that. That's not easy, it requires a lot of work and it requires some element of political risk to wind back some of that spending. And people will see that in October and I think that will be a defining feature of our approach to the Budget after that as well.

KARVELAS:

But does political risk have to be outside of election promises? Because what's your understanding of the stage three tax cuts and that election promise? Was it a rolled gold election promise? Or is adjusting that tax cut something you can do?

CHALMERS:

I think that we've made it pretty clear that this Budget in October will be about implementing the commitments that we took to the people. And that's not just relevant in this area that you're asking me about, it's relevant in childcare and skills and all of the other commitments that we took. And obviously, that's an important part of the reason why we're having a Budget in October, so we can put in place the economic plan that we took to the people.

KARVELAS:

But how about if that economic plan that you take to the people doesn't match what the economy needs ‑ what do you do then?

CHALMERS:

Our job is to make sure that our budgets are perfectly calibrated to the economic conditions as we confront them ‑ I've run through that issue with inflation, the global deterioration, the persistent structural spending pressures on the Budget. What you'll see in two weeks and what we've been talking about ‑ not just in recent weeks, but recent months and years ‑ is how do we make sure in an environment where we've got that trillion dollars in debt that we inherited, how do we make sure that in the Budget that we're getting better bang for buck? I think we get bang for buck by investing in childcare, cost‑of‑living relief with an economic dividend, we get bang for buck by investing in people in the future their economy and making it more resilient, and we get bang for buck by starting to unwind the wasteful spending and the rorts which have been a feature of budgets in this country for too long.

KARVELAS:

The Nine papers have a new poll out today that says only five per cent of voters believe higher tax revenue is the best solution on its own to relieve the pressure on the Federal Budget, while 21 per cent would prefer to see spending cuts on some services to pay for outlays on more urgent priorities. Do you think that's a message saying `don't touch the tax cuts'?

CHALMERS:

Patricia, we've seen a lot of these polls in your time in the media and my time in politics. There's always something for everyone in the interpretation of these polls. We'll do what's right and responsible in the context of all of those pressures that I've outlined a couple of times now. I think in truth, it's not always an either‑or between those options that were put to people in that poll. We need to trim spending in areas where it's been wasteful, we need to change the tax system in areas like multinational taxes, and we need to get the economy growing the right way so that we can generate the revenue and to pay down some of this debt in time. And so all three of those things will be necessary in one way or another. You'll see all three of those things in the Budget, and we'll do that for the right reasons but not necessarily because from one poll to another the emphasis might shift a little.

KARVELAS:

So on broader repair of the Budget and the warnings from the IMF, clearly ‑ I know you've talked about rorts and all of this, that's trimming the Budget ‑ you're going to need more structural reform, aren't you Treasurer?

CHALMERS:

Most likely ‑ this is the conversation I want to have with the Australian people about how do we pay for the services and the kind of government that people have a right to expect ‑ the type of government that they need and deserve. And in those areas that we've identified ‑ aged care and health care and NDIS and defence spending, combine that with the rising costs of paying off this debt or servicing this debt ‑ that is a combination of desirable spending and unavoidable spending. And so we do need a national conversation about all of that. And the October Budget was never intended to be the end of that conversation ‑ it was intended to be the beginning of it. And that's what we're seeing. I think that's an important conversation for the Australian people to have.

KARVELAS:

We can talk, but we need some sort of proposals from the government ‑ what sort of reforms, increasing the GST? Is that something that's worth discussing?

CHALMERS:

That's not something that we're proposing or discussing or raising as a way to get on top of these challenges that are before us. I think it's more fundamental than that, before you get to the specifics of it. And let me put it to you this way, Patricia, and for your listeners: one of the kinds of things that people say about our Government is that the adults are in charge. And I think part of that ‑ I appreciate that ‑ but I think part of that is treating people like adults and not talking down to them. I think it means leveling with people about the challenges that we are grappling with as a Government, challenges in the Budget, in the economy, and in our society more broadly. And I think that the situation is so challenging, particularly in the near term, that we won't get through it without a foundation of real talk about what's happening in the economy, and what might be necessary to deal with it. I see that as an important part of my job to be up‑front with people about that, and I'm determined to continue to do it.

KARVELAS:

And so you're saying structural repair of the Budget must start ‑ when will you start it? Will we see it in this Budget in two weeks or do we have to wait until May? And will you give us an indication of what structural changes you're prepared to make?

CHALMERS:

You'll see three things in the Budget in two weeks: you'll see that responsible cost‑of‑living relief with an economic dividend, you'll see some important investments in a more resilient economy and a more resilient community, and you'll see our efforts to begin to unwind some of that wasteful spending, which has been part of the Budget for too long. Those are the three priorities for the Budget against that backdrop of a deteriorating global situation, high and rising inflation, and those persistent structural pressures on the Budget.

KARVELAS:

You're talking to us as adults, and I'm glad because I'm feeling pretty adult we're born in the same year. We're adults so let's be adult. You're saying we've got to find money from somewhere else, someone's got to pay, who should that be Treasurer?

CHALMERS:

In the October Budget, you'll see that we will make some responsible changes to spending in some of these discretionary funds, which have been people's focus rightly, for some time, and that's part of it. You'll see changes to multinational taxes, another important part of it. And you'll see that all of the commitments that we made to invest people's money wisely in areas like skills and the Future Made in Australia and making our supply chains more resilient ‑ you'll see all of that in the Budget. And that's a really important step, a crucial start and that will be the foundation for the Budgets that follow.

KARVELAS:

Very quick one because I have gone over time, but energy prices are going to soar. Are you concerned about that ‑ next year people are going to be facing crippling energy prices?

CHALMERS:

I'm very concerned about it and I think one of the reasons why this inflation will hang around longer than we want it to is because there are expectations around these electricity price rises being more problematic for longer. If you think about our inflation problem over the next six or nine months, our expectation is that a bigger component of that will be power prices. And this is what happens when you've got this perfect storm: you've got this global energy crunch, we've got extreme weather, and we've got the costs and consequences of a decade of denial and delay and all of the policy uncertainty that that brought about. So we're determined as a Government to provide a stable policy framework and to incentivise the type of investments in cleaner and cheaper and more reliable energy which every expert considers to be crucial to improving this situation over the medium and long term.

KARVELAS:

Treasurer, thank you for joining us.

CHALMERS:

Thanks Patricia.