Interview with Paul Kelly, Economic and Social Outlook Conference Q&A, Melbourne
PAUL KELLY:
Treasurer, thank you so much for that speech and for some of the new insight you provided in that speech about your thinking on Budget and the future. I'd like to thank you very much for attending this conference. I know that you're fully aware of the history of this conference over the last couple of decades and we really appreciate you as Treasurer for coming along today. Let's look at the inflation issue. We know that the Reserve Bank yesterday said that it expects inflation to reach 8 per cent, it will be higher and last for longer, saying that it won't return to the 2‑3 per cent band until 2025. So they're pretty sobering forecasts in terms of the outlook from the central bank. Given the emphasis that you and the Prime Minister have put on the coordination between monetary and fiscal policy, is the logic of the situation that the Government, in terms of spending and tax, will have to do more work on fiscal policy than what you previously anticipated?
JIM CHALMERS:
I think that is fair, Paul. I think that anybody facing the sorts of forecasts that we're looking at now would recognise that there's more work to do on the fiscal side. I go back to what Duncan said in his kind introduction a moment ago when talking about the UK. The UK was genuinely, for us, a cautionary tale about getting fiscal and monetary policy out of whack. Because you know, and all of the working journalists in the room know, that we are always reluctant to weigh in too heavily on the domestic politics and policies of another country, particularly a friend like the UK, but I think any objective observer of what we saw in the UK would understand that that was one of the defining lessons as we put the finishing touches on this Budget. We are determined above all else to make sure that the two arms of economic policy are working together rather than in conflict - that does invite hard decisions in hard times, as we said on Budget night. It doesn't lead to a fancy or flashy Budget, but it leads to a Budget, which is right and responsible and I'm confident that we got it right on Tuesday.
KELLY:
I was in the UK a few weeks ago when the crisis occurred, and then I came back for the Australian Budget. I've got to say the contrast between what happened in London and Australia was somewhat stark. Okay, you've talked about fiscal policy and this of course leads to considerations of both spending and taxation. I've been saying for a while now that the logic of the situation is that tax as proportion of GDP will have to increase and this is also the public position taken by a number of economists. I noted in your speech you said there'll be more transparency given to tax expenditures and I think that that's probably an important signal that you're providing as Treasurer. So can I just ask you, how important will it be to review tax expenditures? Is this where you're going as Treasurer? And isn't the logic of the situation overall, as I've been arguing, that we are likely to see an increase in the proportion of taxation in relation to GDP?
CHALMERS:
I think two things about that. On the role of tax reform in budget repair, particularly in the sort of circumstances that we confront right now, I hope that what we showed on Tuesday - and again, the beginning of this, not the end of it - but what we showed on Tuesday is that you can move responsibly on all three fronts simultaneously. So spending restraint, as I dealt with in some detail in the speech, trimming spending where you're not getting value for money is another important part of that, but tax is important too and where we began was some sensible, responsible multinational tax reform in the Budget on Tuesday combined with some measures around tax compliance and a couple of other minor measures as well. What we hope we showed is that if you're going to make the Budget more sustainable over time, you're not picking one thing off a menu of those three things, you need to move simultaneously on all fronts. And I think that gives you a sense of where we would ideally be heading into the future. On tax concessions - and I know this room probably is the room most au fait with the Tax Expenditures Statement in Australia today, and you would know and I would know and others I've worked with around the room would know that that document as it's currently put together - it's no reflection on the good colleagues who write it - but it is almost intentionally written not to be understood. And I would like to change that. Because, whether it's in tax, whether it's in wellbeing, whether it's in the Evaluator General, the Intergenerational Report - I am guided by the kind of quality or otherwise of the debate in other countries - I want to rebuild that evidence base so that if we are having a debate about which policy levers to pull, we're doing that based on good high quality, trusted information. And the Tax Expenditures Statement for me is an obvious area where we can make it clearer, we can go to some of the distributional impacts, and we can have a conversation as a country about what we can afford and what we can't.
KELLY:
Presumably that transparent process and that conversation might lead to government action?
CHALMERS:
Of course. There would be no point otherwise if we didn't think by improving the quality of economic debate in this country, we would come to better decisions. And that's not to pre‑empt or to signal anything that we're currently contemplating. But really if you accept that the Budget needs to be more sustainable as we probably all do, if you accept that there's some combination of a role between spending restraint, trimming spending and tax reform - that's probably everyone in this room - then let's rebuild the evidence base that informs the decisions in the hope that we'll get better decisions.
KELLY:
Just on the Petroleum Resources Rent Tax, you've indicated that Treasury has been doing work on that and it's continuing now to do fresh work on that, and you'll clearly be awaiting that advice from the Treasury, but there is a debate in this country and around the world about various versions of a windfall profits tax. We had President Biden mentioning this just in the last couple of days. So can I just ask, given the strong economic argument for action on this front, given that there would be strong public support for it, given the condition of the Budget, is it fair for us to think that this is a possible live option on the table going forward?
CHALMERS:
A couple of things about that. The PRRT take in the Budget was a little bit up over the next couple of years and that is because of the extraordinary prices that the companies are getting. But I think there is an appetite in the Australian community to see if that tax can operate more effectively. You're right to identify that - actually the two predecessors before me, Scott Morrison, when he was treasurer began a process with the Treasury, and Mike Callaghan, who's a terrific former colleague of ours, handed down a report about the PRRT. By that time, Josh Frydenberg was the treasurer and he commissioned some work from Treasury on a sliver of that around taxing arrangements for the PRRT. When COVID hit, the Treasury, for obvious and understandable reasons, paused that work as everyone in the Treasury focused on the COVID response and in the last little while that work has restarted. As I've said publicly before and say again today, I'm not going to kind of pre‑empt the advice that I might get out of that. When it comes to the gas market, which is really the primary thing we've been focused on in the eight days since the Budget was handed down, there's broadly three paths that you can take. There's the tax path, there is the spending path - sending subsidies or household support to help people deal with it - and there's the regulatory path. Almost all of our work right now is on the regulatory side and that's not to take off the table the other two options, but it is to be upfront that most of what we're doing right now - working with Ministers King, Husic, Bowen, the Prime Minister, the ACCC and others is on the regulatory side. I think that's the best place for us to start.
KELLY:
Well, that leads into the final two questions, which are on energy policy. Just a general question - do you agree that Australia really can't run a functioning economy with energy prices rising to the forecast levels?
CHALMERS:
I can't see a situation where the types of outcomes forecast in the Budget can endure. The pressure that high energy prices as a consequence of the war in Ukraine are putting on Australians and Australian industry warrants us to contemplate a broader range of interventions than would have seemed palatable in recent years. As someone who is a relatively reluctant intervener in markets, for me and for my colleagues, I think we have crossed a threshold where everybody in our Cabinet - and I think most people in the Australian community accept - that when this is driven by a war, when the prices are expected to become so extraordinarily high that they risk strangling industries, then we need to do something about it. And so we are contemplating a broader range of options. And if there's something sensible, responsible, but also meaningful that we can do to take some of the sting out of these high prices then obviously, we'll consider doing that.
KELLY:
Okay, final question, Treasurer. So there are two forms of intervention on the supply side or on the price side. Now, you have indicated that the Government is interested in both. So my question is, how confident are you that the Government can begin to address the crisis by action on the pricing side, with a lot of the hazards involved in moving on the pricing side, just how confident are you that there's going to be a viable way forward for the Government acting on the pricing side?
CHALMERS:
Relatively confident, but I think you just described them as hazards. So people understand the sorts of things we're grappling with - in this market you've got a lot of contracts signed, you've got a lot of international partnerships at play. When I was in DC with Governor Lowe a couple of weeks ago meeting for example with my Korean counterpart, something raised by him, the Korean Finance Minister. We need to make sure that whatever we do here does not diminish our international standing. And so there's a lot of complex interactions and moving parts that we need to factor in and that's why occasionally you'll read in the paper, perhaps not in yours Paul, that we could just wake up one day and call Gina, and we could kind of click our fingers and we could fix this problem. It's a very, very complex problem and if it could have been fixed by now, it would have been fixed by now. And so we're factoring all of those sorts of things. Now, your question about supply and price is in lots of ways the key one, and my colleague, Minister King, the Resources Minister, in my view did a great job unlocking some of the supply issues in that heads of agreement, but she would acknowledge, as I do, as other ministerial colleagues do, that we need to do more than that.
That was a really important first step, but not on its own sufficient. There is a code of conduct that applies to the gas industry, which is currently a voluntary code, and doesn't get right into some of these price issues that concern us most. And so the answer to your question is it supply or price, it has to be a combination of both. Some of the supply work has been done, the work that we need to do now is around can we strengthen the code of conduct, can we make it mandatory, and can we make it more focused on price. That's what a lot of the work that we are literally doing right now is focused on. We get a lot of suggestions from around the country and around the room about what steps we can take and we welcome that because we are trying to be genuinely consultative about it as we try and land what is a pretty complex policy outcome here.
KELLY:
Treasurer in thanking you for coming today, I want to highlight in particular for this audience one of the points that you made in your speech and in the Q&A session and that is that as Treasurer, you're going to put a high priority on evidence‑based policy. Now, this goes, of course, to the heart of the work done by the Melbourne Institute and it also goes to the essence of the approach taken by The Australian to public policy. So I'm certain I'll speak for everybody here, welcoming that commitment that you've made as Treasurer, not all treasurers make that commitment. I won't name names, but it's been very pleasing that you've made that commitment and on behalf of the Melbourne Institute and The Australian, I want to thank you very much for coming along today. Thank you.
