Interview with Sarah Ferguson, 7.30, ABC

SARAH FERGUSON:

As a former political staffer, Jim Chalmers has already experienced plenty of Budget lockups, I think this was number 16. But of course, this is his first in the hot seat as Treasurer at a time when Australian households face rising rents and mortgages, as well as soaring grocery and power bills while wages remain stagnant. He joins me now, but the first thing to say to you is congratulations on your first Budget. We start there.

JIM CHALMERS:

Thanks very much, Sarah.

FERGUSON:

Now, you've just said just a few moments ago, that this Budget is about hard decisions for hard times. Where are the hard decisions?

CHALMERS:

Well, there's $22 billion in savings, 28 and a half billion dollars in budget improvements. But I think most important of all, we've had this really welcome, really substantial surge in revenue off the back of higher commodity prices. And what we've done is we've let that return to the Budget, 99 per cent of that over the next two years. That's the most responsible thing you can do when we've got high inflation.

FERGUSON:

But just look at those numbers. You've spent a billion more than you saved this year over four years. It's 10 billion more than you've saved. So, I repeat my question. Where are the hard decisions?

CHALMERS:

The hard decisions are in every dollar of those $22 billion in savings. The hard decisions is in every dollar not spent from this very temporary but substantial welcome improvement in tax revenues from some of these temporary conditions, like higher commodity prices. And when you sit around the Expenditure Review Committee table, as we have for many hours with my colleagues, one of the hardest things to do is to exercise spending restraint. I think what defines this Budget and distinguishes it from our predecessors is restraint.

FERGUSON:

We'll come back to whether your colleagues, particularly outside of the Government, think that those are indeed, they add up to hard decisions, because I don't think they would agree with you. But you just mentioned the fact that you've got a revenue windfall this year, but you know that you can't rely on it being repeated. You've also got a very large structural deficit. Now, let's just explain that phrase to people who don't use that phrase every day. Basically, spending more than you earn. Is it inevitable that you'll either have to cut spending much harder or find new ways, new revenue, to pay for all of this?

CHALMERS:

I think we made a good start on that tonight. We've been really upfront with people for the entire duration of this Government, and before that as well - we've got an issue in the Budget. We've got big, persistent structural spending pressures on the budget. That means we've inherited a budget in structural deficit. You need to start somewhere when you've got a trillion in debt and deficits as far as the eye can see, you've got to start somewhere. And so, we made some savings more than in recent budgets. We exercised far more spending restraint than our predecessors. And we've already begun reforming the tax system, whether it's multinational taxes, whether it's tax compliance.

FERGUSON:

That's a very small amount of money, sorry. Excuse me, it is less than a billion dollars. So, it's still money, but it's a very small amount of money compared with the task ahead.

CHALMERS:

Well, I think we've got about six and a half billion dollars worth of tax improvements in the Budget net. We're investing a bit in that to get some back by compliance programs, but that's important too. Everything needs to make a contribution.

FERGUSON:

Sure.

CHALMERS:

When you're climbing a mountain of this height, you need to start somewhere, and that's what we did tonight.

FERGUSON:

Let's talk about the mountain. In fact, I was going to say the Budget does face a very steep increases in borrowing costs. Pension, social services, big increases in defence. We've already been hearing about it tonight. Hospitals, aged care and an alarming blowout in the NDIS. How much is the NDIS expected to cost over the next ten years?

CHALMERS:

It's going to hit $50 billion before long and it is one of the three biggest pressures on the Budget. The biggest is actually, the biggest is actually interest costs on our borrowing.

FERGUSON:

Yes, it's important, but just stay with the NDIS, because this was a big issue today. You just said it's going to hit 50 billion shortly. But I think the question is over the next ten years, because we looked at the figures in the Budget papers today. Tell me what you think it's going to cost, expected to cost over ten years.

CHALMERS:

It's going to cost hundreds of billions of dollars, right, and that investment is really important. Now, the reason why we've got under Minister Shorten's leadership, we've got a review of the NDIS, is because the spending trajectory right now is putting incredible pressure on the Budget, and we want to make sure that people are at the centre of the NDIS. We want to do the right thing by Australians with a disability. That means making sure that spending in the program is sustainable. We hope that this review that is being undertaken right now means we can improve the quality of the spending over time and then we'll update the figures.

FERGUSON:

Let's be clear, you just said hundreds of billions of dollars.

CHALMERS:

Yep.

FERGUSON:

These are incredible figures, aren't they?

CHALMERS:

Yeah.

FERGUSON:

Now, you say there's a review underway. You don't always wait for reviews to be completed. You've also said recently that you're not going to fix it by cleaving millions of dollars out of it. You've just said a program that is going to cost, if it's left on its current trajectory, hundreds of billions of dollars. Australia cannot afford it. How much money do you think you're going to have to take out of the NDIS? You are going to have to cleave millions, aren't you?

CHALMERS:

The point that I was making there is that we don't approach the NDIS as a source of savings for the sake of it. We believe in the NDIS, we created it. We think it's doing important work for Australians with a disability. We support it, we want it to endure and survive. And that means every dollar needs to get value for money. And that's what the review is about. Now, if it turns out the trajectory of spending is better than it is currently, then that's a good outcome, as long as we're maintaining a level of service. And that's what the review is about. Now, what we've done tonight is we've started with some substantial budget repair. There is more to come, whether it's in this area or in other areas. We've already flagged that. The best way for your viewers to understand this Budget tonight is that it is the first of three or four in the life of this parliamentary term. It is the beginning of a more responsible approach to the budget, not the end.

FERGUSON:

Ok, let's talk about energy. There's nothing in the Budget to help with people's energy bills. I want to know this. Why have you ruled out direct subsidies for families and businesses via rebates? I think it's something that something like the UK Government is doing through its energy price guarantee, this during the worst period of the energy crisis. Why not?

CHALMERS:

A couple of things about that. First of all, there are big investments in cleaner, cheaper, more reliable energy.

FERGUSON:

Those are long term. They will yield long term.

CHALMERS:

Yes, but that's our Powering Australia Plan and that's the objective of that plan. We also have cost-of-living relief in other areas: child care, paid parental leave, medicines, housing and getting wages moving again. So, we do have an agenda for the cost of living. Now we can only promise what we can afford to pay, and we think, obviously any government looking at those projected price increases in electricity making up a bigger and bigger part of our inflation challenge, any government that looks at that needs to consider a broader range of options. We've got a problem there. And I will work with my colleagues to consider whether there are regulatory or other steps that we can take to take some of the pressure out of this energy market. This pressure is coming from a busted energy market around the world, consequence of the war in Ukraine, but the consequences of that are being born around the kitchen table and we won't ignore that.

FERGUSON:

Just on the question of regulatory intervention, I want to come back to the targeted rebates in a moment. But just on that question, why wasn't that in the Budget? You've got a forecast for the increase in prices. It's pretty gobsmacking. 50 per cent this, 50 per cent over the next couple of years. That's a huge increase in prices. And it lines up with what the head of Alinta said the other day, that electricity prices could go to 35 per cent next year. People can't afford it. If you think you need to intervene, why isn't it in your Budget?

CHALMERS:

Because these forecasts are relatively new to us and the work that we need to do in this area is ongoing. And I think it's reasonable that we flag, as I did before today, and as I did today, that whether it's gas, whether it's electricity, we've got a big problem, we've got an inflation problem. The biggest part of that, or the most concerning part of that, in addition to the impact of natural disasters, is what's happening in energy that's happening right around the world, but we care about its impact on Australians. We've got more work to do, and I flagged that today.

FERGUSON:

Ok, so what do you think it could look like? Do you actually know what to do to bring those prices under control?

CHALMERS:

Well, I'm not going to pre-empt any steps that we might take. I need to work closely with relevant Ministers and with the Cabinet and more broadly as well and consult, and with the State Governments. Remember that the regulation of a lot of big parts of the energy market is a responsibility of the states.

FERGUSON:

Will you be convening the State Premiers to talk about this urgently?

CHALMERS:

Well, I'm sure it'll be part of our conversations that we have with counterparts, whether it's me with Treasurers, the Prime Minister with Premiers.

FERGUSON:

Sounds like something more urgent is required.

CHALMERS:

We take it seriously, and I'm just being upfront with your viewers as I was earlier today when I was presenting the Budget. We know that this is a big issue. We're providing cost-of-living relief; we're trying to improve the energy market after a decade of denial -

FERGUSON:

As of now you don't know exactly how you're going to intervene. But let's move on to -

CHALMERS:

We'll have more to say about it.

FERGUSON:

Let's move on to wages, because at the same time, Australians are seeing their wages going backwards in real terms this year. You promised a Labor Government would increase wages in real terms. When is that going to happen?

CHALMERS:

On the Budget forecast, 2024, but these are notoriously volatile, these wage forecasts. And what we said about it is wages growth is picking up. But because inflation is so high, then the real wages situation is not as we would like it to be. Real wages were falling before the election, they've been falling after the election. There's two parts to that. The inflation problem and the Budget that we've handed down today has been primarily influenced by that inflation problem, but also getting wages moving again. The wages forecasts in the Budget that I handed down today show wages growth faster than before the election and that's important.

FERGUSON:

Yes, but as you've just said, and I admire your honesty for saying it, those forecasts are not reliable and we're in a very volatile international situation. We don't know what's going to happen in Russia, we don't know what's going to happen in China. So, we don't know, actually, that crossover moment where you think wages are going to start rising is actually going to happen. And in fact, even if we look at those four years, I think we've got real wages growing by less than 1 per cent. Isn't that just wage stagnation continuing?

CHALMERS:

No, wages growth is picking up, and it's picking up because we no longer have a government which treats wage stagnation as a deliberate design feature of their economic policy.

FERGUSON:

That's a line that we've heard from you before. I want to talk about what's in your Budget today. Again, you promised that wages were going to move. You've conceded that we don't know what's going to be happening a couple of years out.

CHALMERS:

Wages are already moving. Wages are already moving.

FERGUSON:

By a very, very tiny amount.

CHALMERS:

But in the right direction, in the right direction. We've had a decade away stagnation, wages growth is picking up. We've been upfront with people and said when inflation is expected to head into the high sevens, then obviously wages are not going to keep up with that. Our job is to do what we can on the inflation side, do what we can on the wages side. We've got a wages policy which is training people for higher wage opportunities. Child care so parents can work more and earn more if they want, investing in the right industries -

FERGUSON:

Those things aren't going to bring wages up to the degree that you promised.

CHALMERS:

- and reforming enterprise bargaining.

FERGUSON:

So, are people going to mark this down as a broken promise?

CHALMERS:

I don't think that they should. And it's up to people how they judge it. And I listen respectfully to the community. And, as you know, we care deeply about what people think about this Budget, of course, we do. But more important to us is to get the economic settings right. I'm really confident that we've lined up nicely the spending restraints side of the Budget, the cost-of-living relief, but just as importantly, the investment in a stronger economy, because this Budget is more than battening down the hatches. It's about backing in families; it's about building a better future. And I think we struck the right balance.

FERGUSON:

Although, as we agree, it's families and households who are really struggling under the current conditions. I just want to look at one other Labor promise, which was leaving the Morrison Government's tax cuts in place. And the reason I want to ask this is, why shouldn't Australians get some relief from the very large impact of bracket creep that's pushing people into higher tax brackets? Don't people deserve a break from that bracket creep?

CHALMERS:

Yes.

FERGUSON:

So, they stay in place, no question.

CHALMERS:

We've said repeatedly that there's a role for tax relief in our economy and those tax cuts that you're referring to kick in at $45,000 a year, and that's important to us.

FERGUSON:

So that's absolutely no tinkering with that.

CHALMERS:

We said it's important that people get some tax relief when the budget can afford it. Those tax cuts are legislated, and we haven't changed our plans.

FERGUSON:

Ok, I just want to talk about one other potential source of new revenue, to improve the existing - I always get this wrong - the PRRT. The Petroleum Resources Rent Tax. So, to be clear, it would be a way of getting more money from gas exporters, some gas exporters. Treasury is reviewing that system. Are you going to urge them that there is a compelling case to move much more quickly on that?

CHALMERS:

Well, let's see what they say. They began a process under the life of the former Government. I actually pay tribute to my predecessor for starting the thinking on this and they've got some of that work to finish. It was paused because of COVID, and they will finish that work at some point. And as always, I will listen respectfully to their advice. In the interim my priority in the gas market, which is absolutely smashing our local industry and especially our manufacturers. Madeleine King did a good job getting more supply. Now we need to focus on the code of conduct and on prices, and that's the work that I'm doing right now.

FERGUSON:

Does that mean that you're going to end up more in Ed Husic's camp, which is that those gas companies are, I think he called them "traitors and greedy".

CHALMERS:

I don't see it the way that people see it, that there's this dramatically different view in our Cabinet. We want to support local industry; we want to keep faith with our international partners and our export partners in particular. We need to strike the right balance here. But the energy market is not working right now for local industry or for Australians. Any responsible government looks at steps it could take to change that

FERGUSON:

We talked earlier about the multinational tax changes, and I think we agreed in the Budget papers, it's clear they net just under a billion. Essentially, you're taking baby steps on tax reform in this Budget, if I can put it like that. Will urgent tax reform be a priority in your next Budget?

CHALMERS:

We just handed down this one tonight and the work on the next one doesn't begin till tomorrow morning.

FERGUSON:

Yes, but presumably you've got that in your mind? Because this is just a first step Budget.

CHALMERS:

Look, we have taken some important steps, I think, on multinational tax reform, but also tax compliance and a couple of other and in a couple of other ways. But that's important, that's a start.

FERGUSON:

The question is, are you committed to tax reform? Are you looking for a summit or reform in the tax?

CHALMERS:

I think we should always be open to opportunities to make the budget more sustainable. But tax isn't the only way you can do that.

FERGUSON:

But are you interested in tax reform?

CHALMERS:

I'm interested in hearing all of the ideas from every corner of the community about how we can make our budget more sustainable. Taxes are part of that, but not the only part of it.

FERGUSON:

A little scar tissue left from when you were, the last Labor Party was last in government, but that's all we've got time for. Congratulations again on your first Budget. Thank you very much indeed.

CHALMERS:

Thanks for having me.