ABC Afternoon Briefing 16/12/19

December 16, 2019



SUBJECT: Mid-Year Economic and Fiscal Outlook.

PATRICIA KARVELAS, ABC: You say the Government’s economic credentials are in tatters. Why do you think they are in tatters now?

JIM CHALMERS, SHADOW TREASURER: Well, they had to ‘fess up today, Patricia that growth is much slower, wages growth is weaker, business investment is dismal, unemployment is higher and I think for all of those reasons, the Government's credibility is in tatters. As you pointed out they went to the election promising an even stronger economy and instead the economy got even weaker.

KARVELAS: Well Jim Chalmers the Morrison Government is actually on track to deliver the first budget surplus in twelve years. Given the write downs to revenue and the obvious issue here, we're talking things like GST, drought and bushfires do you give them some credit for delivering still a surplus in those conditions?

CHALMERS: Well not really Patricia and I'll give you two reasons why. The first reason is that that surplus is largely propped up by things like underspending on the NDIS, treating people shabbily within the Robodebt system, not doing the right thing in aged care and high iron ore prices, which are nothing to do with the Government - so that's part of the story. Secondly the budget bottom line is weakening because the economy's weakening and the best example of that is that because wages growth has been so stagnant for so long. One of the big movers is we're collecting something like $7 billion less in personal income taxes. The weakness in the economy under Morrison and Frydenberg is flowing through to weakness in the budget as well.

KARVELAS: Should the Government abandon the surplus given the write downs that we're seeing here and the other calls you've made?

CHALMERS: I don't think so. It's possible for the Government to do something responsible, measured and proportionate without jeopardising that surplus that they've promised. We're not calling for the Government to throw the kitchen sink at this economic weakness. The economy is remarkably weak but it's not a crisis like it was 10 years ago. They should do something responsible in a way that doesn't jeopardise those four surpluses that they've promised.

KARVELAS: So you want those four surpluses but let's go through this. I want to know how you think it can be delivered because you've called for more spending on infrastructure, you've called for the bringing forward tax cuts, you've also called for a boost to Newstart and also business tax breaks. Can all of that list really be achieved at the same time, as you say, delivering those four budget surplus? Is that really realistic?

CHALMERS: The point that we've been making, Patricia, is that something needs to give. The economy has been too weak for too long and ordinary Australians are paying the price for it. What we've done is say to the Government, here are the sorts of policy areas that you should be thinking about, including those ones that you just ran through, but also the lack of a settled energy policy has been a handbrake on growth. The lack of a wages policy has also been a problem. We've said to the Government here are half a dozen or so areas that you should be focused on if you're serious about turning around an economy which is floundering on the Liberals’ watch. Unfortunately, they've just sat on their hands this whole time and what we see is the chickens have come home to roost in this Budget update in the form of weaker growth, weaker wages and higher unemployment.

KARVELAS: But I am interested to know, do you think all of those things you call for can be delivered and still a surplus can be achieved? I mean, it seems to me that wouldn't be possible. Can you explain to me how it would be?

CHALMERS: It would depend on the size of the infrastructure spend or the size of the Newstart increase, and we're not putting numbers on it Patricia. What we're doing instead is being very constructive and saying the economy is spluttering along and something needs to change. The Government should show leadership and come up with a plan. Here are some ideas that they should be considering. Even if they picked up and ran with one or two of those issues, that would be better than doing nothing, because doing nothing to this point has been a recipe for slowing growth, weak wages and higher unemployment.

KARVELAS: But you accept that if you did all of those things that you suggested, that might affect the Budget surplus prediction?

CHALMERS: It would depend on the magnitude of the spend Patricia. We're calling on the Government to do something responsible without jeopardising the surplus. Whether it's Labor, the Reserve Bank, the business community, the other peak business groups, whether it be respected economists, it's almost universal, the view is that we need to be doing more and that's what Labor's saying. It's up to the Government to come forward with a plan. Today they had an opportunity in this Budget update to have a comprehensive plan for the economy and they squibbed it again. What we've seen in these numbers is the inevitable consequence of a Government that hasn't put forward a plan for the economy. All we're doing is pointing them in the direction that they could go if they were serious about turning things around.

KARVELAS: Well, let’s go to your Newstart commitments. That would cost $12.5 billion according to the Government over four years if it was $75 a week. That would jeopardise the surplus wouldn't it?

CHALMERS: You are putting a number on it. We haven't put a number on it.

KARVELAS: Do you accept that $75 couldn't be achievable if you wanted to achieve a surplus?

CHALMERS: There is a menu of options including a responsible increase to Newstart. We've not nominated that $75 figure. That has come from elsewhere and the Government has costed up that number. All we've said is that if you're serious about getting consumption going again in the economy you should consider a responsible increase to Newstart because that would find its way into the economy. One of the weakest features of the economy right now is consumption and that's feeding through to retail and other areas. It's one of the options that we put forward but we haven't put that number on it. It's up to the Government to come to the table with a number and cost it up. If they don't want to do that to do something else which will boost the economy. The fact that they're doing nothing is part of the problem.

KARVELAS: But if Labor was in power would Newstart be your number one?

CHALMERS: We're not in power unfortunately, Patricia -

KARVELAS: I know but I’m interested in your alternative plan, which is obvious. That’s why I’m interviewing you. Do you think Newstart should be your number one ticket item?

CHALMERS: I'm not prepared to put a ranking on Patricia -

KARVELAS: Well why not? I just want to ask the question - clearly you've analysed what you think would be the most effective at kick-starting the economy or at least contributing. Do you think Newstart would be the most effective out of those options?

CHALMERS: Look, it would be among the most effective because the money that would go out in a responsible increase to Newstart would be entirely spent in the economy so that would be a good thing. We've said before, multiple times, that an increase in Newstart would be good for people, but also good for the economy, it would get more money circulating. But I'm not prepared to put a ranking on our priorities. Its seven months this week since the last election, there's around two years at least until the next election. We'll have a set of policies which do a much better job than the Government of getting this floundering economy moving again.

KARVELAS: The Finance Minister, Mathias Cormann, has defended the Government's wage growth forecasts, saying wages were still tracking above inflation and the Government's tax cuts had actually resulted in workers keeping more of their own money. Do you contest those things?

CHALMERS: The second point is self-evident. We supported those tax cuts through the Parliament for lower and middle income earners. When people get a tax cut there's more money in their pocket. That's self-evident. That's not a stunning revelation. Wages have been historically stagnant. This Government has the worst record on wages in history, such that the Reserve Bank said the low wages are now the “new normal” under this mob. Mathias Cormann's got much to brag about when it comes to wages growth. People are working really hard; they're not getting those wage increases. It's harder and harder to keep up with the skyrocketing cost of childcare, electricity, private health insurance and other things that families need to spend money on.

KARVELAS: Chris Richardson, the economist, says bringing forward tax cuts won't be effective because consumers are probably too nervous to spend. But Labor's been arguing they should be brought forward. Do you concede his point? Do you see the point he's making that may not actually help?

CHALMERS: I've been listening to Chris today and over the last couple of weeks. There is a confidence problem in the economy. By one measure, consumer confidence is down eight per cent this year, it's down six per cent since the election and 1.9 per cent last month. We've also got record household debt which the Government doesn't like to talk about. People are worried about that and that makes them more likely to try and pay down their credit card. Those are real issues and I think everybody was hoping for more bang for buck out of those tax cuts circulating around the economy. All of those things are true but I also think something has to give when it comes to additional stimulus in the economy so long as it's responsible and measured and proportionate. One of the options is to bring forward some of those tax cuts so that people have even more money in their pay packet and we give ourselves a chance of shifting that needle on growth.

KARVELAS: But if you're just saving it and we know that workers are likely to just save it , what's the point?

CHALMERS: It's not clear whether they would save part of stage two if the tax cuts were brought forward. It's not clear that they would be saved to the same extent that stage one was. I think it is true that stage one of the tax cuts have underperformed. We were all hoping for better out of that when we supported them through the Parliament. It's not necessarily a bad thing for people to pay down their record household debt. We can't continue to go on like this without a plan from the Government. That's one of the options that they could consider. If they've got a better idea Patricia, they should bring it to the table and implement it.

KARVELAS: Oh, look, of course, if I was interviewing the Finance Minister you know I'd be asking those questions of the Treasurer. On the tax cuts, on bringing it forward, has Labor costed how much it would cost the budget to bring them forward?

CHALMERS: It depends how much of stage two you bring forward.

KARVELAS: Well have you costed it?

CHALMERS: Well, it's not for us to cost, Patricia.

KARVELAS: If the Opposition is saying it should happen, shouldn't you know what impact it would have on the Budget?

CHALMERS: We’re calling for the Government to consider it. We're calling for the Government to have a comprehensive plan for the economy and that could be part of it. If they came to the table with that as one of the options they would cost it. All of these things are scalable. You can bring forward as much or as little tax cuts as you want. It’s the same with the amount on Newstart, with infrastructure, and business investment tax breaks. There's not a number that's set in stone. We have said before that if the Government did something constructive to boost the economy on tax, Newstart, infrastructure or business tax, if it was a good idea that we'd support it. It's not for us to cost the Government's alternative policies. It's for us to make suggestions about what could happen, what would be useful, and to point out where the Government has fallen short of their own promises. One of their promises was that the economy would get even stronger and we know today that it's gotten even weaker.

KARVELAS: So just to be clear, you think just part of stage two could be brought forward; it doesn't have to be the whole stage two?

CHALMERS: We've said that all along, Patricia we've said that for some months.

KARVELAS: Just to check on another thing before I let you go. The Government has now some savings as it's called in the Budget. One of them is $196 million or something around that range over four years, to combat illegal Phoenix activity. There's also a public service efficiency dividend of $1.5 billion. Are they measures Labor supports?

CHALMERS: Look, we support action on phoenixing. We've proposed stronger measures but to the extent that something should be done about phoenixing of course that's something we look favourably on. We're not sure if the Government's got it exactly right but that's an issue that needs addressing. The efficiency dividend is something that the Government announced at five minutes to midnight in the election campaign when they weren't expecting to have to implement it. It's another efficiency dividend from the Government. They're not known for treating the public service as an asset. They always treat the public service as a cost and this is more of the same.

KARVELAS: Jim Chalmers thanks so much for coming on.

CHALMERS: Thank you, Patricia.