ABC RADIO NATIONAL BREAKFAST
TUESDAY, 17 DECEMBER 2019
SUBJECTS: Mid-Year Economic and Fiscal Outlook; Julian Assange.
CATHY VAN EXTEL, ABC RADIO NATIONAL BREAKFAST: The Treasurer remains unfazed by a revenue write down of more than $22 billion over the next four years and downgraded forecasts for wages, employment and economic growth. Jim Chalmers is the Shadow Treasurer and he joins us this morning from the Parliament House studio. Welcome back to Breakfast.
JIM CHALMERS, SHADOW TREASURER: Thanks very much, Cathy.
VAN EXTEL: The Budget is back in balance. By May it will be back in surplus. This will be achieved without the need to raise any taxes. How can you then be saying that the budget update has destroyed the Government's economic credibility?
CHALMERS: The Budget update was a shocker in lots of ways, Cathy. It said that unemployment will be higher, economic growth will be slower, wages growth will be weaker, business investment will be even weaker than that. For all of those reasons it was a very troubling economic update. As you rightly pointed out in your introduction the surpluses are smaller because the economy is much weaker.
VAN EXTEL: Do you give the Government any credit at all for achieving what hasn't been done in 12 years and that is a surplus?
CHALMERS: The surplus will be built on the back of denying people with a disability the care that they were promised and deserve. It will be built on the back of not doing the right thing in the aged care system…
VAN EXTEL: I think it's primarily much stronger iron ore prices, isn't it?
CHALMERS: I was just getting to that, Cathy. It's built on denying people services and it's also built on much stronger iron ore prices which is not something that the Government is responsible for. The government doesn't deserve a pat on the back. On the contrary, the fact that the economy has got much weaker since the election is a reflection that they haven't got a plan to support the economy and ordinary Australians are paying the price for that.
VAN EXTEL: Well, you say the iron ore price isn't in the Government's control. There were a lot of other things that also were outside the Government's control, the US-China trade war, the global slowdown, even the drought which has shaved a quarter of a percentage point off GDP. Should it be a surprise that this year the surplus has been downgraded to five billion?
CHALMERS: As the Reserve Bank and others have pointed out, Cathy, our challenges in the economy are principally home-grown challenges. Even in yesterday's Budget figures the write down for the US and China was quite small but the write down for economic growth for Australia was quite large. It's not principally an issue around those global tensions. They matter but they're not the main reason why the economy's slowing. Same with the drought. The drought is a devastating drought for a lot of people but in the numbers released yesterday for this year it will only impact on the economy by something like 0.1 per cent. The reason the economy is slowing is because there's no plan to support people and their consumption. Retail is very weak, wages are historically weak and for all of those reasons the economy is floundering. Those things aren't happening because of what's happening overseas.
VAN EXTEL: One thing we've seen is a change in language from the Government. The MYEFO revealed that the Government's abandoned its long-held promise to deliver a surplus of at least one per cent of GDP, quote, ‘as soon as possible’. They're now saying when economic circumstances permit. Given the further downgrade in economic growth to 2.25 per cent, when do you see the Budget in stronger, more sustainable surplus?
CHALMERS: Not in the foreseeable future, Cathy. Not in the next few years according to the Budget numbers that were released. You're right that they did change their Budget strategy without really telling anyone. It was a bit sneaky how they went about it. The other thing that they didn't 'fess up to until they were asked about it was that they're no longer paying off debt over the next 10 years which was the other big change in the Budget papers. What that reflects is that most of the debt in the system now is actually Liberal debt. In the last six years it's more than doubled. They've got a big problem in the Budget, debt is not even being paid off in the next 10 years which is another change that they had to 'fess up to.
VAN EXTEL: Doesn't this shift, though, mean that the Government is giving itself a bit more wriggle room if it has to spend money to stimulate the economy which is the concern that many have?
CHALMERS: We think that they should change strategy. We've been saying for some time, as has the Reserve Bank, the business community, the credible economists, that whatever the Government is doing now, or not doing now, is not working. The economy has slowed substantially since the Government promised to make the economy ‘even stronger’ at the election. It's gotten even weaker. We think that there is room for some responsible, proportionate and measured stimulus in the economy. We are in the mainstream view when it comes to that. The Government should be doing that. There should have been doing that already. Yesterday was a bit of a missed opportunity to change course and do something to support workers and pensioners in the economy.
VAN EXTEL: What about tax cuts? Would you expect that there's a chance now that the second round of tax cuts, I think they're worth about $6 billion, due in 2022-23 may no longer be affordable?
CHALMERS: The Government will be looking at whether or not they can bring those forward in the Budget. They've been a bit coy about that when they've been asked about it. I think those tax cuts will happen. I think they'll also be looking at whether or not there can be a tax break for business investment which is something that we've been proposing for some time as well. The point that we've been making is that the economy has been floundering for months now. There should be a plan already. Yesterday didn't have a plan in it. There wasn't a comprehensive plan in the Budget update yesterday to turn the economy around. For as long as the Government sits on its hands the economy will continue to struggle.
VAN EXTEL: Wages growth has been pared back again, now expected only to grow by 2.5 per cent this year and next year. That's still above the forecast inflation rate, though. So does that mean that households are still ahead ultimately?
CHALMERS: If any of your listeners who are listening now, Cathy, I think if you said to them that they're going really well in the wages system they would dispute that. The reason is people are facing historically stagnant wages. The Reserve Bank has started describing low wages growth as the "new normal". Their words, not mine. People are facing stagnant wages growth. What it means is that no matter how hard they work they feel like they just can't get ahead, let alone get by, because you've got those big price spikes in things like childcare, electricity, private health insurance and those sorts of things. So it's harder and harder for people to make ends meet.
VAN EXTEL: According to Treasury, there won't be pressure for wage rises until unemployment falls to five per cent, but it's forecasting an unemployment rate of just a bit higher, 5.25 percent. Doesn't that at least put us within striking distance of the point where there will be pressure to lift wages?
CHALMERS: On the contrary, Cathy. Those numbers yesterday were actually revised up. They're expecting worse outcomes for unemployment now than they were when the Budget was released in April. They're actually heading in the wrong direction. Rising unemployment is really one of the most important take-outs of yesterday's numbers. The wages number has been revised down, growth has been revised down, business investment has been revised down. Right across the board there are a lot of troubling write downs which reflect an economy which has gotten weaker since the election.
VAN EXTEL: Without any extra stimulus in MYEFO, does that mean that another interest rate cut in February is inevitable?
CHALMERS: I wouldn't say inevitable and I don't like to get into predicting what the Reserve Bank will do but certainly the market expects the Reserve Bank to cut rates again. What that will show is that the Government not doing anything means that the Reserve Bank has to do all the heavy lifting. They've already got interest rates at record lows, the lowest they've ever been, a quarter of what they were during the Global Financial Crisis. That's not great for savers. It's puffing up house prices and asset prices but not necessarily giving the rest of the economy the boost it needs and that's a bit troubling too.
VAN EXTEL: Could we get to the point where the Reserve Bank will have to look at quantitative easing, buying government bonds?
CHALMERS: They've flagged that they've done the work and they've put the thinking into that but it's pretty clear that they would rather not go down that path. They've made it abundantly clear for some time now that they really want the Government to do its bit, which is our point and the same point that the business community is making all through the newspapers today after yesterday's disappointing figures. Ideally the Government would come to the table and they'd have a responsible plan to boost the economy. That would mean that the Reserve Bank wouldn't have to contemplate some of these more extreme measures.
VAN EXTEL: On business, one of the biggest downward revisions was for business investment. It's been marked down from five per cent to just 1.5 per cent in this financial year. Is there a case for tax cuts or other incentives to get business moving again?
CHALMERS: I think there's a case for incentives for business. Something in the tax system, which incentivises businesses who invest onshore in Australia would be appropriate. We had a policy for that that we took to the last election. We're pretty sure the Government is looking at doing something, but they're dragging their feet a bit. We'd prefer that that would have been in place already by now because business investment is actually the lowest it's been since the early 90s recession. It's one of the most troubling features of the economy under this under this Liberal Government. Something needs to be done because unless…
VAN EXTEL: What needs to be done? What would you do?
CHALMERS: There are lots of ideas on the table. One of them would be to give businesses a tax break when they invest in capital onshore here, which is a form of accelerated depreciation, in the tax jargon. We're pretty sure that that would incentivise and encourage businesses to invest. When businesses invest you give yourself a chance of growing the economy and creating jobs and when you do that you get some upward pressure on wages again which is a really important objective.
VAN EXTEL: You talked about the need to lift payments in welfare, particularly around Newstart. What is Labor willing to commit in terms of a rise with Newstart? I saw you yesterday ruling out or failing to commit to $75 a week increase.
CHALMERS: The point we're making there, Cathy, which I think is pretty reasonable, is to say that we're seven months from the last election, we're at least a couple of years from the next one. If we make a commitment in that area we'll take our time to get it right, cost it up and measure it against our other priorities. Unfortunately we won't be the Government for at least two more years. People on Newstart are doing it incredibly tough. There hasn't been a real increase for a long time now, I think about a quarter of a century from memory. If the Government did come to the table and do a responsible increase to Newstart, that would be good for the people but it would also be good for the economy because all of that would be spent in the economy so it would be quite an effective stimulus.
VAN EXTEL: Just very briefly on another matter, there are calls by medicos for Australia to do more to bring Julian Assange back to Australia because there are concerns about his health. Do you support those calls?
CHALMERS: I might leave that for others to judge and to comment on, Cathy. I have seen those reports this morning. It's obviously a very fraught area. We want to see Mr Assange treated in a humane way and in a way that respects international law. But for the ins and outs of that, I'll leave that for others.
VAN EXTEL: Jim Chalmers, thank you for your time today.
CHALMERS: Thank you, Cathy. Merry Christmas.