MONDAY, 16 DECEMBER 2019
SUBJECT: Mid-Year Economic and Financial Outlook.
TOM CONNELL, SKY NEWS: Jim Chalmers, the Shadow Treasurer, thanks for your time.
JIM CHALMERS, SHADOW TREASURER: G'day Tom.
CONNELL: You didn't sound all that positive before. I don't know if you've reflected since? On the cusp of back in the black, any credit there for the Government?
CHALMERS: The numbers haven't improved in the last couple of hours. The mid-year update is still defined by a whole series of downgrades to growth, to wages, unemployment is higher, business investment is much lower. All of the things that we've been warning about have unfortunately come to fruition. What we're seeing is a fair bit of economic weakness right across the board.
CONNELL: But after, what, 10 or 11 years, we're going to begin to pay down the debt again. Any credit for that?
CHALMERS: There's a whole range of factors which are supporting the Budget. The iron ore price is higher than it was forecast to be which is helping. The Government's leaving Australians with a disability in the lurch via the NDIS, there's Robodebt collecting hundreds of millions of dollars illegally, there's cuts to aged care. There's a whole range of factors which are propping up that surplus. We would prefer the Budget to be in surplus. It's a good thing in the abstract but I don't think the Government deserves a big pat on the back for it.
CONNELL: Just letting our viewers know, Marise Payne, the Foreign Minister, is in New Zealand. I think she's speaking at the moment with Jacinda Ardern. Obviously she said she's gone over there to offer her condolences in the wake of this tragedy. So we can see the Foreign Minister there talking to Jacinda Ardern. We'll bring an update of what's happening there later on in the program. You mentioned the iron ore price. The Government has taken a conservative approach with the price of that. That wasn't the case under Wayne Swan. I know the Government likes linking you back there. Would Labor continue this practice of a conservative price so that it doesn't disappoint and we don't end up with a hole in the Budget?
CHALMERS: You have to do your best to get an accurate read of things like commodity prices but not just that right across the Budget. Over the last couple of years iron ore prices have been higher than expected because of some problems with mines in Brazil and all the rest of it so they've been higher than forecast and that's been propping up the Budget. The job for the Treasury and for the Government of the day is to get it as right as they can. The Government's not got it right in the last couple of years and that's been to their advantage when it comes to the surplus.
CONNELL: When you talk about forecasts that's sort of two and three years. The established practice is that they go back to trend. That's just what happens. Is that still best fit?
CHALMERS: You have to do the best you can. That's the system that the Treasury is keen on.
CONNELL: What do you think, though?
CHALMERS: I don't have a proposal to change that.
CONNELL: You don't think they're continually rosy? Maybe there's a new norm around growth in particular? You look at global growth, it is sluggish. Do we need to look at things such as inflation and go, well are there new targets needed?
CHALMERS: Low wages growth has become the "new normal" and that's a point that the Reserve Bank has made. Our issue with the forecasts are in the near term. What you're talking about with those assumptions is generally in the third and fourth year. What we're talking about are wages and growth. They've got those things horribly wrong. They've actually got the wages forecast wrong 33 times in just over six years. The difference between what they said people would be earning and what they're actually earning for a full time average worker is $2,200. That's not about Treasury assumptions down the track. That's in the here and now. They've got it horribly wrong. What they've had to do today is eat a humble pie and say, "yes the economy is much weaker than we said it would be." Unemployment is higher, wages growth is weaker and business investment is worse. That's why they finish the year with a big "F" for "Fail" on the economy. They went to the election saying that they would make the economy much stronger and instead they made it much weaker.
CONNELL: On wages, what would Labor have done differently from the time of the election? We know there was a policy on penalty rates. Is there anything else that would have moved the needle?
CHALMERS: Penalty rates are very important. Taking away people's pay for working on weekends is part of the problem. There's issues around labour hire and the use of visas to undercut wages and conditions. There's a whole suite of things that we are proposing which would help to shift the needle. The main problem is that growth is now slower than it was at the election, slower than it was when Frydenberg and Morrison took over, slower than in 2013 when the Government changed hands. Because growth is so slow unemployment is higher than it needs to be and wages growth is lower than it needs to be. All of these problems are related.
CONNELL: It isn't the biggest thing if you're talking about wages, businesses. Do we need to aim things at businesses because we've just had the tax cuts aimed at individuals. They're not spending the money. Labor can talk about bringing forward the tax cuts but people are pocketing that money. Isn't the other obvious thing to aim at business?
CHALMERS: We support and have supported for some time a tax break for businesses who invest onshore. We think that that will be a real spur for investment. Business investment is the weakest it's been since the early 90s recession and there's an enormous downgrade in today's mid-year Budget update. That's a big problem that does need to be addressed. We've been calling on the Government to bring in a tax break for investment for some time. We took a policy to the election. We think the Government's heading down that path. They should have already moved in that direction.
CONNELL: What about just a straight company tax cut, because we're very high by international standards?
CHALMERS: I don't accept that. The problem with the tax cut that the Government had last term was that such a big proportion of it we wouldn't get bang-for-buck for. It would spread around overseas, find its way into executive bonuses, share buybacks, dividends and all those sorts of things which is a point that the Treasurer has now made himself about company tax cuts. We think you can get more bang for buck if you incentivise businesses to invest and that will have a positive impact.
CONNELL: When you say not high, the OECD average is 23.69 per cent. We're at 30.
CHALMERS: There's a whole range of different state and federal taxes in some of those countries that we're compared with. I don't accept that the tax burden on companies is unnecessarily high in terms of the headline rate, but I do think there's room to move when it comes to an investment incentive.
CONNELL: Even factoring those other countries though, could you point to similar countries to Australia with higher company tax rate?
CHALMERS: The Americans have higher company tax rates and they're supposed to be the heart of capitalism.
CONNELL: That's factoring in states -
CHALMERS: That's what I'm saying. Let's not get hung up on that. We are not the highest taxing company tax regime in the world. There are countries we compare ourselves to which have higher company taxes. There is capacity for us to do more in the business tax system. The best way to do that is to incentivise business investment. The Government will do that after spending some time saying that our idea was the wrong idea. They'll adopt a version of it in the May Budget.
CONNELL: The Government has again pointed to its cap - its "speed limit" it calls it - of 23.9 per cent tax to GDP ratio. Would Labor stick to that same limit?
CHALMERS: Our tax policy will be developed over the next two years. We're still at least two years from the next election. We did put an assumed cap on tax at the last election, but that's the last election. We'll do the right thing -
CHALMERS: We had a plan to repair the budget in a fair way.
CONNELL: There's a lot of talk since that lost election. I understand that you haven't put every policy in place -
CHALMERS: We're only seven months from the election, Tom. I don't think anyone expects -
CONNELL: No and I'm not saying you should. But this was the big lesson, apparently, don't be just tax and spend. Wouldn't that point to looking at your tax-to-GDP? Isn't that crucial to not being exactly that?
CHALMERS: We'll have a responsible set of tax policies. I'm not going to commit to a tax cap right now but I will make this point. The two highest taxing Governments in the history of Australia were both Liberals: the Howard Government and the Morrison Government.
CHALMERS: The Shorten Opposition didn't become a Government, right? Let's not let them off the hook here. They like to pretend that they're a low taxing regime. Morrison is the second highest taxing Prime Minister in the history of this country. All of this rubbish about how they're a low taxing Government, they're the second highest by Howard, also a Liberal Government. We'll do the right and responsible thing. We'll take our time and get our tax -
CONNELL: You'll set some sort of "speed limit" for yourselves, whatever that is going to be?
CHALMERS: When we make that decision, Tom -
CONNELL: You've got a big say in this though.
CHALMERS: Yes and we'll take our time to work through it. We'll carefully calibrate our tax policies, spending policies and investments in a way that gives Australia the best chance of growing the economy.
CONNELL: And just finally on debt. Labor says, well, hang on you've doubled the debt under your watch. What evidence do we have that the debt wouldn't be even bigger under Labor?
CHALMERS: It's a hypothetical seven years on, isn't it? One of the things that people are getting sick of is the Government in its seventh year and third term and they want to pretend that everything is Labor's fault. Most of the debt in the system is Liberal debt. Most of the debt in the Budget released today is Liberal debt. They've been accumulating it faster than Labor did and they still want to pretend that it's Labor's debt. People are sick of this finger pointing.
CONNELL: But if you look at a couple of aspects, just take 2016 for example. Your alternative plan over that period of Government 2016 to 2019 was for higher debt.
CHALMERS: That was two elections ago. Our policy at the last election in 2019, which you've conveniently skipped over would have had less debt.
CONNELL: We've only had a few months of that which is why I figure a full term is better compare to against.
CHALMERS: You're talking about policies taken to an election. These guys want to pretend it's all Labor debt. It's mostly Liberal debt and that's something that they should take responsibility for and be held accountable for.
CONNELL: If you take 2013, there's so much from the 2014 Budget. There were all these measures that Labor opposed which were either raising money or cutting. So again, that just points to we would have been in more debt under Labor?
CHALMERS: A big chunk of those were abandoned after the 2016 election so that analysis doesn't hold either.
CONNELL: Some of the banked money happened on health and education for example.
CHALMERS: Some of the changes we supported. Some of them we opposed. Some of them the Government abandoned. That's all a matter of history now. What's important now is that this Government doesn't have a plan to boost the economy. We've seen the cost of that for ordinary Australians who are paying for it in today's Budget numbers. My job is to get the policy right going forward and I intend to do that.
CONNELL: We appreciate your time as we very much near the political end. I'm sure you won't be too devastated about that. Enjoy the break. Talk next year.
CHALMERS: Merry Christmas.
CONNELL: Jim Chalmers, thank you.