Source: Australian Treasurer
STEVE CANNANE:
With interest rates not budging and the Reserve Bank Governor remaining cautious about the sticky inflation figures, the federal government has been eager to find some good economic news, and today, no doubt, they’ll be talking up the Final Budget Outcome for last financial year, which confirms the government has delivered the first back‑to‑back budget surpluses in almost 2 decades, with a surplus of $15.8 billion, which is higher than expected.
The latest update comes as the federal Treasurer Jim Chalmers has returned from Beijing where he co‑chaired the Australia‑China Strategic Economic Dialogue, and he joins us now. Treasurer, thanks for coming on.
JIM CHALMERS:
Thanks for the opportunity, Steve. How are you?
CANNANE:
I’m very well, thanks. We’ll come to the economy and your trip to China in a moment. But, first, we have seen an escalation over the weekend in the Middle East with attacks from Israel on targets in Lebanon and now Yemen. How concerned are you and the government about a broader regional conflict breaking out in the Middle East?
CHALMERS:
Very concerned. We don’t for one second mourn the death of a leader of a terrorist organisation, but we do mourn the deaths of innocent victims, and too many innocent lives have been lost already. That’s why we need a ceasefire so that the senseless killing of families stops.
Our primary concern here is the human cost, but obviously a broader regional war, the escalation of this very troubling regional conflict, will have economic consequences as well.
CANNANE:
You are just back from China, and China has a series of economic challenges – the housing market is slumping, property developers have been going bust. It seems like the country may not meet its economic growth targets of 5 per cent. Did you see any evidence while you were there that they have got a sensible plan on how to deal with those problems?
CHALMERS:
Yes, I did. There couldn’t have been a more important time for us to restart our Strategic Economic Dialogue with China. It’s a really important part of stabilising the relationship, which is full of complexity and full of economic opportunity.
While I was there the Chinese authorities announced some quite substantial steps when it comes to supporting growth in the Chinese economy. We’ve made it really clear that weakness in the Chinese economy has been a big concern for us. It’s a big part of the global economic uncertainty that we’re dealing with. The government’s efforts to support more economic activity in the Chinese economy, they are good for Australia and they’re very welcome.
CANNANE:
Steelmakers have been struggling in China. What impact will that continue to have on iron ore prices and the budget bottom line in Australia?
CHALMERS:
Already in the course of last week there were 2 key days – Tuesday and Thursday – and through the course of the week the iron ore price recovered a little bit, not a lot, but it recovered a little bit. That is a sign of the very positive response to the announcements made by the Chinese government, the Chinese authorities.
They’ve got issues in the property sector which they are trying to address and trying to deal with. There are obviously issues with consumption, and so these efforts that they’re putting in to boost their economy, to support more activity in the economy, it’s a good thing for Australia.
If you look at our Treasury forecasts in the Budget, we’re anticipating the weakest few years of Chinese growth really since that economy opened up in the late 1970s. That’s been a big concern for us. We’ve been upfront about that. Any efforts to try to turn that around in China is a good thing for us.
CANNANE:
We haven’t heard any announcements on the lifting of trade restrictions on Australian lobsters. Why is China being so stubborn around that export market?
CHALMERS:
A little bit more work to do, but we shouldn’t forget that of the $21 billion in trade restrictions, about $20 billion of those have been lifted because of the good work of the PM, Trade Minister Farrell and Foreign Minister Wong. Most of those trade restrictions have been lifted. That’s a good thing. We’ve got a bit more work to do on lobster, but I was able to convey directly to Chinese leaders that we want to see the speedy resolution of those issues.
CANNANE:
So why are they being stubborn on that particular market?
CHALMERS:
I wouldn’t necessarily describe it in that way. They’ve said –
CANNANE:
Except that you believe in free trade, so –
CHALMERS:
That’s why I welcome the fact that 20 of the $21 billion in restrictions have been lifted already. I want to see these trade restrictions lifted on lobster, no question about it. I conveyed that very directly to the Chinese leaders that I met with. There’s a little bit more work that our agencies are doing, our agriculture and trade authorities on both sides of the equation are working to try to get those last remaining restrictions lifted.
CANNANE:
Let’s move on to the Final Budget Outcome. In May you were predicting a budget surplus of $9.3 billion. The Final Budget Outcome for ’23–4 turned out to be a larger surplus of $15.8 billion. Why the difference?
CHALMERS:
The difference was explained entirely by less spending, not more revenue. We actually collected less revenue than we were anticipating at budget time, but spending was substantially down, and that’s what explains the bigger surplus that Katy Gallagher and I are releasing today.
These 2 surpluses are an important demonstration of the responsible economic management which is a defining feature of our Albanese Labor government. These will be the first consecutive surpluses in almost 2 decades. In dollar terms we’re talking about the biggest budget improvement ever in a parliamentary term, and that’s because we’ve turned 2 very big Liberal deficits into 2 big Labor surpluses, and that’s a good thing.
CANNANE:
You said less spending. So what decisions have you made since May that have reduced spending?
CHALMERS:
There are a whole range of contributors to that lower spending figure. A large amount of it is demand‑driven programs. But what we’ve also shown over the course of our two‑and‑a‑bit years in government is we found almost $80 billion in savings.
The key to these 2 surpluses is the fact that when we’ve got upward revisions to revenue because the labour market has been a bit stronger or our exports have been performing well, we’ve banked almost all of those upward revisions to revenue. If we hadn’t shown that spending restraint we wouldn’t be anywhere near these 2 consecutive surpluses for the first time in almost 2 decades.
CANNANE:
So, is it just underspending by certain government departments, or is it actual decisions that you’ve made since May to reduce spending?
CHALMERS:
The $80 billion in savings are decisions. The spending restraint is a decision. A substantial amount of the improvement since May is in demand‑driven programs. There is some underspending, and we detail that when we release all of the figures today.
CANNANE:
And to what degree is it as a result of higher than expected commodity prices? Because in that May Budget you did low ball the commodity prices estimates, didn’t you?
CHALMERS:
We always take a deliberately conservative approach to commodity prices, and that’s been warranted. In fact, in the last few months our commodity prices have been quite low. Sometimes they’ve actually been below the assumptions that we’ve put in the Budget.
The improvement from our expectations of a surplus in May to the Final Budget Outcome that we’re reporting today is not about more revenue, it’s not about higher commodity prices, it’s not about more taxes. It’s about less spending. Our revenue has actually gone down from what we expected in May.
CANNANE:
So when you talk about these demand‑driven savings, are you talking about, for example, fewer welfare payments because employment is so strong? The unemployment rate is very low at the moment?
CHALMERS:
The unemployment rate has ticked up a bit since the middle of last year, but broadly, as we’ve expected, the economy is creating a lot of jobs.
That’s a good prompt to remember that these 2 surpluses today are really important. They mean that there’s less debt and less interest to repay on that debt. But it’s part of a bigger story of progress that Australia has made in the last couple of years.
We’ve created in this parliamentary term around a million jobs, inflation has halved, real wages are growing again, we’ve got tax cuts flowing to every taxpayer. These are all good developments, and we know that people are still doing it tough but the fact that we’re making progress, cleaning up the budget, providing cost‑of‑living relief, investing in housing and skills and energy and a Future Made in Australia, all of this together justifies the responsible approach that we are taking to the budget and to the economy.
CANNANE:
Okay. Let’s talk about the forecast for next year. There’s a forecast for a deficit of $28.3 billion. Is there any readjustment, and will you be trying to make that closer to a surplus to put more downward pressure on inflation and interest rates?
CHALMERS:
The numbers we’re releasing today are for the last year, not for the year that we’re in right now. We’ll update this year’s figure in the mid‑year budget update toward the end of the year in the usual way.
But already this $28 billion deficit we’ve got currently for this year, that’s about $19 billion better than what it was expected to be when we came to office. It was a $47 billion deficit when we came to office. It’s now a $28 billion deficit, so even where –
CANNANE:
But those figures were based on coming out of a pandemic. So is that the kind of baseline you should be measuring yourself against?
CHALMERS:
Every government measures itself compared to what it inherited from its predecessors. We’ve made really quite extraordinary progress on the budget when it comes to cleaning up –
CANNANE:
But a pandemic is a once‑in‑a‑lifetime event. It’s not necessarily the fault of a previous government.
CHALMERS:
No, but for the year that we’re talking about, Steve, they’re talking about the forecasts for the post‑pandemic period. The year that we’re in now was not anticipated by our predecessors or by us to be impacted by the pandemic, which was at its worst a few years ago.
We are talking here about a $172 billion improvement in just 2 years in the budget. That’s because we’ve shown spending restraint. We’ve banked upward revisions to revenue. We’ve found $80 billion in savings. We’ve taken the right economic decisions for the right economic reasons. Today’s Final Budget Outcome is a demonstration of that.
CANNANE:
Treasurer, can you just clear it up who asked for the Treasury advice on changes to negative gearing and capital gains tax and the policy implications of that?
CHALMERS:
As I made clear last week in Brisbane and then later in the week in Beijing, it’s not unusual for people in my job as treasurer to get advice on contentious issues. And I think –
CANNANE:
So you asked for it?
CHALMERS:
I get advice all the time on all the various issues in the economy, including negative gearing. That’s not especially unusual. I’ve said that already. I said that on Wednesday in Brisbane, said it on Friday in Beijing, saying it to you on Radio National Breakfast.
CANNANE:
But you’re not answering the question about whether you asked for that advice.
CHALMERS:
Sometimes the advice comes unprompted. Sometimes it’s sought by me.
On this occasion, when there’s a contentious issue in the public domain and we’ve got a severe shortage of housing, of course treasurers get advice from their department on these sorts of issues. That’s what’s happened here. But as we’ve made very clear, Steve –
CANNANE:
So should we all assume that you did ask for it, then?
CHALMERS:
I get advised on it all the time. Sometimes it’s sought by me. Sometimes it’s provided in the course of things like the Tax Expenditure Statement that we release every year. But what I’m trying to convey to your listeners, Steve, is that this is not an unusual thing. This is a treasurer doing his job.
We’ve made it really clear that we’ve got a housing policy already, and this isn’t part of it.
CANNANE:
So why is it a state secret about whether you asked for that advice or not?
CHALMERS:
It’s not. I’ve made it clear on a number of occasions now in the course of the best part of a week that I got this advice because it was a contentious issue, it was in the public domain and it was a big part of the parliamentary debate as well.
CANNANE:
Okay. Treasurer, we thank you for your time this morning.
CHALMERS:
Thanks for your time, Steve. All the best.
CANNANE:
Thanks a lot. Jim Chalmers, the Treasurer, talking to us there on Radio National Breakfast.
MIL OSI News –