CANBERRA, ACT, May 4 -- The Treasurer of Australia issued the following transcript:
Note
Joint press conference with
Senator the Hon Katy Gallagher
Minister for Finance
Minister for the Public Service
Minister for Government Services
Subjects: upcoming Budget, savings, tax reform, child care, migration, APS staffing, off-budget measures, inflation, tobacco excise, fuel excise and cost-of-living relief
Jim Chalmers:
We want to focus on the Budget today, but we know that the Budget's not the only show in town. We've got a very welcome and a very important visitor in Prime Minister Takaichi of Japan. This is an absolutely crucial relationship at all times, but especially in uncertain times like these. It's a relationship of vast mutual economic benefit. We look forward to the discussions being led by Prime Ministers Albanese and Takaichi in the Cabinet Room later today. I've had a couple of really valued opportunities to meet with Finance Minister Katayama in Washington, D.C., on a couple of occasions since this newish government was sworn in. We are very excited to have Prime Minister Takaichi here today. It's a very welcome visit by a very important partner of Australia, and we look forward to those discussions.
A year ago today, we put productivity at the very core of our second term in office, and it will be a core part of the Budget as well. This will be a really responsible budget focused on resilience and reform. There will be a productivity package, there will be a tax reform package, and there will also be a very substantial savings package as well. We want to talk to you today about our approach to savings in the Budget.
The election began a year of delivery and the Budget will begin a year of more ambitious reform. Reform which is made more, not less urgent, by global inflation and global economic uncertainty. The Budget will be calibrated for the conditions, but it will also still be consistent with our ambitions. As you've seen in the year since the election, at the reform roundtable and subsequently, some of the themes of the Budget will be very familiar to you.
We've still got a fair bit of work to do this week, but the Budget is coming together pretty well. You've seen that we've got some major pieces out there already. Our defence policy is out there. The $1.8billion for Urgent Care Clinics. The $25billion hospitals agreement with the states and territories. The aged care policy is out there. Our approach to the NDIS is out there, and also the fuel tax cut as well. So, even though a number of the Budget components are still landing with a bit over a week to go, there's also some very substantial pieces already out there in the public domain: defence, urgent care, hospitals, aged care, the NDIS, fuel tax cut and other policies as well.
Now, we do have some major pressures coming at us from the PBS, from indexation, from natural disasters and from higher yields on debt. All of that together adds up to tens of billions of dollars in pressures. In some years you will see in the Budget that revenue is down because of slower growth as well as a higher exchange rate. In some years revenue will be up a bit less than what has been speculated about, but in some years revenue will go down, and that's because of implications of what we're seeing right now in the forecasts for growth, the forecast for employment growth, but also the higher exchange rate as well, which plays out in our revenue expectations.
We've got a big job to make room for the pressures and the priorities in the Budget, and Katy will speak a bit more about that in a second. There is a big emphasis in this Budget on budget sustainability, and that does mean more savings. Responsible economic management has been a hallmark of this government and this Budget will be our most responsible budget yet. There will be more savings, there will be more spending restraint, we will save more than we spend and we will bank the upward revisions to revenue as well. We did this in December in the Mid‑Year Update, and we will do it again in May.
The final point I want to make before I hand you over to Katy is that I understand and I appreciate that there is a lot of interest in tax reform in this Budget. That's welcome from my point of view. But what you will see in the Budget is, in gross terms, there will be more dollars in savings than dollars in revenue upgrades. There will also be more dollars in savings than dollars in tax reform. The point that I'm making there is that savings and spending restraint is doing a lot of the heavy lifting in the very responsible Budget that Katy and I will hand down 8days from now. Thanks, Katy.
Katy Gallagher:
Thanks, Jim. So, on the expenditure side, this Budget is a story about restraint and responsible savings. In the May Budget, we will include bigger‑than‑usual gross savings than in previous updates. It will build on the $114billion delivered to date. And as Jim said, it will be the second economic update in a row that the government has saved more than we have spent, despite those pressures that you all understand coming at us.
It is the result of a significant effort across the entire ministry to identify savings and it will include savings and reprioritisations in every portfolio. We've already announced 2 significant structural saves: the NDIS savings that Minister Butler has taken you through and the private health insurance rebate.
The Budget will also include $2.7billion in savings in 2029-30 from reduced spending on external labour and non‑wage spending like travel and property hospitality across the APS. This is essentially extending the existing savings measure we have put in place in previous budgets. And it will also have significant savings from unallocated funding across a number of departments. It will also include reprioritisation within defence, which the Deputy Prime Minister has taken you through, and also an effort around reducing fraud and non‑compliance across MBS and PBS.
And so just I guess the message I'm saying there is, and I've been asked this in the last few days, is there will be savings across every portfolio. We've looked everywhere for savings. Ministers have worked really hard to support the effort that the ERC has undertaken in regard to this, and I think it's a very strong result in the end. As Jim said, the pressures are coming at us, which we've had to also manage and find that right balance. But there is significant spending on hospitals, on PBS, on payments, natural disaster recovery payments, things like that that we've also had to find room for.
Chalmers:
Thanks, Katy. We'll start with Katina and work our way across the front.
Journalist:
Thanks, Treasurer. The Prime Minister said in a couple of interviews over the weekend that ambitions around childcare are basically on the back burner for now. Is that more to do with the state of the Budget or that the childcare system isn't yet ready to pump that extra money into it?
Chalmers:
Well, we've taken some very substantial steps already when it comes to the reform of early childhood education and care, probably more than any other government when it comes to affordability and access and recognising that early childhood education and care is more than childcare, it's more than babysitting. We have substantially reoriented the way that this country thinks about early education, and we're very proud of that. From the Prime Minister right down, there is an appetite to do more in that regard when we can afford to do so.
In recognising that it will take time to get to a system which is more universal, we shouldn't lightly dismiss the steps that we have already taken. I think that 3‑day guarantee, for example, is really important. I know from my own community, and Katy would be in the same boat here, that 3‑day guarantee is a really important step towards a more universal system. It does recognise that we're talking here about education and not babysitting. It recognises that for a lot of kids, they're too easily excluded from early education. We know that the kids who have access to early education often do better when they get into the early years of primary school as well.
We're proud of the ambitious steps that we have already taken. We're always looking to do more where we can and where we can afford to. And as always, we have to calibrate our ambitions to the budget realities that we confront.
Journalist:
Thanks, Treasurer. You mentioned before that the Budget will include a downside scenario for the economy, given developments overseas. With the downside scenario, what are some of the implications in it for revenue and also the savings you expect to find?
Chalmers:
What we intend to do in the Budget, and we're working through this scenario with our departments, is to provide the central case in the usual way. Our forecast, for example, for inflation will be a bit higher. Our forecast for growth will be a bit lower. We've said that on a number of occasions in this room and elsewhere, but we will also provide some commentary, some separate commentary, which gives you a better sense of the downside scenario.
Obviously, in a world where global oil prices, global inflation, global volatility extends for longer, then that will have more serious consequences for our economy. The consequences of what we're seeing in the Middle East for the Australian economy and for Australians is already serious and it risks becoming severe. We'll do our best to try and explain and detail what a more severe scenario looks like in the Budget. Obviously, that has consequences for inflation, for growth and for revenue too.
Journalist:
Treasurer, on what you've said there, that there'll be more dollars in savings than there will be in tax reform, does that mean that you're looking at more tax cuts above what you've already announced?
Chalmers:
Well, the point that I'm making there is, as the usual budget speculation continues over the course of the next week and a bit, what we've tried to do is to give you a sense today of how seriously we are approaching the savings task. The numbers are still bouncing around a bit. Obviously, the numbers will settle over the course of the week but currently, in gross terms - in dollar terms - there's more savings than there are in tax reforms in terms of the gross impact on the Budget.
Similarly, because there's always a temptation to write that the revenue upgrades will be bigger than what we will forecast in the Budget, the savings - the gross savings in dollar terms - are bigger than the revenue upgrades as well, as we currently see the numbers. The point I'm trying to convey to you there is that this is an extraordinarily responsible Budget, and so much of the heavy lifting here is being done by savings and reprioritisations to make room for those pressures, to make room for those priorities, and still to deliver a net save at the end of the day.
Journalist:
So, there could be more tax cuts coming?
Chalmers:
We've already got tax cuts coming. We've got a tax cut coming on 1July, another one coming on 1July next year, a big part of the Budget will be the more than $2.5billion we're spending on the fuel tax cut, and we've got the standard deduction coming as well. So, I've seen some speculation about tax cuts. I would just remind everyone that this is a government cutting taxes, cutting income taxes. We've done it once, we'll do it 2 more times, and the standard deduction will provide a bit of additional tax relief as well. That's already in the system.
Journalist:
Australians are still feeling the pinch of the cost of living. Are we expecting any more targeted relief to be delivered for people beyond the cut to the fuel excise?
Chalmers:
Well, cost-of-living relief is on the way in the form of 2 more tax cuts and the instant tax deduction, which will provide some extra tax relief as well. In addition to, as you rightly point out in your question, the government's efforts to cut fuel taxes as well, we're seeing a very welcome moderation in petrol prices. A big part of that is our fuel tax cut, but also the fuel cycle as well. Obviously, as the barrel price has crept up in the course of the last week or so, we'll see that flow through at the bowser as well.
But there is cost-of-living relief in the Budget in the form of a fuel tax cut, 2 more income tax cuts, and a standard deduction as well. That's in addition to all the other ways that the government is helping with the cost of living. We announced yesterday an extra $1.8billion for Urgent Care Clinics, because we know that more bulk billing in suburbs and in local communities means less cost of living pressure on families. Really, right across the board, the government is very focused on this inflation challenge, very focused on cost of living pressures being faced by people right around the country. The Budget will respond to that in the ways that I have outlined.
Now, Australians are already paying a very hefty price for this war in the Middle East. We had some inflationary pressures in our economy before the war. The war has turbocharged those inflationary pressures. That's one of the reasons why the Budget must be, and will be, so responsible.
Journalist:
On the political philosophy of the Budget, the intergenerational crisis which you say needs to be addressed and we anticipate will be addressed next week, Tuesday, existed and was well ventilated long before the last election. Yet none of the measures we anticipate we're going to see in the Budget on property taxes, for example, were flagged before the election. In fact, negative gearing was ruled out. What happened to integrity in budgets and in government? Is it your thought that if something's popular you don't have to get it, you don't have to promise it before an election, that that outweighs going to an election saying what you are and what you're not going to do?
Chalmers:
Well, a couple of things about that, Phil. First of all, I think the best way to build trust is to make the right decisions for the right reasons. There are genuine intergenerational concerns and pressures in our Budget, in our tax system, in our housing market and in our economy more broadly. I thought the Prime Minister put this well in some of those interviews that we saw over the weekend. A government like ours, a responsible government, cannot ignore the very real pressures and concerns that people have in our communities.
What we've tried to make clear, if you go back all the way back to those 2 Press Club speeches that the Prime Minister and I gave soon after the last election, we made it really clear the overwhelming priority is delivery. It has been a year of delivery, delivering Urgent Care Clinics and the like, all of those things that we committed to at the election. But that is not the limit of our ambition. Delivering those commitments is the foundation of what we want to achieve, not the destination of what we want to achieve. As these pressures have been building, obviously we calibrate our budgets to the conditions that we confront. I think the intergenerational pressures are really serious.
We recognise and respect the really big contribution that older Australians have made and continue to make to our country and to our economy. But a lot of Australians, and particularly younger Australians, are finding it really difficult to get into the housing market. That's not the fault of older Australians. It's the fault of successive Coalition governments who didn't take housing seriously enough. What we are thinking through as we finalise this Budget is not about, and never will be about, setting some Australians against other Australians. It's about recognising some of these legitimate intergenerational concerns which, in my experience, are often shared by older Australians as well.
This will be an ambitious Budget. It will take into consideration the real pressures and concerns that are broadly shared around the Australian community. Recognising that the first year was a year of delivery and the Budget will begin a year of more ambitious reform.
Journalist:
Treasurer, speaking of housing, I don't think there's any dispute we've got a housing shortage in this country. The HIA, the Property Council, the Master Builders, anyone I can talk to in that sector says, well, we need to get more skilled immigrants to build houses. We don't have enough. I know your government's training, I've seen the figures, but it's still off pace. Do we need more skilled workers in the building sector, or do you agree with your political opponents, all 3 of the parties, that seem to think that migration is a problem?
Chalmers:
Well, we're managing the migration system responsibly, in a considered and methodical way. Our political opponents want to use migration policy as a way to divide the Australian community. We work through these issues as the adults in the room, recognising that when we came to office, migration was too high, and we have worked very hard to manage that down. If you think about net overseas migration, for example, it's down about 45percent on its peak in the last full year. Net overseas migration came in a little bit lower than what we were anticipating. There's some more pressure now because of fewer departures, but overwhelmingly the story of recent years has been a moderation in net overseas migration. From our point of view, that's a good thing. We need to normalise those numbers, and we also need to recognise within that that migration has a role to play not just on the demand side of the economy, but also on the supply side of the economy and that goes to skills.
The government's priority is to train Australians for these roles. We do need more construction workers. You'll know that we've got a very substantial program of incentives for apprentices, for example, in the construction sector. That's our priority. There will always be a role for skilled migration. But I think most importantly of all, if you think about the way that the 3‑ring circus on the right of politics is tearing itself apart right now over the Farrer by‑election, it's really important that migration policy is set in our national interest, our national economic interest, and not just used in a divisive way as another way to try and divide people and set people against each other, which is our opponents' approach.
Journalist:
Treasurer, you've made a large point about net saves and banking any upward revisions to revenue. Is that recognition that government spending can be inflationary? Are you saying we recognise that some of the pressures over the last 12months have been driven by what's been occurring in the federal budget?
Chalmers:
Well, a couple of things about that. I mean, first of all, the uptick in inflation we saw towards the end of last year was because private activity rebounded faster than what we or the Reserve Bank were anticipating. We've spoken about that at some length. The inflationary pressures in the month of March were driven overwhelmingly by higher petrol prices because of what we're seeing with the war in the Middle East. But we recognise that there are other inflationary pressures as well.
Now, we haven't seen this big uptick in inflation because of government spending, but government spending, as I've said on heaps of occasions, is obviously part of aggregate demand. Where we can play a helpful role rather than a harmful role in the amount of aggregate demand in the economy, obviously we look for ways to do that.
I think there's been some dishonesty, frankly, including in recent days about the causes of these inflationary pressures in our economy pretending that this is about government spending when it's not. In March, if it weren't for the spike in petrol prices, inflation would have gone down, as you wrote, Shane. Towards the end of last year there wasn't a big change in government spending, but there was a big change in private activity, business investment, dwelling investment and the like. That surprised the Reserve Bank and the Treasury on the upside and that created some of those inflationary pressures. We take very seriously our responsibility to play a helpful, not a harmful role in the fight against inflation. There will be a net save in the Budget, we will save more than we spend in the Budget, and that's another way that we are helping to address these cost of living pressures that are being confronted right around the country.
Journalist:
As a question for each of you. Senator Gallagher, on spending, you've announced effectively there a further saving in the fourth year on consultants and lawyers and travel, but I'm trying to understand how is that off the base of the previous year, or are you assuming that the historical increase that had been in place when you came to office was going to continue and you keep just adding savings based on that forecast? I'm trying to understand where those savings come from. And with the APS, you've got a lot of redundancies occurring. Again, are you banking that as a save, despite the fact that it would have been a higher cost above what you forecast in MYEFO and the Budget in terms of the overall wages cost?
And then for you, Treasurer, are you comfortable with Airservices Australia privatising effectively the capital base of its firefighting and emergency services and then leasing that back from a private entity? Is that a model that you think could work across government to save on capital expenditure?
Gallagher:
So, it's essentially an extension of that save that we've been putting in place, I think, since 2022. So we have the efficiency dividend that's built in, then this is over and above that, and it's an extension of that. And that really is to maintain discipline across agencies that we expect them to be reducing their spending in those areas over time. And each year we have sent that message and we'll continue to send it.
On the story around redundancies across the APS, I've been clear consistently that we think the APS is essentially the right size it is now. We had to build it back from what we'd seen when we came into government, where we didn't have the capability or the staff to do the job that the APS needed to do. We've built that back. It will move across departments from time to time. Our job is to provide agencies with the budgets they need to do the job that we ask them to do and that they're required to do. And then secretaries manage those budgets, but we provide the allocation. There is no decision by the government to force redundancies, I think, which was kind of part of the story in the AFR this morning. We do expect agencies to live within the budgets that the government has provided them.
Chalmers:
Different portfolio entities manage their budgets in different ways. I don't play a heavy hand in the way that CASA, within the Infrastructure and Transport portfolio, manages its budget. It wouldn't be unprecedented for portfolio entities to try and find different ways to get the most value for money. But primarily that's a question for CASA and for the Transport Minister.
Journalist:
Treasurer, you talked a lot about budget restraint and savings this morning. Will this mentality extend to off‑budget measures as well in the upcoming Budget?
Chalmers:
We haven't changed the way that off‑budget measures are accounted for, and there are instances where there is a public asset or some kind of commercial return or commercial arrangement where that sort of accounting is appropriate. Obviously, I would encourage you to think back to the last election where our political opponents wanted to put hundreds of billions of dollars off‑budget to build 7 nuclear reactors that would have pushed energy prices up, not down, and take decades to build. You've always got to be responsible with these off‑budget measures. We believe that we are, and that we have been, and that we will continue to be. I know that there's more than the usual amount of interest in some of those off‑budget measures, but we believe in each instance it's warranted.
Journalist:
Would changes to negative gearing next week be a broken election promise and perhaps changes to CGT by omission? And why should voters trust Labor if they promise one thing or say or don't say one thing before an election and then change 12months later?
Chalmers:
Well, I refer you a bit to my answer to Phil's question a moment ago. First of all, the Budget's not finished yet. Obviously there's a lot of speculation at this time of year. That doesn't trouble me greatly. Some of that discussion about potential tax reforms, from my point of view, is welcome. But you shouldn't necessarily assume across every bit of budget speculation that that will necessarily be in the Budget. That's just my way of not coming at the very specific part of your question.
On the more broader part of what you're asking, a bit like what Phil asked before, our responsibility is to calibrate the Budget to the conditions, to understand and respond to the very real pressures that people are under now, and in intergenerational terms as well. You build trust by taking the right decisions for the right reasons and explaining, if you've come to a different view over time, being upfront and explaining why that has been the case. I refer you, for example, to the necessary and I think warranted steps that we took when it came to the stage 3 tax cuts. When we came to a different view, we explained why, and we made the right decision for the right reason. We explained why that was necessary. I think that's how you build trust.
Journalist:
Given the hole that tobacco excise is leaving in the Budget, is that something that you're still not open to considering, especially given there are warnings that smoking rates will actually increase this year as a result of that? Have you pushed it too far?
Chalmers:
Well, you might be referring to the excise part of it, which is only part of the suite of policies that affect collection of the tobacco excise. I am sceptical that cutting tobacco taxes in the way that Big Tobacco would like us to and some others would like us to, including our political opponents here, I'm sceptical that that would see the sort of change that people are hoping for. It is a really big challenge in the Budget that we have seen this substantial increase in illegal activity. That's why we've provided already hundreds of millions of dollars to address this as a compliance issue, as a law-and-order issue.
We have actually seen some recent successes when it comes to big busts of illegal tobacco. We want to see more of that. That's why we're working through the states and territories, Minister Tony Burke is working through all of the options on the compliance and the law-and-order front, because primarily it's a compliance and law-and-order issue. We are always working through ways to do that more effectively because we recognise that this is a big challenge. We want tobacco revenue to go down because people are giving them away, not because people are finding a way around it. We have spent a substantial amount of time in recent months, in the lead up to this Budget, working out the best way to come at this challenge from a compliance and law-and-order point of view.
Journalist:
On the question of inflation, obviously the spending of the Budget as it feeds into aggregate demand doesn't affect the things that are driving the rise in petrol prices right now, which is the war in the Middle East. When you look at that inflation driver, do you look through that in your thinking about spending, or are you adjusting the Budget spending because there will be this exogenous shock that is coming in and driving up inflation even faster than you like?
Chalmers:
First of all, we need to remember that government spending is nowhere near the primary driver of prices in our economy, that public spending is a much smaller proportion of activity than activity in the private sector. From time to time, people want to pretend that the only thing that matters is government spending, which I don't remember them saying when inflation was coming down quickly and interest rates were being cut.
But leaving that to one side, we've got a combination of persistent and temporary pressures when it comes to inflation. We've got a very severe price impact in petrol from the war in the Middle East, which drove that inflation spike in March in the numbers that were released last week. We weigh up all of these pressures, temporary and persistent, whether it's pressures on inflation, pressures on growth, pressures on the Budget. Every Budget is carefully calibrated to the conditions. This one will be calibrated to the conditions, but it will also be ambitious. It's not a matter necessarily of looking through those petrol price impacts, but recognising the pressure that they're putting on people. People, as I said before, are already paying a really hefty price for this war in the Middle East. Those impacts we expect to continue for a little while yet. The Budget is very focused on those pressures this year, but also some of these intergenerational pressures and reform opportunities beyond that.
Journalist:
You talked about the hefty price of the Ukraine war for Australian households, but you also talked about how petrol prices are back to where they were before the conflict, largely thanks to the excise cut. So how urgent do you think additional cost-of-living support is for households? Do households need more help at the moment, or are you hoping to keep some powder dry in the Budget and maybe further down the line if things get worse? How are you seeing that?
Chalmers:
Well, obviously, we've got a whole range of contingencies and we need to be prepared for any scenario, including a downside scenario. I think in response to Lea's question before, we made it clear that we will sketch out for Australians what that downside scenario could look like. Clearly, if the economy deteriorates quicker and worse than what we're anticipating in the Budget, of course we will consider our options at that point. But there is cost-of-living relief in the Budget. There's more than $2.5billion for the fuel tax cut, there's 2 more income tax cuts, there's the standard deduction, there's everything we're doing in medicines and healthcare, because that's a big pressure on household budgets as well. So, there'll be cost-of-living relief in the Budget. If the economy turns down worse than we currently anticipate and for longer, obviously we would consider our options at that point.
Journalist:
Given that you've said so many times that the Budget is being calibrated later than normal because of all the conditions, does that also mean a decision on whether to extend the fuel excise cut is also being left to the last minute or will that be after the Budget? How late would you envisage making that sort of decision? Given that petrol prices are back to $1.70, $1.80 in some places. That's without the cut, but they're roughly back to where they were before.
Chalmers:
We monitor these fuel prices really closely. It's a bit different in the petrol market than the diesel market. They set off different benchmarks. There's still a bit of pressure on diesel fuel prices, but you're right to say that petrol's come off quite substantially. If you look at the March inflation numbers, that was before the fuel tax cut came in. We saw a very substantial spike in global oil prices flowing through to the bowser, flowing through to those inflation numbers. Since then, we've had the fuel tax cut but we've also had, in the last 7 or 8days, a very substantial spike in global oil again. So, the global oil price has been a real roller coaster. It's been at $80 bucks, it's been more than $120 bucks a barrel and we are hostage to that volatility when it comes to the impact on fuel prices here and on inflation. Then that's before you get to diesel, off a different benchmark.
Now, when it comes to the fuel tax cut, that will be in the Budget up until the end of June. As we said when we announced it, people shouldn't expect to see in the Budget on Tuesday night an extension of that, because we've made it really clear that it's a temporary thing. Now, if we get closer towards the end of that 3‑month period, obviously, like all of these policies and a bit like what I said in relation to Patrick's question, obviously we've got a range of contingencies. But people should expect that that petrol tax cut will be in the Budget until the end of June.
Thanks very much.
Disclaimer: Curated by HT Syndication.
