SENATOR THE HON KATY GALLAGHER
Minister for Finance
Minister for the Public Service
Minister for Women
THE HON JIM CHALMERS MP
Date: Friday, 22 September 2023
JIM CHALMERS, TREASURER: The Final Budget Outcome for the year just finished shows that the Albanese Labor Government’s responsible economic management has delivered the first surplus in 15 years. This is evidence of our responsible economic management, which is getting the budget in much better nick at the same time as we roll out billions of dollars in cost-of-living relief.
This is in dollar terms the biggest surplus ever, and it comes when inflation was at its peak. It shows just how seriously Katy and I, the Prime Minister and the Government have taken our responsibilities to take pressure off inflation when it was most acute at the same time as we roll out cost-of-living help to take some of the edge off cost-of-living pressures without adding to them.
The underlying cash balance was a surplus of $22.1 billion – that’s 0.9 per cent of GDP. This represents a $100 billion one-year turnaround since the last numbers released by our predecessors. This is the biggest turnaround in the budget in history. And it shows that we don’t have to choose between getting the budget in better nick at the same time as we help people who are doing it tough.
A surplus is not an end in itself – it’s a foundation from which we help people and we invest in the future of this country. One of the reasons why you won’t see us flogging ‘back in black’ mugs or doing all the sorts of self-congratulation you saw from our predecessors is because we understand a couple of important things. The surplus isn’t an end in itself; it’s a foundation. And also the pressures on the budget into the future are intensifying rather than easing, and so we know we’ve got more work to do.
Now, this surplus is a consequence of spending restraint, banking upward revisions in revenue and also finding substantial savings in the budget. This is not the first time that a government has received a substantial improvement in revenue, but what is different this time is instead of spending most of that – which our predecessors did – we have banked almost all of it, and that has made the difference. There has been a substantial improvement in the budget position, but governments have choices when that happens, and what we’ve chosen to do is roll out billions of dollars in cost-of-living help, invest in the future and bank almost all of this upward revision so that we can get the budget in much better nick.
It’s really important that we have this surplus when inflation was at its most acute but also we confront together an uncertain global economic environment. This is partly about rebuilding our buffers against uncertainty. It’s about getting the budget in much better nick so that we have more flexibility to move if we need to in the future if the downturn is more substantial than what we’re forecasting. It also acts as a bit of a buffer against this global economic uncertainty.
Now, because of our responsible economic management, because of this surplus, we are saving the Australian taxpayer billions of dollars in interest on the trillion dollars of debt that we inherited from our Liberal predecessors, and that’s really important as well. Getting the budget in better nick, avoiding some of the debt which was in our predecessors’ budgets, avoiding some of that interest repayment, that has been really important and it gets us in a better position for the future.
The final point I’ll make is this - before I hand over to Katy and then we’re happy to take your questions - whether it’s the improvement in the budget, the resilience of the labour market, the progress that we’ve been able to make on wages, this is a tribute to the Australian people for the way that they have responded to our economic plan, the progress that we’ve made together creating half a million jobs, getting the budget back into surplus, getting wages moving again. These are all core elements of the Albanese Labor Government’s economic plan. And the fact that we are making progress on these fronts is a tribute to the Australian people. And as we confront together another period of substantial global economic uncertainty, they put us in much better stead, much better nick to confront the uncertainties ahead. Katy.
KATY GALLAGHER, FINANCE MINISTER: Thanks Jim. The FBO outcome is a result of the hard work of our fiscal strategy, which has allowed us to deliver this $22.1 billion surplus. And I think when you look through the decisions we’ve taken over the last two budgets you’ll see that there was a very deliberate decision in not loading up policy decisions or spending in the 22-23 financial year when inflation pressure was at its highest, and alongside that applying the $40 billion in savings and reprioritisations across those two budgets with $7 billion worth of those in the 22-23 financial year, which is helping us to lower the impact of decisions in that year when inflation was at its highest.
And as Jim touched on, the higher than expected surplus also results in lower debt interest payments being required. So if gross debt was as forecast at the pre-election budget outlook, if it was the same at that point, we would be paying $12 billion more in interest payments over the current five years, or $39 billion in interest payments across the medium term.
So this does show that there’s not only some short-term benefits to the fiscal strategy we’ve implemented; there are some long-term benefits as well.
And so by banking that revenue to the budget bottom line and that budget discipline where we found nearly $40 billion worth of saving and reprioritisations helps us get this budget back on to a more sustainable footing which then, as Jim also said, it’s not an end in itself, it allows us to find room for some of the investments we know we’re going to need to make in the future and all of those issues that we talk about in here frequently – NDIS, health, aged care, defence, interest payments on debt. They’re not going away; they’re coming at us. And so it’s really important that we are getting this budget back into shape so that we can deal with some of that and provide that cost-of-living relief that we’ve provided in the last two budgets.
JOURNALIST: The Prime Minister said yesterday commodities had had just a minor part in turning the budget around. How substantial an impact have commodity prices had in this surplus?
CHALMERS: There’s two important contributions here. First of all, over the four-year period of the budget, of the big improvement that we budgeted for in May, the biggest part of that four‑year improvement was the strength of the labour market, something like $4 in every 10 of the improvement in May, as I said at the time, was from the fact that people are working more and earning more, and both of those things are good things.
The second biggest contribution at the time in May, about $2 in every 10, was from commodity prices. That’s over the full period of the budget. Commodity prices are playing a role here, but the most important thing is what governments do from time to time when they get those upward revisions in revenue. And by finding savings, by showing spending restraint, by banking almost all of this upward revision in revenue, that’s how we end up with this very strong position that we are announcing today.
If we had taken the same approach as our predecessors, we’d be nowhere near surplus today. And so the upward revisions to revenue are very important, whether it’s the labour market, whether it’s commodity prices or in other areas. But what’s necessary when you get those upward revisions to revenue is to take the most responsible approach possible, and that’s what we’ve done.
JOURNALIST: Just following on that question, an increase in company tax take [indistinct] higher commodity prices was a large part of your extra surplus. Those prices are still high and well above where Treasury expected them to be at this time. Do you think there’s a chance you’ll be able to deliver another surplus next year? And if I can ask a question to Senator Gallagher: last year in the Senate inquiry you said that there should be a Royal Commission into COVID. What’s changed?
CHALMERS: So in terms of commodity prices, they’ve been a little bit stronger in recent weeks, but they were actually under the glide path for a little – for a part of recent months. And as you know and as many of you have written about, we take a pretty cautious and conservative approach to forecasting commodity prices. But even with that cautious and conservative approach, over the course of the last few months there have been times when commodity prices have been underperforming against our trajectory. They’re starting to overperform a little bit. How that nets out remains to be seen, and obviously that will be important to this year’s fiscal position.
We’re still anticipating a deficit this year and in the years after in the budget. Obviously there is lots that can happen between now and when we hand down the budget next May. There’s an element of unpredictability when it comes to revenue at the moment because the global economic environment is uncertain, particularly in China, and because the full impact of these interest rate rises has not yet bitten in our economy. And so for all of those reasons we update our revenue forecasts in MYEFOs and in budgets, and we’ll do that. But we’re not currently anticipating a second surplus for the time being.
GALLAGHER: Firstly, I think the review announced yesterday is an excellent way to proceed, and there’s three incredibly talented reviewers to head up that independent review, who I have no doubt will do an excellent job and present a report in a year’s time that will put us in the best shape to deal with pandemics of the future.
On the issue around the recommendation, a fair bit has changed. That report was handed down 18 months ago. There have been a huge number of inquiries and reviews that have gone on since that time which, no doubt, the independent team will be able to use as part of their work. But I think one of the good things for me when I was looking through the announcement yesterday and the appointments was the focus on a forward-looking process, not a blame game, not a political exercise but a genuine attempt to basically ensure that we are in the best place that we can be when the next pandemic arrives, that we take all of the learnings – and I hope they do use some of the work that we did in that COVID report. It was a long inquiry. It was conducted during the crisis part of the pandemic. So I think we did get quite a unique experience and unique evidence through that process, and I hope they use it and find it useful in the work they do.
JOURNALIST: Treasurer, you talk about finding substantial savings [indistinct] year’s budget. How confident are you that you’ll be able to find further substantial savings, and how important is that going to be to the fiscal strategy?
CHALMERS: I don’t know if Katy wants to add to this, but we’ve said really since the beginning that we don’t see the search for savings to be the task just of a first or a first couple of budgets. We are more or less permanently, constantly on the lookout for ways to reorient our spending towards the most productive purpose. We have both acknowledged today that the pressures on the budget are intensifying rather than easing. The big five spending pressures are still there and they are still acute. And our responsibility, which we embrace, is to try and find room to fund the things that not just the government values but that the Australian people value – health care, Medicare, NDIS, aged care, defence and the like.
So we take that responsibility seriously. The search is ongoing. And what we’ve been able to show - $40 billion in savings over two budgets compared to precisely zero billion dollars in savings in the last budget of our predecessor – we’ve shown that we’ve been able to make substantial progress. And even in this financial year something like $7 billion in savings, just in this financial year alone. And that’s making a bigger contribution to this surplus than I think people appreciate, as is spending restraint and all the rest of it. It matters what governments do when they get these upward revisions in revenue. We’ve taken the most responsible approach.
GALLAGHER: It’s an ongoing piece of work. It’s a big chunk of my time that I spend. And I think our cabinet colleagues have been incredibly helpful. They get that it just can’t be an add-on exercise. I mean, there’s no shortage of ideas coming forward. But there has to be a way to manage that. So you’ll see the approach we took in October and May will be replicated in the budgets going forward.
JOURNALIST: Apart from the issue of who chairs the governance board, you said this morning there were still a handful of other issues that you were working through from the RBA Review. What are those other areas were you considering potentially diverging from the review?
CHALMERS: As you know, when I released the review in, I think, March, I said that I was supportive in principle of all of the recommendations. But one of the reasons why we put it out in March with a long amount – with a big amount of time between then and legislating towards the end of the year is I wanted to generate a lot of feedback and a lot of views, and we’ve been getting that, including in recent days. That’s a good thing. We welcome that. And so there have been issues where the review itself has said in the pages of the review this is a line ball call and whether or not the Governor chairs the Governance Board is one of those line ball calls that they identified. And I’ve been consulting on that for months. And so that’s one of them. Obviously people have expressed a view about things like the term limits. People have expressed a view about the relative influence of the Deputy Governor, the Chief Operating Officer and any role for those two important positions in particularly the governance board. And so I’ve been consulting on all of that and there are a small handful of issues.
Now, the other thing – and I once again say that Angus Taylor and I have our differences across a range of areas but we’ve had some very good discussions, including quite recently, about these issues because my preference all along has been to be as bipartisan as I can about bedding down these review recommendations. And some of these issues I’ve been talking with Angus about as well, and I appreciate that. I take that seriously. I respect that process, and those are some of the issues that we’ve been discussing.
JOURNALIST: Treasurer, we’ve got monthly inflation figures out next week. Economists predicting a slight tick up [indistinct] and that comes with seeing other countries around the world seeing their inflation tick up slightly, they’re saying there might be high rates again. Are you seeing anything that would hint that inflation might not have reached [indistinct] and turn back up again?
CHALMERS: I think we’ve got to be careful about putting too much stock in the monthly figures. The monthly figures are obviously more volatile, and we’ve said even before some of these other monthly reads that we want to be careful about it. And I think what the world has shown us and what is a realistic prospect here, without pre-empting the numbers that we get next week, is getting from A to B on inflation is not necessarily a straight line. We’ve seen in some of those other countries – and you would have been monitoring this as closely as I have been – it has been bumpy. But the overall direction of travel is clear. Quarterly inflation peaked before the change of government last year. In annual terms it peaked around Christmas time. We’ve seen a welcome moderation since then. We’d like inflation to moderate faster. We’ve made no secret of that. But it is moderating overall, and there might be some bumpiness and some lumpiness in the monthly reads, but we’re pretty confident that inflation has come off its peak. And part of the reason for that – there are a bunch of reasons for that, to be fair – but part of the reason is we’ve found a way to roll out billions of dollars in cost-of-living help in a way that takes some of the edge off this inflation rather than add to it. And that’s been an important part of it.
JOURNALIST: Treasurer, you mentioned a few times throughout this update this morning that billions of dollars of cost-of-living relief have been provided to Australians. They are still doing it tough and it’s their income taxes that are in part driving this surplus. Are you at all worried that Australians might find this surplus a little annoying rather than be grateful for it given how they’re struggling to make ends meet?
CHALMERS: I think I made it clear in my introduction that we don’t see a surplus as an end in itself, and what we’ve shown is we don’t have to choose on the one hand between getting the budget in much better nick and rolling out billions of dollars in help. And I think those two important points are really important. I really want everyone to take that away.
We don’t see a surplus in the financial year just finished as some kind of mission accomplished. And we know that people are doing it tough, and that’s why the primary focus of the Government with all of its priorities is to roll out this cost-of-living assistance, because people are doing it tough.
And so my message to your viewers who might have the view that you just expressed is that this surplus has not come at the expense of helping people doing it tough. Billions of dollars of cost-of-living relief have been rolling out right now. That’s our number one priority. We’re doing that in a responsible way, but at the same time as we’re getting the budget in much better nick.
JOURNALIST: Senator Gallagher, going back to your answer to Rachel, you say we need to look forward in terms of moving on from COVID. But how can you move forward if you don’t look at the lessons learned, and without an inquiry that doesn’t have broad coercive powers to subpoena witnesses, subpoena documents to get to the bottom of why the different decisions were made in the states, not with a view to laying blame but with a view to learning? How can we possibly move forward if we don’t have that sort of inquiry? And are you seriously saying that this new review is going to rely on existing work, including a voluntary review that was done out of frustration by the Ramsay group that was done purely because it was concerned at lack of Government action? Is that really the best you can tell everyone that that’s what we’ve got to accept? Is that it?
GALLAGHER: I think this review, the terms of reference and the appointment of the reviewers, is a sign of how seriously we are taking it.
JOURNALIST: Not everyone wants to cooperate. What do they do then?
GALLAGHER: I don’t think it is an adversarial situation. I think everybody wants to learn the lessons of the pandemic. So I don’t think you just have to say because there’s no coercive powers therefore no-one will cooperate. I don’t accept that. I think the review team –
JOURNALIST: [Indistinct] full disclosure from the Victorian government [indistinct]?
GALLAGHER: I think the review team should be allowed to do their job. They are independent. How they choose to conduct their inquiry is a matter for them. And I would expect that if there is to be state involvement, state government involvement, that they will work with the states and territories on that. But, again, I think there is a lot of merit in having a process that is about forward-thinking, about making sure that at the end of that process we’re in the best shape we can be. And, yes, learning all the lessons. And there has been a number of inquiries. It’s not just the Ramsay Foundation; there’s been more than 20 inquiries into different aspects. And I think there’s a big job and a good job in pulling all that together under this review. But I’ve got a lot of faith in this review being able to do what it needs to do and most importantly get us to where we need to be in preparation for the next pandemic.
JOURNALIST: Just going forward to next week, what can we expect from the Employment White Paper, particularly when it comes to productivity and migration?
CHALMERS: The Employment White Paper which we will release on Monday is a really important opportunity for us to set the direction when it comes to creating more opportunities for more people in more parts of Australia. This is all about a more dynamic and more inclusive labour market which helps our people be the major beneficiaries of changes that we’re seeing in our economy and so that our businesses and our communities and our economy can thrive.
The Employment White Paper will be based on five main themes: full employment, wages and job security, skill shortages now and into the future, getting productivity moving again and also trying to address these barriers that exist in our labour market where we’ve got a situation where even with unemployment with a 3 in front of it there are still pockets of entrenched intergenerational disadvantage in our country. And so the Employment White Paper across those five themes will have – will remind people of what we’re doing to make progress. It will tell them what the next steps are and it will set out some future reform directions as well.
Now, obviously, in order to lift living standards and to get wages moving in a responsible and sustainable way, we need to make our economy more productive, more dynamic, more competitive. And that will be a big focus of the Employment White Paper as well. Now, we start this task from a really strong position. Monthly unemployment data started being kept in 1978 and in the 45 years since then there’s only been 18 months where we’ve had unemployment with a 3 in front of it; 15 of those months have been under Prime Minister Albanese. So we start this task from a really important position. The labour market has been really resilient, but we need to care about how the labour market evolves over time as well. And so the Employment White Paper will be an important opportunity for us to set out those directions.
JOURNALIST: Sure, also on the white paper, I just want to get some clarity on some of your comments made on the unemployment rate early this morning. Does that mean [indistinct] discussions around what the unemployment rate should be, what we should be targeting, anything like that, in numbers?
CHALMERS: There’s a discussion about full employment, which goes to some of the remarks I made this morning. And I think you and I have talked about it on earlier occasions. It’s possible to have a narrow, technical assumption about full employment which feeds the forecasts of the Reserve Bank and the Treasury and others. That’s necessary. We don’t pretend otherwise. But what I’ve tried to do is to say that that is very different from the Government’s objective, the Government’s aspiration. And our government’s objective is a good, secure fairly paid job for everyone who wants one without looking for too long. That’s our objective. And that’s what the white paper is built on.
But I think that they are two different things. The NAIRU is different to the Government’s objective. What we’re trying to do here is we’re trying to keep unemployment as low as possible, get the budget in better nick, get wages moving again while inflation moderates. And so far we’re making really welcome progress, which is a tribute to the Australian people, but we know we need to be vigilant, and the white paper will go to some of these issues.
JOURNALIST: Yes, you mentioned barriers to the labour market. Could I please ask how big an overhaul to income support, job services and mutual obligation should Australians [indistinct] next week’s Employment White Paper and the Workforce Australia inquiry report?
CHALMERS: Obviously those issues are important in the Employment White Paper. But what people shouldn’t expect is, you know, 30 or 40 new policies in the white paper. There’ll be a handful of new policies in the white paper, but there will also be some reform directions, including in some of those areas that you’ve just identified.
So what the white paper will do is it will clarify what we’re trying to achieve in the labour market, those five themes I talked about in response to Amanda’s question. It will explain the policy reform trajectory, where we’ve been, what we’re doing right now and what we think comes next. And some of those areas, including employment services, will part of that discussion.
JOURNALIST: Treasurer, can I get your reflections on Rupert Murdoch, his views towards Australian politics and what you think will happen going forward now?
CHALMERS: I’m not sure what will happen going forward now. Obviously this is a very consequential thing and Rupert Murdoch has been a very influential, indeed central figure in the global media landscape for some time now. And so this is the end of an era at News. How this plays out now with the leadership transition and all of the rest of it remains to be seen, but obviously a very significant announcement.
JOURNALIST: Thanks, Treasurer. Just back on the RBA Review, I think most economists and observers are generally supportive of tidying up the mandate to a dual mandate of full employment and price stability, but where there has been a bit of consternation is the terms, “equal consideration” to those two things. Would you expect “equal consideration” to appear in the Statement of Conduct Monetary Policy or the legislation?
CHALMERS: We’ll release both of those documents – the draft legislation and the statement of conduct – when we’re ready to. And obviously both of those are pretty central to the thinking that we’re doing right now. I noticed in stories that you’ve written and others, there’s a sense of people want to talk about consultation. I feel like there’s been more or less endless consultation and feedback on the RBA Review for some months, and this has been one of the issues that people have raised and I like it when they do. And it’s an issue – without going into it – I talk about with Angus Taylor. It’s an issue that I consult on broadly.
I think that in order to clarify this conversation about the RBA Review – and I appreciate that you did a bit of this today – is to understand what exists right now and then what the RBA Review is proposing. And some people have written – some people who should know better – have written that this is some kind of radical change to include full employment in the mandate. But it’s literally chiselled in the waiting – in the foyer of Martin Place, full employment. This has been a central part of the Reserve Bank’s consideration for a long time and it should be. And so we will clarify that, as you said, the role of the full employment objective sitting next to price stability. We’ll do that in the legislation. We’ll do that in the statement as well.
And related to that and importantly, given the commentary of the last few days, people need to understand that what we are proposing is not especially radical when it comes to the composition of the board either. The current board has a majority of external people. The future board will have a majority of external people. That doesn’t strike me as a particularly radical change. That’s a long way of saying we are working through the remaining issues in your question and in your colleague’s question. We will bed that down. You will see before long the draft legislation. And around the same time – not quite – the statement as well. Thanks very much everyone.
Media contact: Fergus Maguire 0487 258 680 | Fergus.Maguire@treasury.gov.au