Speaker 1: I'm Daniel James and you're listening to seven Am. For months,
Speaker 1: Jim Charmers has been trying to write a budget about
Speaker 1: the future productivity reform repair. But events have a way
Speaker 1: of dragging budgets back to the present, and right now
Speaker 1: the present looks expensive. People are still under pressure, the
Speaker 1: economy has been hit by another oil shock, and the
Speaker 1: Treasurer is trying to make the case for a restraint
Speaker 1: without looking like he's asking the strangers to wear even
Speaker 1: more pain. So will Jim Charmer's upcoming budget be one
Speaker 1: of reform or crisis management?
Speaker 2: Today?
Speaker 1: Senior economics correspondent for The Age and Sydney Morning Herald,
Speaker 1: Shanewright and what kind of budget this moment? Demand's It's Saturday,
Speaker 1: April fourth, Shane. Great to have you on seven am.
Speaker 1: Let's start with the basic picture. Rates are back up
Speaker 1: at four point one percent, inflation is still above target,
Speaker 1: and we're at the start of a global oil shot.
Speaker 1: So with the budget not far off, how tough is
Speaker 1: the Treasurer's job looking right now?
Speaker 3: Oh?
Speaker 4: I think what did Fredistaire say that Ginger Rogers was
Speaker 4: a better dancer than him because she had to do
Speaker 4: everything he did? But do it backwards. We're almost in
Speaker 4: that situation given what you've just laid out, And if
Speaker 4: anyone can tell tell you honestly what's going to come
Speaker 4: out of the White House in the next few hours,
Speaker 4: in the next few days, well look I'll take money
Speaker 4: against that. So that's the key problem for him at
Speaker 4: the moment is just absolute global uncertainty and how that
Speaker 4: feeds into such key things as like the price of
Speaker 4: petrol and just general economic activity across the globe.
Speaker 2: Our trading partners and domestically.
Speaker 5: We will make hard in this main and our task
Speaker 5: there is not just to respond to these shocks.
Speaker 4: To see through.
Speaker 1: Jim Chalmers said this budget will involve heavy lifting, difficult
Speaker 1: decisions and another round of savings. But he's also arguing
Speaker 1: public spending wasn't what drove the latest inflation problem. So
Speaker 1: when he talks about difficult decisions, what does he actually mean.
Speaker 4: Well, this has been one of the great issues of
Speaker 4: the last twenty or so years. When John Howard introduced
Speaker 4: the GST all those years ago in two thousand, he
Speaker 4: made clear that his plan was to make sure that
Speaker 4: we're no one was worse off, everyone was a winner.
Speaker 2: Baby.
Speaker 4: That's Okay, However, you can't keep doing that, and successive
Speaker 4: governments have actually tried to put off making hard decisions
Speaker 4: that leave people off, or when they've done tough stuff,
Speaker 4: they've actually backtracks. Wayne Swann and Joe Hockey both had
Speaker 4: to go some tough stuff and neither of those things
Speaker 4: came through.
Speaker 6: Joe Hockey's Contribute and Build budget could also be labeled
Speaker 6: no pain, no gain budget. It will tighten the belts
Speaker 6: of most Australians with cuts to family benefits, tighter rules
Speaker 6: for payments for the unemployed and those with a disability
Speaker 6: Minister headlines like Swan pickpockets families and a welfare blitz
Speaker 6: on disability pensioners.
Speaker 1: Did you expect this sort of reaction to what you
Speaker 1: say is a labor budget. Oh, this is a labor budget.
Speaker 1: It's a budget focused on jobs, creating.
Speaker 2: Job that's the history. We know that there will be
Speaker 2: spending cuts.
Speaker 4: Even on Wednesday afternoon he's been talking about, Yes, there
Speaker 4: will be more spending cuts. The spending cuts that they've
Speaker 4: announced in the previous budgets haven't really caused much discomfort
Speaker 4: for anyone, so that's a low bar how he can
Speaker 4: get over that. We will have to see. But while
Speaker 4: Charmer says, look, inflation is not being driven by public spending,
Speaker 4: it ain't helping in any way. You could not argue
Speaker 4: that case with a straight face. And then you've got,
Speaker 4: as you've mentioned, the urgent petrol prices that we've seen
Speaker 4: the last four weeks. That just makes it even more
Speaker 4: of an imperative defined savings even if they do pinch people.
Speaker 1: I mean, if his argument is that inflation wasn't driven
Speaker 1: up by public spending, is it a mistake to think
Speaker 1: that the answer then is simply whinding back the cost
Speaker 1: of living help?
Speaker 4: Well, it depends what sort of cost of living help
Speaker 4: you're talking about. It's more structural the spending problems inside
Speaker 4: the federal budget, like we do know for instance, and
Speaker 4: the government has been upfront and has taken some action
Speaker 4: around the NDIS for instance, but that is not the
Speaker 4: biggest source of spending, like the age pension technically is bigger.
Speaker 4: The GST is the single largest expense in the budget.
Speaker 4: Then throw in the demand for age care. We've not
Speaker 4: many years ago we had a Royal commission saying how
Speaker 4: terrible the age care sector was, and so more money
Speaker 4: had to go into that. The defense hawks have looked
Speaker 4: and said, we need a large uplift in spending on
Speaker 4: defense that doesn't come out of nowhere. So we are
Speaker 4: talking substantial sums. If you were trying to one reduce
Speaker 4: overall government spending but increase it in particular areas, if
Speaker 4: you went down that path, you're in the tens of
Speaker 4: billions of dollars every year and there would be a
Speaker 4: lot of people feeling pain if you went down that path.
Speaker 1: One of the government's biggest moves recently was the cut
Speaker 1: to the fuel excise, which is broad and expensive. So
Speaker 1: does that go against the Treasurer saying we need a
Speaker 1: discipline budget.
Speaker 2: At the end of that it's two point six billion
Speaker 2: that fuel excise.
Speaker 4: Like I've argued, you wouldn't do that because that is
Speaker 4: the price signal being sent by the surgeon. All prices
Speaker 4: should be enough to dissuade people to go out on
Speaker 4: driving around and you can see that even in the
Speaker 4: public transport usage data that we're getting from the state
Speaker 4: governments and the reduction in actual driving that's occurred.
Speaker 3: Of course, I continued to see unacceptable impacts, particularly in
Speaker 3: regional Australia, as the supply chain has struggled to cope
Speaker 3: with massive spikes in demand, a doubling of demand for
Speaker 3: petrol and diesel across Australia. Petrol use has an increase,
Speaker 3: but petrol demand has.
Speaker 2: People are storing petrol.
Speaker 4: There is an argument about what it does to farmers
Speaker 4: and miners and the transport sector. Like I don't if
Speaker 4: I was coal's or woolies, I'd be really concerned about anything.
Speaker 4: So that would give them slight relief. But there was
Speaker 4: no announcement on how he would offset that, and I
Speaker 4: think the budget was probably in a little bit stronger
Speaker 4: position going into this than what had been expected, so
Speaker 4: we'll probably just say, right, that'll reduce that'll increase the
Speaker 4: deficit that we were going to run. It's really how
Speaker 4: you kick off into the coming financial year. The fuel
Speaker 4: excise reduction lasts until the start of the new financial year.
Speaker 4: If we're having to cut excise going forward from there,
Speaker 4: that tells you the situation the Middle East has got
Speaker 4: even worse, and there may even be a bigger problem
Speaker 4: than inflation. The economy may be in real trouble by then.
Speaker 1: Yeah, let's say beigneficants to that. Shane, in your view,
Speaker 1: what kind of budget response would actually help right now.
Speaker 4: Look, you would be looking to trim spending as broadly
Speaker 4: as you can. Even a reduction in the pace of
Speaker 4: spending growth would be a start. So that's what you're
Speaker 4: looking for, making things, making government programs more efficient. Ndies
Speaker 4: stands out, defense stands out given how much spending goes
Speaker 4: on in that way, pushing back on states who want
Speaker 4: more money for everything, and then some and that feeds
Speaker 4: into the health and education sector.
Speaker 2: So that's where you'd start.
Speaker 4: And then you're getting into ways that would make the
Speaker 4: economy grow faster, which means if the economy's growing faster,
Speaker 4: then you can afford all the pretty good little things that.
Speaker 2: You might want to do.
Speaker 4: That gives you that space, But you've got to get
Speaker 4: the economy growing a bit faster without having inflation pressures
Speaker 4: building through.
Speaker 1: It up Well, the government listened to calls to increase
Speaker 1: the tax on gas.
Speaker 5: The strategy of that line for you today is calibrated
Speaker 5: for this kind of environment, a supply side strategy to
Speaker 5: leave the speed emit of the economy to make it
Speaker 5: more the zoom, create room in the budget to expand capacity,
Speaker 5: and to make our tax systems stronger and fairer and
Speaker 5: more sustainable, so that we can sustain stronger growth in
Speaker 5: our economy.
Speaker 1: One of Charmer's big lines is increasing productivity, lifting the
Speaker 1: speed limit of the economy, as he puts it. Do
Speaker 1: you have any sense of what his approach to increasing
Speaker 1: productivity is likely to be.
Speaker 4: I think you'll see a fair bit about regulation. The
Speaker 4: productivity story is really interesting because this has been a
Speaker 4: global problem since the global financial crisis, in fact, just
Speaker 4: a little bit before that. We productivity is never driven
Speaker 4: by governments, as much as some people might want to argue.
Speaker 4: It's driven by businesses innovating and using new tech. And
Speaker 4: the new tech on the right at the moment is AI,
Speaker 4: and there is a reason why productivity in the US
Speaker 4: has lifted because it is at the center of the
Speaker 4: AI revolution that's going on there. No one else has
Speaker 4: picked it up yet, but we can see the huge
Speaker 4: investment in data centers that started around the middle of
Speaker 4: last year, and which is one of the reasons the
Speaker 4: Australian economy was growing a bit faster than anyone thought.
Speaker 4: That may be the starting point. And if you can
Speaker 4: find a way to better utilize resources through the use
Speaker 4: of this tech, well that is the history of productivity
Speaker 4: all the way back to the Industrial Revolution, so not
Speaker 4: getting in the way of AI making sure it works efficiently.
Speaker 4: So that might mean pushing back on vested interests, say
Speaker 4: around the union movement, even around the media, which has
Speaker 4: got strong views around copyright usage, that sort of thing.
Speaker 7: And when it comes to regulation, it's really all about
Speaker 7: doing as much regulation as we need to to protect
Speaker 7: people and as little as we can to encourage innovation.
Speaker 7: And that's how we maximize the big opportunity, the big
Speaker 7: game changing opportunity of artificial intelligence, while also managing and
Speaker 7: mitigating as many of the risks as we can.
Speaker 4: That is one way. It may be about better transport networks.
Speaker 4: That's another way, just bringing ideas getting businesses to invest,
Speaker 4: not maybe in AI, but in new equipment. We're waiting
Speaker 4: on a formal response by Charmers to the Productivity Commissions
Speaker 4: report on business tax which came up with a proposal
Speaker 4: for a cash flow tax, which no one in the
Speaker 4: business community wants and it would hurt really large businesses
Speaker 4: which do the bulk of R and D investment. So
Speaker 4: I think you will see a tax incentive or tax
Speaker 4: change in that regard to get businesses to spend on
Speaker 4: new plant and equipment, and that is one way to
Speaker 4: get the economy running a bit faster than it otherwise would.
Speaker 1: Charmers has now confirmed that there will be tax reform
Speaker 1: in the budget, but he still won't say whether that
Speaker 1: includes capital gains. Do you think this could be the
Speaker 1: moment that the government does something meaningful in housing and tax.
Speaker 4: To give them their due, Like, we haven't had a
Speaker 4: government like this one in terms of being upfront about
Speaker 4: setting a target for new homes throwing a huge amount
Speaker 4: of money at it since the seventies. Like it is
Speaker 4: a real outlier. You can argue about whether it's successful.
Speaker 1: Yeah, but the ambition is there.
Speaker 4: The first budget is where he set a charm to
Speaker 4: set a target of one million new homes. They've actually
Speaker 4: increased the target and they will not reach it at
Speaker 4: this point, but you're putting that into the budget. That
Speaker 4: is sending a clear message the capital gains tax and
Speaker 4: its interaction with with negative gearing. Ultimately, it's more a
Speaker 4: signal because all the research in that space suggests they
Speaker 4: are marginal in terms of bringing on new supply and
Speaker 4: reducing prices. We're talking one to three four percent in
Speaker 4: terms of total impact. So the best thing you could
Speaker 4: do is always going to be on the supply side.
Speaker 4: And in fact, there figures out on Wednesday showing that
Speaker 4: the number of dwelling approvals building approvals is up nine
Speaker 4: percent over the last twelve months. Huge lift in the
Speaker 4: number of units being improved. That would be one way
Speaker 4: to bring more dwellings into the market, but we're still
Speaker 4: way short of what a country with this sort of
Speaker 4: population growth and a tax system that encourages in speculative
Speaker 4: investment in the property market can deal with.
Speaker 1: And what about gas, Shane, We know the fossil fuel
Speaker 1: companies are making a monsa. There are calls for a
Speaker 1: twenty five percent gas export levy, a Labor is now
Speaker 1: backing in inquiry into oil and gas taxation. It almost
Speaker 1: feels like not taxing ghosts would be more politically difficult
Speaker 1: than actually doing it.
Speaker 4: At this stage you're getting to but there's a real
Speaker 4: tension inside the government because the non ministers are suggesting, well,
Speaker 4: why don't we go down this path. David Pocock, independent
Speaker 4: Senator from the Act is in that case, so are
Speaker 4: some of the Teal members in the House. Australians deserve
Speaker 4: to get a fair return on the export of our gas.
Speaker 2: That gas belongs to all Australians.
Speaker 4: Companies can export, they can make a profit, but they
Speaker 4: should be paying US twenty five percent of whatever they get.
Speaker 2: For that gas.
Speaker 4: But there's always that real tension about what signal does
Speaker 4: it send to say our big exporters, that big importing
Speaker 4: nations like Japan and South Korea.
Speaker 2: Would it have an impact on investment?
Speaker 4: If you're a gas manufacturer and you were banking on
Speaker 4: this somehow, you thought there'd be a war in the
Speaker 4: Middle East which would lead to Kata losing about a
Speaker 4: fifth of its production for five years, and that's what
Speaker 4: you were banking on an investment program for Look, there's
Speaker 4: a bridge over the Sydney Harbor that I think I
Speaker 4: should sell to you, like I don't. That doesn't pass
Speaker 4: any pub tests. But we've seen even the lifting oil prices,
Speaker 4: there have been an increase in exploration whether you can
Speaker 4: get it over the line. Like these projects they take
Speaker 4: decades to get up. So you could see the argument
Speaker 4: from this sect the sector saying, look, if you say
Speaker 4: we're going to put on a permanent tax for twenty
Speaker 4: five percent years ago, oh, hold on, that might hurt.
Speaker 4: If you're saying this is a windfall tax for a
Speaker 4: short period of time, you might get away with it.
Speaker 4: But I'm not convinced they've got to that point yet
Speaker 4: where they'll sign off on what would be a very
Speaker 4: large tax change so close to the budget.
Speaker 1: And if they don't do it now, will they ever
Speaker 1: do it?
Speaker 2: Shange, No, you wouldn't. Look.
Speaker 4: I often hear people talk about, well, Norway has its
Speaker 4: own sovereign wealth fund and they've done this, that and
Speaker 4: the other. But Norway is a very has a very
Speaker 4: different political culture. It runs the oil and gas exploration
Speaker 4: industry there. We don't have that. We are a fully
Speaker 4: much more capitalistic and free enterprise approach to it. That
Speaker 4: would be asking a lot a big change in direction
Speaker 4: for the country.
Speaker 1: Finally, Shane, it's unlikely Labor is going to have this
Speaker 1: much power in the parliament ever again, So do you
Speaker 1: think they'll use it? And will there be any significant
Speaker 1: reform this budget or do you think they're spoot and
Speaker 1: a lot of this budget might wind up being crisis management.
Speaker 2: That's the real risk.
Speaker 4: Charmers is continuing to say there will be reform and
Speaker 4: he's gone the three areas saving tax and productivity, And
Speaker 4: you're absolutely right. Ninety four members in the House, so
Speaker 4: no trouble is getting anything through the through the lower house.
Speaker 4: In the Senate, if something appeals on the left, he's
Speaker 4: got the Greens. If there's something on the right that
Speaker 4: he could get through with the sport of the coalition,
Speaker 4: he's got options. So that political cycle is on his site.
Speaker 4: The economic cycle, given what's going on with the war
Speaker 4: in Iran, is against him right at the moment. But politically,
Speaker 4: are you going to take a punt that will make
Speaker 4: major changes further down the path? That argument about he's
Speaker 4: a non reforming PM, he's starting to bite for him
Speaker 4: and for members of the government thinking we'll hold on
Speaker 4: what's labor stand for. Labor stands for change, Labour stands reform,
Speaker 4: And there those who are trying to remind him it's
Speaker 4: not just here to occupy the benches, the government benches,
Speaker 4: it's actually to do things. You can see all that
Speaker 4: historical tension lining up with the political circumstances as well
Speaker 4: as the economic issues that Charmers and Albanez you have
Speaker 4: to deal with.
Speaker 1: Shane, Thank you so much for your time. Fascinating stuff.
Speaker 1: Thanks Daniel, I'm Daniel James, Thanks for listening to seven AM. Tomorrow,
Speaker 1: we'll bring you an episode from the archive on Donald
Speaker 1: Trump's friendship with the founder of World Wrestling Entertainment, Vince McMartin,
Speaker 1: and how Trump made it into the WWE Hall of Fame,
Speaker 1: and how the color and language of pro wrestling shapes
Speaker 1: the way he does politics. We'll see you there.