Jim Chalmers warns rising debt bills are set to hit the budget

[music] from the conversation. This is politics with Michelle Graten. [music] How do you think Australia will look in 40 years time? The buffins at the Federal Treasury have been future gazing, mulling on this question in an exercise that inevitably involves making some heroic assumptions. Treasurer Jim Charas this week released the result, the seventh intergenerational report that takes us through to the mid 2060s. The picture the report presents is challenging. An aging population, a falling birth rate, [music] lower economic growth, unending budget deficits. But on the positive side, it highlights that Australia is well placed to deal with what's ahead given its resilience. Unsurprisingly, the report puts front and center artificial intelligence, the new technology that both excites and alarms and in particular brings some hope for lifting Australia's flagging [music] productivity. [clears throat] to talk about the report and other economic issues. We're joined on the podcast by Jim Charas. Jim Charmers, the intergenerational report points to a reform agenda to lift living standards, but the measures are pretty broad. What are you particularly concerned about at the moment in trying to boost living standards? >> Well, the productivity package in the budget is key. the biggest broadest productivity package in some decades in the May budget and that's about recognizing that the best way to lift living standards over time and to make our economy more productive, more dynamic, more competitive. So the productivity package is key, but really right across the intergenerational report, if you look at all of these big intergenerational challenges, productivity is one of them. uh the housing market uh tax reform to cut taxes for workers, strengthening superanuation which is such an advantage that we have in the decades to come and also minimizing the risks of AI and so overwhelmingly the intergenerational report I think uh justifies and validates and I think in time will vindicate uh our economic plan. The report, however, seems to be a glass half empty despite uh its more optimistic parts. These days, ordinary Australians seem always to be receiving bad news. There's likely to be another interest rate rise next week. According to the experts, when can people expect to see the cost of living pressures relieved, at least to a degree? Are we talking years rather than months? >> Well, first of all, on your first point, the overwhelming sense you get from the intergenerational report is serious economic risks, serious budget pressures, but also very substantial national advantages. And for me, uh, I think it makes us realistic about the risks but optimistic about the future. It actually makes me optimistic that Australia's unique combination of advantages means that we are better placed and better prepared and we have a better plan that takes these intergenerational issues more seriously I think than other countries do. So overwhelmingly I'm optimistic about the future. Now you're quite right to point to the pressures in the here and now. Overwhelmingly those are the government's major focus cost of living pressures. That's why we're cutting taxes, boosting wages, uh strengthening bulk billing because that takes pressure off families and pensioners. And so cost of living is the primary focus. Inflation is higher than we want it to be partly because of this war in the Middle East which is dragging out and having a disastrous impact not just on our economy but on the global economy as well. So cost of living first and foremost at the same time as we deal with some of these intergenerational issues uh in ways that I think should give people confidence uh that Australia is much better off and much better placed than other countries uh like us. Now there will always be pe people who want to talk the place down. I think that endless negativity we see from some quarters is deliberately designed to be a self-fulfilling prophecy. uh and it's motivated by politics, not economics. Yes, we've got serious risks. Yes, we've got serious challenges in our economy and in our budget, but we've also got substantial advantages, too. And I'm confident that we can make the most of them. >> So, are you saying that the opposition and one nation are talking the economy down for political reasons? >> Yeah, I think they see that as their path to power because they desperately want Australia to fail. They desperately want Australia to fail. Their whole policy agenda would make people worse off rather than better off. Superanuation, wages, migration, really across the board, they would all make people worse off rather than better off. And at every turn, the political players in our system, our political opponents and their fellow travelers, uh, their endless negativity is a deliberate strategy. They want to talk the place down. And it's not that long ago, you would remember this, Michelle. Certainly I do that talking the economy down was something that people talk a dim view of right now it's really the whole of their strategy and I think Australians deserve better than the endless negativity that we hear from them and and from some quarters in this national debate about the future. Of course we got big challenges coming at us but we got a lot going for us as well. >> And you're talking there about both the opposition and one nation. >> Yeah. Well I consider them to be one and the same because they've got the same view on super and wages. They've both got this anti-worker agenda. They would all make Australians worse off rather than better off at the worst time. >> Now, we you mentioned productivity. We've had virtually no productivity growth for a long time. And yet, the intergenerational report is assuming an annual productivity increase of 1.2%. This seems very, very optimistic. How much of this is AI going to contribute? And does this mean that if AI does contribute a substantial proportion logically there must be job losses even though I know that the report makes clear that the employment impact is not yet obvious. >> Yeah. Three parts to your question. I mean first of all on the assumption um we revised down the assumption when we came to office. Our predecessors thought it'd be one and a half over the long term. We think 1.2 two on Treasury advice that's a bit lower than a lot of countries we compare ourselves with and a bit higher with than countries like New Zealand. So we're sort of in the middle range on the productivity assumption. There are a range of possibilities above and below that number and the further you go out the more uncertain it is. We acknowledge that. That's the first point. Uh secondly on uh AI um AI will be a big driver uh of more dynamism and more productivity in our economy and that's why we embrace the responsibility to minimize the risks associated with AI. Huge upside uh but considerable risks as well. That's why we're signed up to these global guardrails uh this week. uh it's why we spend so much time managing the downside risks of AI so that we can make uh the most uh of the opportunity and now I forget the third part of your question Michelle um >> job losses >> oh around jobs and so what what we've made clear is to hear in the last few years there's been more augmentation than automation by which we mean uh it is impacting the labor market but not currently displacing a lot of people. We're not complacent about that um because there are risks in the labor market from AI. Amanda Rishworth, my colleague, the employment minister in her characteristically inclusive way brought together a big group of employers in the last few days to try and make sure that we are taking seriously the legitimate concerns that workers have about technological change. I wrote a book about this with Mike Quigley almost a decade ago now. And what it's all about, it's about making sure that we can make people beneficiaries rather than victims of all of this accelerating change that we're seeing in our society and our economy. And AI is really the most transformative of all of those shifts. >> A notable lagard in terms of productivity is the construction sector. Why do you think this is and what are you trying to do about it? >> Well, a big part of our efforts is on skills. you know, making sure that we incentivize apprentices in the construction sector, that we've got the right migration settings to supplement the local workforce, that we're training more people with free TA. And so skills are a big part of the story. Input costs have gone up considerably uh because of the impacts of the war in the Middle East as well. And so, uh there are a lot of pressures in the construction sector. Obviously, they are there are and so we are doing what we can on the human capital side of it. Clearly, we need to see uh housing related inflation come off uh along with the rest of the inflation basket um because the pressures on the construction sector are real and we'll do what we can to turn it around because we're relying on the construction sector to build uh much more homes. Don't the problems include though that uh firstly people don't want to be apprentices these days and secondly uh you've had real difficulties in the union movement in this sector. >> Well, we've come down on the CFMEU like a ton of bricks and for good reason. No government's taken harsher action against the CFMU than the one that Anthony Albanesey leads. So that's that's the first point. We put them into administration. >> It seems to have a concrete head though. Um [laughter] uh well no I think anyone looking at what we've done with the CFMEU would conclude that we've taken very serious action. On your other point about apprentices I'm not I'm not 100% sure about that. >> Free TA though you'd think a lot more people >> there's huge take advantage. >> Well there's huge take up of free TA and we've also got >> but not so good completion rates. Is that right? >> Um you can always do better on completion rates but but I don't understand them to be especially troubling. and we've got extra incentives for apprentices. But, you know, I think a lot of young people um who are good at working with their hands uh can see that there's very considerable money to be made uh once you finish your apprenticeship. And so, uh the more um carpenters and um uh apprentices that we can get into the construction sector, the better. Now the uh intergenerational report assumes an annual economic growth rate of 2% over the next four decades and that compares with 3% >> over the previous four decades. >> The implications of that must be pretty negative. >> Yeah. I mean again growth over the next half a decade or so in Australia is stronger than the major advanced economies. You're quite right to point out the IGR has average growth of around two over the next 40 years. It averaged about three over the last 40 years. It's partly well it's it's substantially a function of uh our population aging. Obviously, people living longer and healthy lives is overwhelmingly a good thing. It's worth every dollar of the pressure that that puts on budgets. It's a welcome reminder of how good our health system is and the contribution that older people make. But it does weigh on the budget and on the economy as well. That's just an economic fact and you can see that in the growth figures. >> This is the first report to put a date on when more Australians will die than be born and that's in the60s. Does the demographic trend of a declining birth rate and an aging population boost the case for migration? And you are a big Australia man. [snorts] And can you sell that message to the Australian electorate? >> I'm not sure I'd describe myself exactly like that, Michelle, particularly having presided over or worked with cabinet colleagues on getting net overseas migration very substantially down. I mean, it's down almost 50% from its peak a few years ago. That's the first point. We've actually been managing net overseas migration down, >> but the peak special factors. >> Yeah. and and we've taken a more active role in normalizing net overseas migration. >> Um I I do see migration as a force for good in our economy and in our community uh and in our country more broadly so long as it's robustly, responsibly, appropriately managed. And that's what the big reform agenda that Tony outlined at the press club's all about. Making sure that migration's in our national interest, including in our national economic interest. And that is important in the context of fertility rates falling further and faster than we anticipated and aging population. You're right to point to that stat in the60s about deaths and births. We will hit that situation much much later than other countries. Uh but we have um the opportunity here to manage net overseas migration down further to more normal levels at the same time as we recognize what an important role it plays in our economy. Now, you and I have talked before about the uh cuts to the NDIS, the savings in that area that the budget projects or hopes for. >> So, can you just give us a brief update of where we are so far on those cuts? >> Well, some of them come in in October uh and some of them later than that. And so, there's been a heap of work in the parliament. And here I salute uh Mark Butler and Katie Gallagher and and the prime minister and the cabinet colleagues working very hard to make sure that we make the NDIS more sustainable. It is big part of our efforts uh to make sure that we save the NDIS from itself that we don't let it be consumed by the skyrocketing costs uh that we inherited uh so that it can continue to deliver for people. And I know that you are I can detect in your questions this time round and on other occasions. I know that you are skeptical, Michelle. >> I am skeptical. >> I know that you are, but I am confident that with all of the work that Mark Butler, Jenny Mallister as well, who plays a key role here, uh all of the work that's being done, uh that we can make the NDIS much more sustainable and that will pay off in intergenerational terms and it will secure the NDIS for the future, which is the most important thing. And are the states uh keeping up their end getting those foundational supports into place or are they lagging? >> Oh, there's always more work to do with the states. Uh and >> so they're lagging, right? >> Well, well, I haven't checked in with uh with Jenny Mallister or Mark Butler in the last couple of weeks. Uh but there are always robust negotiations underway with the states. We respect them. We work with them. Uh but all of these negotiations are typically pretty willing. Now, last week the IMF report described Australia as in a position of relative strength, as it put it, >> but call for further tax reform. >> Uh, you want to give or promise more tax cuts before the 2028 election, but are you up for more structural tax reform, or are you feeling a bit burned? Uh well, not that, but I mean, we're still legislating the the the big tax reform package in the May budget, and you know, the IMF was actually one of the the many parts of the system calling for us to do these difficult housing market reforms and tax reforms which are at the core of the May package. So, we're still legislating that. There's still more work to do to bed down some implementation details in that tax package. So, that's that's the focus. I haven't really thought about beyond that. Um, and in tax reform, when it comes to cutting taxes for workers, the intergenerational report makes it really clear that because we're cutting taxes five times, that means that burden on workers as the population ages will be a little bit less because of our efforts. And so all of this is really important to our intergenerational challenges, but the focus for us right now is to bed on the package we announced in May. Well, you mention uh that reference to uh the five measures that the report makes. The report itself does have something of a political gloss. How closely did you work with Treasury in putting it together? >> Well, I'm not sure that it does. What I tried to do with my speech at the A&U was to wrap some of the big political context around it in the context of people feeling u disconnected perhaps from the economy perhaps disregarded around the world in the report itself. >> Yeah. But that's I don't I don't think it was uh uh a very uh political document. Um >> did you tic tac a lot with the the writers? >> Only in the way that treasurers have always done that. Yeah, there have been seven of these now. You probably covered all of them. Michelle, >> hockey was a bit of a shocker. >> Uh, hockey was probably the worst one >> in terms of the political >> in that regard, but I don't think you could level that charge against this one. I mean, this one, I think people have made that case in the last day or so. the usual suspects have made that case in the last day or so because the IGR makes it so clear that some of the difficult reforms that the government has taken on are absolutely essential to dealing with the pressures identified in the IGR. That doesn't make it political. Uh, I think anyone looking at our intergenerational pressures with any degree of common sense would conclude that making the housing market better and cutting taxes for workers and minimizing the risks of AI and strengthening super, these are all absolutely key. Uh, that's about policy, not about politics. >> Well, speaking of the housing market and your budget changes, do you have any data yet on young people getting into the market since the budget? There's been some lending data from the ABS and from the Reserve Bank in the last I think it's probably about a month ago now uh where there were some encouraging early signs but um I I would caution uh patients on this because we we have said for some time that the impact of our tax reforms in the housing market and elsewhere should be judged over the course of the next few years not the last few months. And we have seen the beginnings of some encouraging signs, but because there's so many other things playing out in the housing market at the moment, uh higher interest rates for example, economic conditions more broadly, seasonal factors, there's a whole bunch of stuff playing out in housing and so we don't get too carried away in either direction. Uh housing is a long-term investment that people make and people should judge our policies over a longer period as well. per capita income has gone back in eight of the past 20 quarters. Given the worsening [clears throat] global outlook, how do you think things will get better from here? Or do you think they'll get better from here? >> I do, but I think the effectively the disastrous impact on our economy and on inflation from the war in the Middle East has a little little longer to run yet. You know, this war has been dragging out for more than 6 months now. From an economic point of view, the end of it can't come soon enough. And so there are a whole bunch of things happening in our economy, but the primary influence on our economy right now is the impact of the war in Iran on global oil prices flowing through to everyone's economy, including ours, and pushing up inflation higher than we'd like, for longer than we'd like, and weighing on growth. And so, who knows when that will end. If we're up to me, it would end today because that's the primary pressure that people are feeling. And there are other pressures as well. So I'm confident that we will get real wages growing again. I'm confident that living standards as the IGR says will rise over time. But I'm also realistic about uh what the next few months look like in the context of you know interest rates going up all around the world, inflation going up all around the world uh and how those things are playing out in our own economy. >> So no time yet on this real wage growth. Um well, you can see in the budget forecasts in May that we expect uh inflation to come down and we've we've actually had decent uh nominal wages growth above 3% for the whole time we're in office. I don't think it was over 3% under our predecessors. And so nominal wages growth has actually been pretty strong. Uh inflation is is the problem in when it comes to real wages. We expect real wages to come back to target uh over time. From an economic point of view, the end of the war can't come soon enough because a return to the target uh ban can't come soon enough either and that's when we'll get real wages growing again. >> You'll be working now on the uh budget update which we get at the end of the year. >> Only just handed down to the IGR yesterday, Michelle, but yeah, probably right today. We'll have some uh discussions about the media update. Yeah. >> So, will that be time a time for significant new measures or will it be literally just an update? No, it it won't be anything like a mini budget. Uh >> not more savings. >> Uh well, we're always looking for ways to improve the budget position. The the big influence on the midyear budget update, unfortunately, is going to be an increase in borrowing costs because if you read the international economic commentary, the biggest thing that's going on right now is the way that bond yields, which are essentially a reflection of borrowing costs are going up around the world and quite substantially. and here in Australia as well. And so the big problematic influence on the midyear update is at this stage likely to be billions of dollars extra to service our borrowing costs. And we're better placed than other countries in this regard when it comes to borrowing costs because our debt is a sliver of what other countries are carrying and we've got it down further since we've been in office from the trajectory that we inherited. But the midyear update, I think one of the things that people can expect to see uh is the damaging impact of higher bond yields uh on everyone's budget, including ours. >> Another big impact that's uh worrying people at the moment, of course, is oil. So, how are we placed now in relation to uh the the whole oil outlook? >> Yeah, on supply, we're doing pretty well. We're not complacent about that. We're actually doing quite well. You know, Chris Bowen and other colleagues, the PM done a wonderful job shoring up and securing our fuel suppliers. And so on the supply front, we're going pretty well, but there's a lot of stuff going on in the Middle East, which is troubling in that regard, but so far so good. Uh price is a is a huge concern. Yeah, we've spent this whole week above $100 a barrel so far, the past week or so, bit over $100 overnight. Uh so that is obviously elevated. So price is a bigger concern right now for us than supply but we can't be complacent on either front. >> Just before we finish we'll change pace. When you uh talk to us you always give us some uh reading to do. So what have you got on the bedside table at the moment? >> I've got that George Megalogenus book which I'm looking forward to getting into and I'm reading James Karan's book about Paul Keading at the moment. um which won't shock you. And I'm starting to think about what summer reading uh might look like. But I've got those two on the go at the moment. >> And and nothing uh pegged down for the summer. >> Not yet. Not yet. But hopefully you have me back. What are we middle of uh September now? So hopefully you'll have me back before Christmas, Michelle. And uh >> that midyear review. >> I give you give you a sense. Give you a sense. my my my buying of books is unfortunately outpacing my reading of books at the moment. So, the stack uh your listeners can't see the arm movements that I'm making right now, but the stack of uh books is getting bigger. Uh so, I've got to I've got to lift my pace over Christmas. >> And there are some very large ones around too. Paul Kelly's for example on the coalition government. >> Yeah. Yeah. I haven't haven't got to that yet, but obviously I thought End of Certainty was one of the great Australian political books of all time. Uh so obviously Paul's got a lot of cred. Uh Ross McMullen also has updated the light on the hill. I launched that with uh prime minister a few weeks ago at national conference. So there's a heap of good reading around and uh hope you'll have me back to talk about it. >> Jim Charas, thank you very much for being with us today and talking about that other large tome, the intergenerational report, which will keep many people busy for a while. Thank you to my producer Ben Roer. We'll be back with another interview soon, but [music] goodbye for now. Production by Ben Roer, theme music by Lee Rose. The conversation is a not for-p profofit media organization. Sign up to our daily newsletter for evidence-based news and analysis, including articles from Michelle Graten, or listen to more of our shows wherever you get your podcasts. >> [music]