MIL-OSI Australia: Morgan Stanley Australia Summit address, Q&A

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Source: Australian Treasurer

JIM CHALMERS:

Thank you very much again for having me here today, and I look forward to taking some of your questions.

TIM CHURCH:

Okay, well, thank you, Treasurer. That was a wonderful presentation. No question, you’ve got the most important job in Canberra – no apologies to Mr Albanese. But this is about the economy. So, let’s kick off. We’ve got a wonderful set of questions from the floor, thank you.

Let’s start with a bit of magic. If you had a magic wand – and I know when you get down to Canberra you think you’ve got a magic wand – a lot of politicians, do – but you’re a pretty sensible, rational one, which we like about as our Treasurer. What would be your top priority to fix? Would it be a longer term of federal parliament? Would it be ridding the deficit? Would it be changing the GST? Or any other fact that you’d like to think about?

CHALMERS:

Well, you’re right that there’s no magic wand, but I think if we could have anything in this [indistinct] we’d have more normal levels of inflation first and foremost. That’s really the thing that keeps me up at night in the way that it would keep some of you up at night as well, is just trying to make sure that we can get inflation down without smashing the economy. And so if you could have anything, you’d have that.

In a policy sense, I really want to land this energy transformation. I’m really, personally very passionate and our group is very passionate about attracting the private capital that is necessary to make us an indispensable part of this global net zero transformation. And I’m confident that we can do that, but it takes a lot of work, a lot of effort, a lot of goodwill and a lot of forward thinking to make sure that we can do that. So in a policy sense, that would be my highest priority if somebody found a magic wand for me.

CHURCH:

That’s a good – and I think, you know, this transition is proving to be quite difficult globally, so it’s not peculiar to Australia. I think it’s very generally all were enthused by the pivot to gas at the moment as an alternative as we transition to more sustainable energy sources. So credit to that.

Over the weekend it was hard to miss the topic of NDIS. There’s a good question here: with the rapid growth in aged pensions and NDIS, how important for Labor is immigration in paying for this going forward?

CHALMERS:

So there’s 2 parts to that. The way we think about the structural pressures on the budget, we’ve got 5 areas of government spending which are growing much quicker than everything else: NDIS; aged care; health care; defence; and the interest on our debt. Those are the 5 fastest growing areas of Commonwealth government spending. And they are more or less responsible for the structural position of the budget. And we’re quite proud of the progress we’ve made in the near time getting the budget in much better nick, getting those interest costs down, reforming the NDIS. We’ve got more to say about aged care. All of that is about making sure that we can deliver these really important things in a sustainable and affordable way. So that’s what drives our thinking.

What does that mean for migration? I think most objective observers of our migration system would conclude that in getting it from, in the 500,000s last year to something in the mid‑200,000s next year. Next year will be half what net overseas migration was last year, so back down towards more normal levels. We’ve got to do that in a really considered and responsible and methodical way. There’s a lot of unfortunate politics here. There’s a lot of kind of noise about it. But we take our responsibilities in the migration system very seriously, and that is to manage it down to more normal levels in a way that doesn’t kind of jolt the economy or make our skills shortage worse.

You don’t fix a housing shortage by making the skills shortage worse. You don’t fix issues with staffing in aged care by making the skills shortage worse. And so obviously migration has always been an important part of our economy. Certainly the post‑war economy has relied heavily on migration. And it will continue to play an important role, but we’re going to manage it down to something which looks like more normal levels.

CHURCH:

Thank you. We just heard from Cliff Obrecht, very successful business globally, Australian made, which we’re very proud of. What ways are the government or how can you help support the attractiveness of Australia to foreign capital, [indistinct] – a lot of foreign capital in Australia?

CHALMERS:

Yeah, and that’s why I appreciate this opportunity. There is so much capital in the world looking for a productive home, and as Australians we want you investing here. And we see our job as a government is to help make that more attractive. Whether it’s the new single front door for investors. We speak with investors right around the world. One of the things that they say about Australia – and we appreciate the candour – is that some other regimes, including in our region but around the world, they do a much better job of concierging some of that investment, particularly in bigger projects that might involve state and federal approvals, that might involve a number of regulatory hoops. You might want to know more about how it interacts with our investment vehicles, our co‑investment opportunities. And so we want to get much better at concierging that investment. That’s part of it, particularly big projects, and particularly big energy projects.

But more broadly as well – you think about our advantages, geopolitical, geographical, meteorological, all of the advantages that we have. You said before the energy transformation is not peculiar to Australia – that’s correct. But our advantages or our combination of advantages are peculiar in the world and make us more attractive. And so our job is to make sure that you’ve got the human capital that you need to succeed here and you’ve got the regulatory arrangements you need to succeed here, you’ve got the foreign investments approvals process as strong and as streamlined as it can be responsibly. All of those sorts of things.

And so we are genuinely working as hard as we can to make Australia as attractive as it can be. We’ve made some progress, but we understand that this is a journey that doesn’t ever kind of end. And so opportunities like this, these are valuable because we want to hear more from you about what it might be that makes us more or less attractive than other opportunities you might be exploring around the world.

CHURCH:

So that’s a perfect segue into the impact of migration, which clearly you need. But then it goes to housing supply. I spend a lot of time with buyers in the real estate sector and the ambition to build 1.2 million homes is a grand one. But it’s just not happening quick enough. And when we look at the number of firms that have been going under, that control currently sits with the state governments from a planning perspective and a local government level. Are you concerned that that target of 1.2 million homes by 2029 won’t get met? Is it something that the federal government will step into [indistinct]?

CHALMERS:

It’s deliberately ambitious. There’s no point setting easy targets. It’s deliberately ambitious. We recognise and we’re upfront with people about how ambitious that 1.2 million homes is. The target period begins in July this year and ends in 2029. And the pipeline for housing construction is not what we need it to be, that’s why we’re acting. That’s why there’s another $6 billion in the Budget, $32 billion in new money overall. It’s because we recognise that in order to hit that 1.2 million homes target, everybody has got to do their bit. The Commonwealth with direct funding but also facilitating private sector funding. There are tax breaks in the Budget before the last one to attract more Build‑to‑Rent investment from around the world. That came as an idea from forums like this one. And so, we’re doing our bit. I’m confident that the states will do their bit as well. But also institutional investors – super funds and other institutions – a lot of interest. We’ve all got to do our bit here. We can achieve this 1.2 million homes target, but not with business as usual.

CHURCH:

In terms of – I think you outlaid a very good set of slides in terms of growing the economy. How much is it dependent on migration and how much is growing [indistinct] and growth in the economy [indistinct] migration a balancing act for you?

CHALMERS:

In a quarter where you get 0.1 per cent growth, you can point to almost any contribution of that growth and say absent that things would be weaker. Of course that’s true. That’s true not just of migration; it’s true of a handful of contributors to that growth number that we saw in the March quarter. So migration is playing a role in the same way that other factors are playing a role.

Our job with migration is to recognise that, we need to respond to the pressures that high migration imposes on communities. That’s why housing is so important. That’s why our infrastructure pipeline is so important. So we’re doing that. We’re managing the migration program, particularly net overseas migration down to half next year what it was last year, as I said before. The permanent intake is a little bit lower in the most recent Budget than it was when Peter Dutton was the Immigration Minister, so that’s come down a little bit as well.

But our responsibility to the Australian people, the Australian community and all of you as investors and employers is to do that in an objective and responsible and carefully calibrated way, not to just pick numbers out of the air or have big jolty movements which make the skills shortage in this economy worse. And so it is a balance. I think you’re right to describe it that way. But I think, a bit like inflation, we can get this down to more normal levels without smashing our economy, and that’s our objective.

CHURCH:

Thank you. The Labor government is rightly credited for creating one of the great strengths of the Australian economy and Australian businesses and for individuals as well with self‑managed super. One of the concerns that is very apparent is this issue of capital gains on balances over $3 million [indistinct] capital gains, paying tax on that. Has that been investigated enough? Is it definitely happening, or is it something that you’ve put out there to review? Because it’s sending a bit of a quiver right through the market.

CHALMERS:

I understand that there are a range of views about it. I don’t pretend that there’s unanimity about it. It’s in the Senate right now. And so, we intend to legislate it. But it’s dependent on other Senators at the moment. We’re in discussions obviously across the parliament to try and legislate it. And this is one of the issues that has come up – the issue around unrealised gains.

We’ve done a couple of rounds of consultation now, and the calculation of unrealised gains exists elsewhere in the superannuation system; it’s not completely new, as some people will say. And so we’ve consulted and we think this is the best way to go about it. Treasury thinks that too. And not because we think that there’s a unanimous agreement to it but because we think it’s the best way forward.

Now, we want to make sure that we can continue to provide very generous tax breaks for superannuation right up and down the scale. But it means for people with the biggest balances – only about half of 1 per cent of people in the system who have got more than $3 million balances – that those tax breaks can still be generous but a little bit less generous than before, and that will help us fund paying the super guarantee on paid parental leave, for example, or other important initiatives to help make the budget add up.

CHURCH:

Very reasonable response. We’ll look with interest to see what the Senate does. I know it says ‘over time’, but like politicians, we’ll just ignore that for one last question.

CHALMERS:

It says ‘over time’ with an exclamation point.

CHURCH:

It’s hard to ignore, but let’s just ignore it for a moment, Treasurer, and let me finish with one final question. We could be off to an election late this year, but I expect 2025. Should you win another term, and you had a strong majority, one thing that I think is surprising many is that we’ve got a consumption tax in the GST that was set almost 25 years ago, and we are the only Western economy that hasn’t altered it from 10 per cent GST. If you had a strong enough majority and a mandate, would that be something that the Labor government would look into amending?

CHALMERS:

It’s not something we’re attracted to, not because we think tax reform is impossible. We’ve shown with multinationals, PRRT, superannuation we talked about, the Production Tax Credits, the tax breaks for small business, there’s an appetite for tax reform in our government. And we’ve been working through it in a methodical way. But the GST change has not been attractive to us. I find that a lot of people, and people of goodwill, good people who put that idea to us from time to time. If you think about the next step beyond that, even if you thought that that was a good idea – you know every cent goes to the states, people want to use an increase in the GST, you’d have to compensate people on low and fixed incomes, you’d have to give all the money to the states, people say it should fund infrastructure, it should be budget repair, all these sorts of things, and before long, you realise that often the same people who are proposing this change to you have kind of spent the proceeds of it 3 or 4 times over.

And so, beyond the distributional challenge that I think is there which is that it impacts people on low and fixed incomes the hardest, once you take it beyond that to the next step if you wanted to do it, I think the call on that extra revenue is really quite substantial. And so it hasn’t been something that’s been attractive to us. We’ve focused our tax reform efforts in other areas.

CHURCH:

Good answer. Well, I am not going to take any more time, Dr Chalmers. It’s now 3 minutes over time, so, firstly, thank you for making time out of your very busy schedule to come and address our most important clients here at Morgan Stanley here in Sydney. And, secondly, for giving us an insight as to how you plan to land this economy safely without too many bumps. That’s incredibly important to, I think [indistinct]. Please join me in thanking Dr Jim Chalmers.

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