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