Treasurer Chalmers on boosting migration and a 'resilience' budget

For Treasurer Jim Chalmers, this week’s jobs and skills summit is the prelude to what will be his main game, the October budget.

The summit, to be held in Canberra on Thursday and Friday, still has many moving parts, notably in the intense debate we’re hearing about what changes should be made to the wages system. But Chalmers can already welcome “a broad appetite” for raising permanent migration from the present cap of 160,000.

“We’ve got these skills and labour shortages running rampant through our economy,” he says. “So we need to move on this front, as well as other fronts simultaneously – not as a substitute for doing something meaningful on skills and training, but in addition to doing that”.

He accepts that boosting immigration will impose pressures, notably on housing. “That’s why I’ve been speaking a lot in the last week or so about housing, trying to work with the super funds and other big investors to see where we can incentivise some more investment in housing.”

On skills and training, Anthony Albanese will speak to premiers on Wednesday about “some of the things we might be able to advance”.

Ahead of the summit, Chalmers has been pleasantly surprised he’s had to do less beating back demands than he’d expected. “I thought that there was a risk that I’d just be sent a whole bunch of invoices for big, expensive policy ideas and asked to sort it out.” But people had recognised the constraints of the debt situation and that everything couldn’t be funded.

So for him, “there’s been less of the saying no, and there’s been more facilitating really productive conversations.”

Looking to the budget, Chalmers says it will be “very workmanlike” and not a great surprise packet. “I think it will be a budget where people know what’s coming.”

Despite calls for the government’s childcare package to be brought forward, Chalmers says the start date will remain at July next year. Acceleration was ruled out because of expense and possible operational difficulties.

He has an “open mind” on allowing older people to work more without losing their pension but “we would need to make sure that the costs would be worth it”.

“A theme of the budget will be around resilience – at a personal level, the community level, and at the national level,” Chalmers says.

A decade of conflict and “warped priorities” has made the Australian economy and its people more vulnerable to international shocks and health shocks, he says. “So my job, as I see it, and our job as a government is to take a community and an economy and a budget which is more vulnerable than it should be and to make it more resilient.

"And that’s why implementing our commitments, providing cost of living relief, trying to get value for money in the budget, dealing with the issues in the labour market [are] all so important.”

EDITED TRANSCRIPT

MICHELLE GRATTAN: Jim Chalmers, the unions and at least some of the employer representatives seem a good distance apart on the bargaining system. Do you think consensus can be reached on a set of industrial relations changes?

JIM CHALMERS: I think there’s agreement already that the enterprise bargaining system isn’t working as we want it to, and there are different reasons why people have come to that view. But in an overarching sense, and certainly from our point of view, it’s not delivered that strong, sustainable, responsible wages growth that we want to see. So I think, in the broadest sense, there’s an agreement that we can do better. And I’ve actually been really heartened by the way that the unions and the employer groups have genuinely engaged in some of these issues. There hasn’t been the kind of old-style clash of armies around industrial relations. And we find that very encouraging, very heartening.

GRATTAN: Tony Burke appears to have all but given the nod to multi-employer bargaining. But in terms of outcomes, how big a difference would a move to that sector bargaining make to the rate of wage growth do you think? Is there any modelling on this?

CHALMERS: It depends how it’s applied. We want to see a discussion of multi-employer bargaining at the summit. If there’s an idea which is about getting wages growing again after a decade of stagnation, then we want to hear it and we want it to be teased out at the summit. That is, in many ways, one of the points of having the summit in the first place. And so there are different models for multi-employer bargaining. And we’ll hear all of them, no doubt, over the next couple of days and how it’s applied will determine what it means for wages.

But I think when it comes to wages, stagnant wages have probably been the defining problem in the economy now for the best part of a decade. And I don’t want to get partisan about our predecessors and the policy that they pursued of deliberate wage suppression and stagnation but that’s where we are right now. And so if you want to get wages moving again, you’ve got to fix bargaining, which is what we’re talking about now. You’ve got to train people for higher-skilled opportunities, you’ve got to fix childcare so newer parents, especially mums can work more and earn more if they want to. You’ve got to get all of these pieces right at the same time. And that’s why the summit’s been so useful as an organising principle for the government and for the broader community because it recognises that there’s not one switch that we can flick to get wages growing, and we need to move on all fronts simultaneously. And that’s what we’ll do.

GRATTAN: Let me put this another way. What rate of wages growth is desirable in your view?

CHALMERS: It depends on how much productivity growth you can get. Productivity growth gets lost in the kind of egg-headedness of economic jargon. But productivity is really about investing in people sufficiently that they can adapt and adopt technology in a way that benefits the workplace and the broader economy beyond that, as well. So if you can get productivity growing again, and it’s been flat for too long, and if you get some of that wages growth by bargaining, skilling up, childcare - all of these other ways - then there’s no reason why we can’t have much stronger, but yet still sustainable wages growth.

I’m reluctant to do what the Reserve Bank and others have done which is to try and put a figure on it - about three and a half per cent in their estimation - which is the middle point of inflation, targeting at two and a half percent plus a percentage point of productivity. I would like to get productivity going again and make our economy more competitive at the same time as we get wages growing again.

And on top of that, we’ve got this huge inflation challenge right now, which is primarily but not exclusively given to us by the rest of the world. And that matters in this equation, too, because real wages are going backwards. So we need to work where we can to moderate inflation, we need to get wages growing again. And we can find a really good balance point where people who are working hard can actually get ahead again in this economy.

GRATTAN: On that inflation problem, you’ve indicated you think inflation will peak at around seven and three quarters percent by the end of the year. But are you now optimistic that we will see it peaking at the end of the year - that it won’t continue growing into next calendar year and that will be the high point - 7.75%?

CHALMERS: It’s notoriously hard to peg but the treasury’s estimation - their modelling, their forecasts - say that inflation, as you say, will hit about seven and three quarters by the end of the year and then start to moderate and then get to more normal levels in 2024.

GRATTAN: That’s still current?

CHALMERS: That’s still current. And the next opportunity to update that will be in the October budget and I’ll do that. We’ve been heartened by the fact that inflation in the US and the UK - which is extremely high - we’ve got a reasonable number in the US not that long ago, the UK has got a bit further to go. But we’ll be watching closely what happens on the international scene because so much of this is brought to us from overseas. And we will update our forecasts if we need to, but nothing has substantially changed to change my view about those treasury forecasts.

GRATTAN: So in bringing down inflation, that tends to push up unemployment, right? Do you think unemployment will rise substantially in this fight against inflation or only a little?

CHALMERS: Not if we get all the settings right. And by ‘we’ I mean there’s an important role for the Reserve Bank taking their decisions independently to balance their full employment objective with their inflation targeting objective. That’s the hard task that they have before them. The Americans and the Brits and others are managing a similar set of circumstances in a way that most people expect the US economy to be going backwards. And so we have to do better than that broadly when it comes to our our policy settings. Our expectations in the treasury forecast is that unemployment will tick up a little bit but not a lot.

GRATTAN: What do you mean by a little bit?

CHALMERS: The forecasts that I released in the Ministerial Statement had it edging up around four per cent rather than 3.4 at the moment. That is partly a story about interest rates but it’s also a story about the global conditions which are extremely tricky right now and that’s why I keep coming back to them.

Our job, our goal, our aspiration, our objective, the point of the jobs summit and the point of our economic policy is to try and keep unemployment as low as we can and to get wages growing at the same time and that’s why our focus is on all of these areas we’ve been talking about.

GRATTAN: Now, we do seem to have some agreement about more permanent migration and there’s been talk of the cap going from 160,000 to around 200,000. Do you have any hard data on the outcome of that? What benefit would flow to the economy from, say, 200,000?

CHALMERS: A couple of things about that. I don’t want to pre-empt the outcome of the summit, of course, but I think there is a broad appetite for a lift in our migration intake. It needs to be sensible, it needs to not be a substitute for training local people for opportunities. But we’ve got these skills and labour shortages running rampant through our economy, particularly in some parts of Australia and some parts of our economy. And so we need to move on this front as well as the other fronts simultaneously - not as a substitute for doing something meaningful on skills and training but in addition to doing that.

I’m confident that we’ll get to a sensible landing point. The economic benefits there are pretty obvious. Almost every day I do some kind of consultation with business groups around Australia and with regional communities and with others and people are screaming out for more workers, skilled workers, but also workers more broadly. And so we’ve got to get a landing here. The benefits for the economy will be obvious. There are a lot of businesses that are only operating at half pace or half time because they can’t find the workers that they need. If we can take that handbrake off, then we’ll grow the economy more than otherwise.

GRATTAN: What about the immediate problems that an increase in migration undoubtedly brings in terms of the strain on the health system, on housing, so on, especially as things are at the moment?

CHALMERS: First of all, migration brings immense benefits to our economy, not just our labour market, but more broadly as well, point taken. I think that’s broadly agreed, but yes, it does throw up some other pressures too. And that’s why I’ve been speaking a lot in the last week or so about housing, trying to work with the super funds and other big investors, to see where we can incentivise some more investment in housing. I did a forum in Rockhampton a couple of weeks ago, where every business around there said we’ve got, really around the table there were thousands of vacancies in a great Queensland town, in great industries, big employer industries with secure well-paid jobs. But they needed to find somewhere to put people in order to attract them, and so that message has been heard loud and clear by us. We’ve got some existing policies on housing, but we’ll need to do more, and I’ll work with the super funds and others to make that possible.

GRATTAN: But of course, you’ve got a time problem here, you need the houses now, if migrants are coming in more numbers, and yet, if you’re talking about investment, that takes a while.

CHALMERS: We’ve got to get cracking then.

GRATTAN: Alright, now you talk about training locals. And of course, there was a statement from the ACTU and business groups the other day, agreeing on the need to do this. One tangible point they made was, they think there should be more money put into apprenticeships, generally, but also to pay apprentices more and employers, you up for any more money?

CHALMERS: I’m certainly up for more intelligent, responsive investment in the skills system. We’ve already got big commitments of billions of dollars in skills and education. And we’ve got to work out how is that best timed, how is it best set up, so that we’re dealing particularly with the skill shortages as they evolve in the economy. And so there are better ways we can even deliver our existing policies. The Prime Minister will be talking with the Premiers this week, on Wednesday this week, about skills and training and some of the things we might be able to advance ahead of the jobs and skills summit. And I’ve been working closely with Brendan O'Connor, to see what else we might be able to do. The skills and training system needs to change. It hasn’t been responsive enough. It’s not turning out the graduates that we need to see in the areas that we need to see them. Brendan’s been working around the clock, with our support, to see what we could do better.

GRATTAN: Do you agree with this point that apprentices can’t adequately live on what they’re paid and more government help is needed in this area?

CHALMERS: That’s one of the issues, but it’s not been the issue that we’ve been primarily focused on. We’ve been primarily focused on trying to work out, where are the genuine shortages, and how quickly can we train people for those opportunities. If you take a step back, well there’s two ways to take a step back here. I’ll try and be brief because I’m passionate about this. You mentioned the ACTU employer groups, about skills. One of the most heartening things about this whole process, is it’s not a government sitting there referring competing claims, it’s a lot of these groups, union, employer groups working together, and then coming to us with something that they’ve worked out. That has been tremendous, that has been so heartening and encouraging to see that. The second way you can think about all of this is, when you’ve got unemployment at 3.4 per cent. You’ve got a tight labour market, you’ve got some other things going for us in the economy, but you’ve got these big challenges. Our overarching task, our reason for being as a Labor Government, the reason I’m a member of parliament, representing Logan City and Queensland, is because we need to get much better, at not just creating opportunities, but making sure that more people from more postcodes, can actually access those opportunities. We’ve got a big willing workforce out there, if we’re prepared to do the work to skill them up and train them up, and hook them up with these opportunities. That’s primarily a role for the skills and training system, and that’s why it will be one of the biggest focuses of the Summit.

GRATTAN: Seems to me at this summit, is Treasurer, you have two tasks. One is promoting a path to consensus and agreement, but the other is saying no to stakeholders on their wish lists. How do you balance those?

CHALMERS: To be honest with you, Michelle, there has been less of the latter than I anticipated. To be frank about it, I thought, a month or two ago, I thought that there was a risk that I’d just be sent a whole bunch of invoices for big expensive policy ideas, and asked to sort it out. What’s happened has been something very different. People recognise the budget is heaving with a trillion dollars in debt, and that we can’t fund everything that we want to fund. So they’re trying to work out, how do we make progress without imposing, massive additional strain on a budget, which is already awash with red ink. And so there’s been less of the saying no, and there’s been more facilitating really productive conversations. What that tells me, is that the the tone that Anthony Albanese has set, and the effort that we’ve put in to genuinely bring people together around our economic challenges, has already in some senses paid-off. Because people are having conversations they weren’t having four and five and six years ago. They’re genuinely trying to find some common ground and we’re not naive about that. Not everyone’s going to come there and hold hands and agree on everything. It’d be pointless if we already had all the same views about everything. There’ll be some contentious stuff, there’ll be some stuff that we can’t advance, but already the appetite to work together, and to come together, has been very encouraging. And I’m confident, cautiously optimistic, that at the end of the Summit, that people will agree that it’s been worth the effort.

GRATTAN: Now, as soon as the summit is over, the budget will loom. Can you give us a flavour of the budget? Is the main purpose to implement the election promises with perhaps a little extra in the way of measures, and how tough is the cutting process going to be?

CHALMERS: It’s tough in the sense that it requires a lot of work. Katy Gallagher, my colleague and friend, has been doing a heap of work to go through the budget, line by line, with treasury and finance, to work out where we can responsibly cut things back, particularly, when it comes to dealing with that legacy of rorts and waste that we’ve seen in the budget. So that’s part of the task, another part of the task is providing responsible, affordable cost of living relief, where it delivers another economic benefit. So child care obviously has a benefit for the labour market, as well as providing cost of living relief. medicine costs, has a benefit for health care, but also provides cost of living relief. Getting wages moving is a big part of our cost of living policies as well. And then, as you rightly identify, we’ve got to budget for our commitments, and also budget for any commitments that might come out of the jobs and skills summit. So I think it’ll be a very workman-like budget, I think it will be a budget where people know what’s coming.

GRATTAN: Not a surprise Budget.

CHALMERS: Just in the sense that people know what our priorities are, because we just took them to an election. And people know what our emphasis is because we’ve just taken it to a jobs summit. And so in that regard, I think it’ll be very, in lots of ways, unsurprising. But also sitting over the top of it, and what unites the summit, the budget, the Government itself, is not just bringing people together around the challenges, but also trying to make our economy more resilient. I think the theme of the Budget will be around resilience at the personal level, the community level, and at the national level. The costs and consequences of this decade of needless conflict and division, and wasted opportunities and warped priorities, has made our economy and our people more vulnerable to these sorts of international shocks, and health shocks that we’ve seen right now. And so my job as I see it, and our job as a Government is to take a community, and an economy and a budget, which is more vulnerable than it should be, and to make it more resilient. And that’s why implementing our commitments, providing cost of living relief, trying to get value for money in the Budget, dealing with the issues in the labour market, they’re also important.

GRATTAN: Talking about cost of living, last week, you were asked about bringing child care forward, improved child care system, and you sent out some conflicting messages.

CHALMERS: I didn’t mean to Michelle.

GRATTAN: Can we just clear that up? Is that a possibility?

CHALMERS: Of course we can Michelle, and it was a burst of candor, and Patricia Karvelas can do that to you sometimes, you forget that a lot of people are listening.

CHALMERS: The truth is we had a look at it and it’s very expensive, and there might be operational issues around rushing it. And so we decided against bringing it forward. Good people that we respect like Jay Weatherill even this week has called for it to be delivered earlier. We think it will be a game changer for Australian parents. We think it’s a really important policy, almost $5 billion of investment, in a key economic reform to be delivered in July. It’ll be really important when it does come in - that’s not that far away. We had a look at all the alternatives - Anne Aly, Jason Clare and myself. I think your listeners and subscribers should expect that that policy will be implemented in July.

GRATTAN: And they should be expecting to pay more for their petrol in September when that runs out?

CHALMERS: That’s the unfortunate reality of the budget -

GRATTAN: You’re not moving on that?

CHALMERS: No. And we said that before the election, during the election, and after the election. It costs about $3 billion to extend it even for six months. A budget, which is full of all of this debt that we inherited, cannot carry an expense of that kind.

GRATTAN: Now, the other issue is pressure to do something in the way of encouraging older people to stay in the workforce by changing pension arrangements - where are you up to on that?

CHALMERS: We have had a look at this. We had a look in before the election and subsequently - we’re still doing work on it. We would need to make sure that the cost would be worth it. It’s actually more costly than people assume because a lot of people who are working right now would then qualify for the pension, come on to the pension. And that’s where the costly bit is. We also want to make sure it’s effective. We haven’t found a lot of evidence so far that people are targeting that $490 that they can currently earn per fortnight. But we’ve got a relatively open mind to it. We know it will come out of the jobs and skills summit - that’s a good thing. And I’ve got an open mind. I certainly listen to people’s views but we need to recognise there’s costs associated with it and we want to make sure we get bang for buck.

GRATTAN: Just on this point of a wellbeing assessment, a wellbeing budget - is this a sort of cost benefit analysis? It’s a bit unclear to me what a wellbeing budget is, although my colleague Peter Martin has been erudite on this.

CHALMERS: He has. I read everything Peter writes about this. I think the best way to understand what we’re trying to do here is to measure what matters in our economy and in our society. We’ve got all these traditional measures of the economy, which I’m not suggesting for a moment we abandon. But in addition to that, we should get better at measuring environmental outcomes, health outcomes, other things that are crucial to our economy. I think there’s been an awakening around the world. Other countries are doing this. The OECD has got a system. The Kiwis across the ditch have got a system. I would love to broaden out the conversation about economic benefit by measuring what matters in our economy. And so what I’ll do in October in the budget - you’re read a lot of budgets, Michelle, in your time, you know that there’s a thing called Budget Statement 4 and it’s always a forward-looking piece. In Budget Statement 4 I will indicate where I’m headed on wellbeing and on measuring what matters.. At some subsequent point, probably next year, we will release a set of indicators that we want people to engage with. It’s been really quite amazing the level of engagement we’ve had already on this idea people come from everywhere around the world and around Australia, because there is an appetite to measure progress differently in our economy. And I’m up for that. I’m a believer in that.

GRATTAN: On the numbers, you will in fact be looking at a better up starting bottom line then was expected in the Josh Frydenberg budget, right? So will any of this windfall be used to spend on somethings or will it be put to the bottom line?

CHALMERS: Firstly, you’re right. The budget outcome for last year will be quite substantially better than what was predicted in the pre-election fiscal outlook. That’s for a couple of reasons that we can’t count on unfortunately going forward. First of all, commodity prices were just through the roof and that delivered a benefit that governments can’t take credit for. And secondly, a lot of the spending that was promised by our predecessors, they didn’t get it out of the door. So it wasn’t spent in that year and so that’s improved the budget bottom line for that year, but put pressure on subsequent years. I don’t necessarily see that in terms of do we bank that or do we spend it for the sake of spending it, but there are a lot of spending pressures which weren’t budgeted for when government changed hands. A lot of the pandemic spending that we’ve had to do in Mark Butler’s portfolio has been necessary but not budgeted for by our predecessors. So inevitably, some of that improvement will go towards some of this unavoidable spending.

GRATTAN: Just finally, we’re having a debate now quite an intense debate about whether the stage three tax cuts should be reworked or scrapped or kept. Now Anthony Albanese has recommitted to them. But can I just ask you, how do you see these in terms of a burden on the budget? They are going to cost a great deal over a decade. How would you characterise them in terms of the impact positively and negatively?

CHALMERS: I think it’s self-evident that they’re very expensive for the budget. I think that’s been known throughout but our position on them hasn’t changed. It’s important to remember that even if a government were to tweak those stage three tax cuts, they don’t come in for another couple of years. So they have absolutely no bearing on some of these challenges that we’re dealing with right now. We haven’t changed our position on those tax cuts. We’ve said that our priority in tax reform is multinational taxes and we’ve got a full agenda in the near term, particularly around some of these labour market issues that have motivated the Jobs and Skills summit. So that’s our priority. That’s what the Government’s working on. We haven’t changed our position on stage three.

GRATTAN: The then-opposition criticised them at the time, of course, quite strongly while voting for them in the end. Do you see them as having any positive economic implications as well as the negative ones for the budget?

CHALMERS: I think it’s important to remember that these tax cuts kick in at $45,000. For a lot of Australians with quite modest incomes, they will be getting an additional tax cuts in stage three - we shouldn’t lightly dismiss that. People are focused for understandable reasons on other parts of the income scale, but we shouldn’t forget that they kick in at $45,000. And so obviously if you can provide tax relief to people on those sorts of incomes - middle incomes - and if you can afford to do so then that obviously has a potential economic benefit. But again, nothing that people are proposing to do with stage three would alter the fundamentals of the budget over the next couple of years, the inflation challenge that we’re dealing with right now, the issues with wages. And so the Government is focused on that. We haven’t changed our position on the tax cuts.

GRATTAN: So they will definitely stay: L - A - W?

CHALMERS: That’s the commitment that we made before the election. We were serious when we made that commitment. We haven’t changed it, subsequently.