Interview with Tom Connell, NewsDay
5 May 2023
TOM CONNELL: And certainly one of our top stories. Tuesday's budget, of course, is not far away. The Treasurer, revealing a $112 billion cost of federal debt interest payments. Figure stretched over five years amounts to about $60 million per day Mr. Chalmers has plans to unveil additional savings to the budget next week after inheriting what he calls $100 billion in interest payments gift.
JIM CHALMERS: You wouldn't even be asking me about whether the budget is imbalanced or not. If we had spent half the rate of our predecessors who gave us a trillion dollars in debt and not enough to show for it. What we're seeing now is the immense interest bill on the Liberal party's values. And our job is to clean up the mess that we inherited.
TOM CONNELL: Joining me now for more on this Shadow Finance Minister Jane Hume, thanks very much for your time. Look, Labor and the Coalition each have a shot at each other over this. But this debt was racked up on the Labor most of it under the Coalition but a lot of that was bipartisan spending on COVID. So is this whatever you want to call it debt bomb, actually, bipartisan in nature?
JANE HUME: More importantly, Tom, not only is this not bipartisan in nature, but the accusation that's being leveled at the previous government is so disingenuous. Chris Richardson, who is a very respected economist, said that anybody who uses the phrase, a trillion dollars in Commonwealth debt, either is ignorant, or is using it for political purposes. So I think the question for Jim Chalmers and Katy Gallagher is, which one are you? Do you not understand the problem? Or are you simply trying to make a political point? In fact, net debt, which is by far the more accurate description is around $565 billion. Now, that's not a small amount either. But right now, that net debt to GDP is exactly the same ratio as it was at the beginning of 2020. And why is that? Because good economic management, even in difficult COVID times meant that we have been able to make improvements to that debt. Not only that, but when the debt was increased, it was done. So at very low rates locked in very well, in quite intuitive and clever ways by the Commonwealth, the worst thing you could possibly do now is not bank those surpluses that should be there because of those high commodity prices, because of bracket creep. And because there is such a low level of welfare dependency and a high and a low unemployment rate, thank those surpluses now and bring the debt down, stop talking about pointing backwards into the rearview mirror. What is it you're going to do about it in the future? Because that's the most important thing.
TOM CONNELL: Well, that applies to both sides. So you mentioned that debt that would be preferred economic measure, if you like, but the interest payments are stark, yes, a lot of the debt was locked away into lower figures. But a lot of it's not, we're still having to continue to borrow because we're still in debt. And it's going to be a lot of money. It's going to be one of the biggest calls on the budget. So to fix what's still there, what was there under the Coalition and is there under Labor, the structural deficit? Do you agree you can't just do so through savings measures, we have to look at revenue measures as well,
JANE HUME: I'd certainly agree that the best thing you can do is make savings in the budget. And this government doesn't seem to have any appetite for doing that. More importantly, making savings in the budget. What reining in those spending ambitions is really the only way that you're going to be able to bring inflation under control and inflation is what's what's driving the cost of living crisis that of facing ordinary Australians right now, because the government has not decided to rein in its spending ambitions. It simply means that it's like having one foot on the accelerator with your fiscal policy and one foot on the brake with your monetary policy. The RBA has to do all the heavy lifting, because Jim Chalmers won't. And this is the problem. You know, Australians are making some really difficult decisions with their household budgets right now. Jim Chalmers and Katy Gallagher need to do the same.
TOM CONNELL: Right. But the question was around, can it just happen through savings?
JANE HUME: It must happen through must I want to say yep. What
TOM CONNELL: is revenue raising as well? Is that is that part of it, given the size of this structural deficit? You alluded to Chris Richardson, he calls this structural deficit, about $50 billion, is that the Coalitions plan, 50 billion in savings a yea?
JANE HUME: This government is rolling in revenue, we've seen skyrocketing commodity prices. We've seen bracket creep has essentially meant that the income tax revenue take has grown exponentially. And on top of that, that's as I said, come from very, very low unemployment rates and low welfare dependency if you can't bank that. A drovers dog-
TOM CONNELL: But I’m talking structural deficit.
JANE HUME: Yes, and a drovers dog could bank a surplus right now.
TOM CONNELL: But I’m not talking about that I’m talking about the structural deficit which strips out those one offs.
JANE HUME: Exactly right.
TOM CONNELL: So what I'm asking is what you believe the plan should be to alleviate that $50 billion structural deficit? Do you think any of that needs to come from revenue raising as well?
JANE HUME: We will always believe in lower and simpler and fairer taxes. That's so important to make sure that not only are you getting your budget under control, but you're maintaining economic growth into the future. But we also want to see things like guardrails put back on to spending things like a tax to GDP ratio caps on the number of public servants. And making sure that there is not just offsets in the budget when you announce a new policy, that you're offsetting against something else, but you're actually making those structural saves as well. We want to see product and shank genuine productivity measures, not just saying this policy will be good for productivity, show us how it's actually going to contribute to employment, and otherwise growth in the future. That’s the only way out of the problem.
TOM CONNELL: Such as, something such as the PRRT, which we raise a staggeringly low amount of money on in terms of gas compared to other gas exports? Is it fair enough this should be looked at. So if we raise money here, this could be cuts we don't have to make in our own economy?
JANE HUME: Well, I've heard the story that the rumors about potential raises to the PRRT, we'll see what's in the budget next week and how that might be gone. But what I tell you what my big concern is with the PRRT is you cannot tax your way to prosperity, there is no way a government can tax an economy into prosperity. And the PRRT is simply another tax. More importantly, with there's already so many interventions, particularly in the gas market that we’re putting new investment at risk.
TOM CONNELL: But this is fixing something that was never designed for gas.
JANE HUME: That we're putting new investment off.
TOM CONNELL: You say you can’t tax your way to prosperity. That's you know, we're not I'm not suggesting just do that. I'm just saying, as part of the way to fix a structural deficit, should this be looked at.
JANE HUME: Yet another intervention into the commodity made to the gas markets. I mean, I think that this is a real concern, because it's putting off new investment. If you want to bring down the cost of energy, whether it be petroleum, whether it be gas, whether it be coal, it doesn't really matter what it is, if you want a new investment into our energy mix, well, if you start taxing and if you start intervening, you're potentially putting off it, the only thing you can do is increase supply and you're putting off that new investment. This is just another way on top of price caps are meddling with the mechanism. It's putting off new investors and Australians will pay the price with higher energy prices.
TOM CONNELL: You said before, I'm just trying to pick up with what you said before that tax to GDP was the same now that was in 2020. That’s no-
JANE HUME: Sorry, I didn't I said net debt. Net debt to GDP today is the same as it was at the beginning of 2020.
TOM CONNELL: But that's not accurate is it? It was it's gone from in the order of 25% into the low 30s. We've spent hundreds of billions of dollars since then,
JANE HUME: Net debt to GDP has actually come back as a proportion of GDP. Net debt is now the same as where it was at the beginning of 2020. Now, what we want to see is a tax to GDP ratio, discipline instilled back into the budget.
TOM CONNELL: So hundreds of billions of dollars spent since then, in particular, and COVID. And it's the same percentage. I haven't seen that anywhere else.
JANE HUME: You know, one of the reasons why this is Tom is because inflation, ironically, is good for governments, it allows them to have bracket creep, so that you can have a greater revenue intake, but more importantly, it also reduces the face value of debt. Now, that doesn't mean that it should be an incentive for this government not to tackle inflation. In fact, tackling inflation should be the number one issue in this budget. We would like to see a very specific policy that this budget will tackle inflation because if the government doesn't do it, it's simply wiping its hands, waving the white flag and saying that's the RBA is responsibility and that's not good enough. That's not governing.
TOM CONNELL: We'll leave it there. I'm sure we'll talk next week once we all know Jane what we're talking about and it's no longer the theoretical which is always a relief. Thank you.
JANE HUME: Good on you Tom.