Loading summary
Transcript80 lines
- [00:02]
A
Hello and welcome to Inside Politics. I'm Jacqueline Maley now in Canberra this week. There's obviously a lot going on with the Liberal Party. At the time of recording, Angus Taylor had just resigned from the opposition front bench, clearing the way to contest the Liberal leadership. We're going to keep you posted on that as the news transpires. But for our regular show this week, we're going to focus on bigger picture issues like the budget and government spending stuff which actually affects people's lives, dare we say it's interest rates have gone up and we're hearing a lot about how too much government spending may or may not have contributed to inflation. So we're going to get to the bottom of that today as well as throwing forward to the May budget and what fiscal reforms we might be able to expect. And no one has more expertise in this subject than podcast favourite Shane Reich, our chief economics correspondent. He joins me from Canberra with Natasia Chrysanthos, who is also a favourite of the podcast. She is our chief political reporter. Hi, Gu.
- [01:01]
B
I'm just wondering who is the special guest star today? I think Tas is the special, special guest star.
- [01:08]
A
Thanks.
- [01:09]
B
Sorting into the economic and budget world. She is extra special.
- [01:13]
A
Yeah. Well, she's certainly, she's certainly a polymath, Tas. She can, she can talk about politics, she can talk about economics. She's about to give us a treatise on capital gains tax. That's me, Shane and Tass. You guys wrote a piece this week for our newspapers about the key areas where there is major press on the federal budget pressure that is escalating. What was the genesis for that piece?
- [01:38]
B
Shane, this is going to the whole argument about what the Reserve bank did a fortnight ago when they took the cash rate from 3.6 to 3.85. And the coalition and some economists said, right, the inflation that the Reserve bank is trying to deal with is being driven by government spending. It's one of the key factors. So rather than just accept people shooting off at the hip TAs and I decided, hey, let's go looking for some facts and see what we can find. And ever since then this issue has continued. I've just come out of, say, a Senate estimates hearing where Mishell Bullock, you could see a clearly frustrated. In fact, it's the most I've seen Michelle Bullock frustrated, getting asked questions after question from coalition senators about the contribution of government spending towards aggregate demand, the pace of economic growth and the pace of inflation. So that is, that's where this all starts with.
- [02:37]
A
Yeah. So it's part of a political attempt, basically from the coalition to blame labor for the interest rate rise, essentially, which is hurting mortgagees across the country, because it's this whole issue of whether or not the government is basically pumping way too much money into the economy and thereby forcing prices up, or whether or not it's more about private spending, which is what the treasurer, Jim Chalmers, sort of tried to say after the interest rate rise. Right. Is that right, Tas?
- [03:03]
C
Yeah. And so you've got Chalmers kind of emphasizing the role of private spending, so spending by consumers and businesses and households. Ted o', Brien, the opposition shadow treasurer, emphasizing the role of government spending. And so I guess what we decided to do was dive into the part that the government does have control over, which is government spending, and kind of quantify whether it was this kind of big runaway budget bill, as the opposition has been characterizing it, and if so, why.
- [03:33]
A
Yeah. So what did you find? You looked at the sort of main areas of pressure on spending, the big, big budget items, and the ones that are being pushed up, where the prices do seem to be blowing out a lot. So tell us what you found.
- [03:45]
C
So to kind of get a headline figure, what we did was we looked at Josh Frydenberg's final budget from 2223, where he had projections for this financial year. Then we looked at Jim Chalmers first budget for, from later that year, October 22, and his projections for this financial year. And then we looked at what spending will actually come in at this financial year. And that's how you can kind of detect, I suppose, that there has been a blowout, some might call it, in what the government anticipated it would be spending this year.
- [04:18]
B
The other thing you immediately get into, you have to start putting asterisks around some of these assumptions. The first one being what Josh Frydenberg was forecasting, was that accurate to begin with.
- [04:30]
C
What we found is that the total spend for this year is still even above Chalmer's own analysis. So for our listeners, the government, according to the December forecast just from two months ago, will spend about $787 billion this financial year. And so that figure is $100 billion more thereabouts than Frydenberg had predicted from this year. It's $58 billion more than what Chalmers thought he'd been spending this year back in 22 when he gave his first budget. And it's even $9 billion more than was forecast just in May, sorry, March last year, because we had an election March last year. But as we kind of then dive into that's because there are some very acute pressures on the budget from a range of things.
- [05:18]
B
Jackie, you and I have discussed my anger over how veterans and their compensation were treated by the previous government. This government's actually had to find an extra 13 billion, including it's about 5 billion this year that is owed to veterans. They'd been clogged up in the Veteran affairs department because not enough staff had been put into that department. So it's a false savings. So, yeah, like 5 billion sounds a lot and it is, but the Australian economy is about 2.7, $2.8 trillion. So I always try to put into some perspective all the government spending versus what is actually going on in the economy.
- [06:02]
A
Yeah, ok, so let's just to summarise what we've sort of said so far. Basically there was accounting trickery in Josh Frydensburg's last budget that basically made the forward estimates seem much lower than actually they were always going to be. But even accounting for that, the government has obviously taken spending decisions and they're big headline items that they promised at, you know, two election. But it's stuff like, yeah, boosting aged care, boosting defence spending and also, you know, measures like, I suppose, slashing people's HECS debts and also they had wages decisions which you've talked about. So in the childcare and aged care sectors, which were historically very low paid industries and feminised industries, the government's sort of taken a few decisions which have led to pay rises in those areas. There's also the ndis. Shane, tell us about the NDIS and why that has blown out so much. So to give Listers an idea, it's costing $52 billion in this financial year which is 43% more than was forecast four years ago. That's a huge blowout.
- [07:02]
B
It is. Again, back to my asterisks. The estimations that were made were wrong. They were simply wrong and had underestimate what was going on because we know, because under Bill shorten there had been a lot of action in terms of trying to wind it back, but it is the third largest discrete program within the budget after the GST and the age pension.
- [07:24]
C
And with the ndis, I think, and both governments have found this, it's a very loose scheme like a. It's demand driven so there's no cap theoretically to how big it can grow and the, you know, and you have all these structural issues with the ndis. But the NDIS kind of problem, if you will, at its core is that when the NDIS was designed and created. There was supposed to be the NDIS which gave these individual plans to people with, you know, severe and lifelong disability. And there was still supposed to be other disability services run through health education elsewhere in the system.
- [08:02]
B
Largely at the state level too.
- [08:03]
C
Largely at the state level. That never happened. Everyone kind of flocked to the ndis. The NDIS is, I think it was only ever anticipated to cater for half a million people. It's well and truly past that. The pricing system is out of sync with the rest of kind of health, aged care, disability services. So it's very expensive. There wasn't a lot of kind of integrity in the system. You know, in many situations people weren't even expected to provide receipts. And so you had it grow at 20% a year for the last few years. And there have been a bunch of changes to try and bring that down. It's, it's just under 10% now. They're trying to get it to 8% and then they'll try and get it to 5%. But that is obviously growing at 20% every year for a few years. It makes it a huge runaway cost for the budget.
- [08:50]
A
Yeah, which a future coalition government would inherit that same problem. As you say, the labor government has tried to rein it in a little bit and particularly to get people, I think with lower level disabilities, you know, people like kids with adhd, for example, onto different schemes, state based schemes, rather than be on the ndis. There are also childcare costs, so they rate a special mention because they're up a lot. They're up 53 from four years ago. So they're costing 16.2 billion, which is quite a big figure even in the context of, you know, a $786 billion sort of overall budget. Shane, why have they gone up so much?
- [09:29]
B
Well, this is government policy. We touch upon this. The increase in spending is partly driven by the decisions of this government. So the childcare subsidy and the increase in wages for childcare workers ultimately hits the budget bottom line. And you, me and Tass and everybody else pay for it through taxes. So that's one of them. Ultimately, if you look at the broad areas of expenditure, health is enormous. So the Medicare urgent care clinics where I took my wife at the weekend after tripping over at a Parkrun and tried to break her wrist, that is.
- [10:14]
A
Government policy and that's to take the pressure off casualty deployments. Basically, if you have something like a broken wrist which needs acute care but is not sort of life threatening, then you can go to an urgent care clinic.
- [10:26]
B
That's right. So rather than clog up Canberra Base Hospital or Canberra Central Hospital, we went to one of these and we're in and out very quickly but it costs taxpayers.
- [10:35]
C
And the other big one in health is the centrepiece of the Albanese government's reelection campaign which was a $8.5 billion investment in Medicare rebates.
- [10:44]
A
Yeah.
- [10:45]
C
Which is controversial as well as pharmaceutical co payment so medicine co payment being brought down to $25. So they have that. Labor is explicitly campaigned on those huge increases in spending in health which is one part and then the other part of health is, you know, for example in the case of public hospitals, the government only at the end of last month finalised a deal with the states after. After it dragged on for months and months and months because state hospitals, which gets to the urgent care clinic issue as well but state hospitals are being overwhelmed and the states are then asking the federal government to cough up more money because the states don't have enough money to meet that extra demand. And so you had at the end of the last month the federal government agree to pay $25 billion extra than what it was planning to to the states over five years. So that extra health spending, sorry is coming from. From changes like we're getting older, we're needing more care for longer and politics.
- [11:42]
B
Speak for yourself. Jackie and I are getting. Jackie and I aren't getting older.
- [11:46]
A
We know that we're certainly getting fitter because, you know, we're running a lot. Right. Shane, do you think. I mean on Medicare because obviously one of the huge issues that Albanese campaigned on at the last election was to bring. To bring up bulk billing rates because it hasn't escaped people's notice that even though Medicare is supposed to be free and we're supposed to get free primary health care at least most gps it seems these days charge a gap fee. Certainly mine does and it's quite a hefty gap fee and I know that the government put a lot of money into that and they have brought up bulk billing rates but it just seems to me that at some point Australians are probably going to have to accept the fact that they are going to have to, on an ongoing basis pay gap fees or pay a co payment towards Medicare, which is what Tony Abbott said many years ago and was sort of like roundly criticised for.
- [12:35]
C
Yeah, I think the interesting issue with this one as well is the equity piece. Right. Like there are people who'll be able to fork out an extra $50 to go to the GP, you know, people earning Good wages and whatnot. The problem is people who can't afford that, who delay healthcare and that becomes a, you know, extra, more expensive burden on the health system in crude terms, down the track. And I think that is where the government has done a good job in how it's tailored this investment, in that it's not just pumping. It's not like childcare, where it's just kind of pumping money into a subsidy with no guarantee that the provider is going to keep prices low. No, in fact, that's been the problem, I think, with childcare. Whereas with these health rebates, what the government did was tie that additional funding to a guarantee that there would be no cost passed on to the consumer. So at least this one is kind of ensuring that there's a bang for buck in that this government subsidy is ensuring that a vulnerable person, for example, doesn't pay out of pocket and can see a gp.
- [13:43]
A
Yeah. And it just doesn't push up prices overall. Which brings us back to our original question, which is, is public spending from the government pushing up inflation? Did you guys come down on one side or the other?
- [13:53]
B
No. And that's.
- [13:55]
A
And that's a typical economist, you know, I would expect, expect that from you, Shane. Just weighing up each side, refusing to take a firm position. You know, it's just the dismal science in carnage.
- [14:08]
B
It is a very dismal science, but in this case it is very difficult. So let's walk through it. You get to. I'm sitting in the Reserve bank board room on Tuesday fortnight ago and I'm going, right, my forecasts are saying inflation's going up, I've got to lift interest rates, do I? Why is that? And the answer always comes back, it's aggregate demand. And aggregate demand is what the public is spending and what the private sector is spending. The private sector accounts for about 3/4 of all spending. So let's put that into some context. And Michelle Bullock actually made the point saying, we've looked at it fiscal, as in, government spending is about what we thought it was going to be.
- [14:53]
C
Right.
- [14:54]
B
So their forecasts over the last six months said, we'll think that's what's going on with the public sector. Private sector is what surprised us. It is households, they've got a bit more income and they are spending it. And we saw that in some of the retail data that's come out, the data centres that are being built, which are long term, really important as a productivity.
- [15:14]
A
It's kind of like infrastructure spending, really.
- [15:16]
B
They are. And the Private, that's all. Private sector, for instance. And you go, okay, that's been the big surprise. And what's the overseas, what's going on overseas? Donald Trump has not destroyed the global economy. China and the US are not in a global trade war. That means the global outlook's pretty good. That's probably influenced our economy a bit more as well. So you go right out. So ultimately, what's changed? It's the private sector. And so, right. Interest rates are going to have to go up. However, the political argument is, well, if the government had known that this was coming, well, you should be cutting back on their spending so it would give the private sector more space to grow without putting that pressure on interest rates. Of course, that is, we have to go back in time to March, April, May and go radio the second half of 2025. The world's not going to come to an end. All these data centers that we didn't know existed. Ah, we should have guessed that the private sector is going to say we're going to spend an extra $25 billion in six months on data centers. We should have known that. So this is why I go, you can't tell because there are so many different things going on. That's why I love economics. Yeah, I can skip out on a hard core answer just for you, Jackie.
- [16:36]
A
No, and I don't mean to criticise because we value nuance and uncertainty in this podcast. We sit and we have space for it. Stop it. We do. But I mean, it's just interesting because that's the sort of, that's the economics and that sounds extremely sensible to me and extremely rational. And then there's the politics of it, which is this is a weak spot for the government. They do have a lot of these big spending items. Labor is always vulnerable to cries of, you know, being a big spending, big taxing government, which is exactly what the opposition is saying now, if and when it sort of has its act together on its own terms. I'm just wondering what the political vulnerability is here for the government task, particularly as we go forward towards the budget. Like, do they need to make some big spending cut decisions to give themselves a little bit of credibility as fiscal managers?
- [17:23]
C
I think, yeah, I think in that context, a big criticism, sorry, that is thrown at the government is a lack of restraint.
- [17:32]
A
Yeah.
- [17:32]
C
And I think that is interesting. And I think when, you know, you do look at these items, it's like, yeah, ok, where, where are we kind of trimming back or where are we a hard sell to voters and Australians that, you know, this is the economy we find ourselves in. And so we do need to cut in like trim a bit here and trim a bit here instead. You know, we had a. We had a spend a thon election, as many people called it, and that was coming from both sides as well. You know, you had the coalition matching a lot of Labor's big spending promises, particularly on health. But if this pressure continues to be in the economy and we see further interest rate rises, I think it will be politically incumbent on the treasurer to show what he's doing to bring that down. That doesn't just look like we're pumping money into this, pumping money into that. And I think that's where we've got this bubbling conversation about tax reform that the government is kind of flying the kite for. Including, as Shane's going to talk about, I believe, capital gains tax, I was going to say.
- [18:30]
B
But ultimately, governments are always blamed for inflation.
- [18:34]
A
Yes.
- [18:35]
B
And that feeds into interest rates. That is why John Howard went to an election saying interest rates will always be under a coalition government. Famously, of course, the cash rate at that time is 3/4 of a percentage point higher than it is today. So our feeling, and you can see it in the Liberal Party criticism at the moment, they keep saying, oh, there's been 13 interest rate rises under this government, which is a great killer line. Except, of course, that's from when the cash rate was 0.35.
- [19:09]
A
Yeah.
- [19:10]
B
And that historically and had been 0.1. You go, the world where interest rates are at 0.1 is a terrible world.
- [19:17]
A
Yeah.
- [19:17]
B
The world is utterly in absolute crapola.
- [19:21]
A
Yeah. That's where everyone's hanging on by their fingers.
- [19:23]
C
At the same time, when things are good and when inflation's coming down, the government is taking credit because inflation is coming down. You know, like that was their key line during the election. When we came into government, inflation had a 6 in front of it. Now it has a 2 in front of it, you know, so, yeah, they're happy to. They said that was a win. So it kind of doesn't. Yep. You're taking the flip side.
- [19:41]
A
Absolutely. Absolutely. I want to talk quickly about the possible changes to capital gains tax we're sort of hearing now, I think I saw a report this morning that they might make capital gains tax changes just on property because that's sort of, I suppose, where the most egregious examples of people taking advantage of it are. And also property is the headline issue. Property affordability, you know, equity issue, if you like, in the economy today. Shane, do you have any tea on what they might do if they're going to do anything at all?
- [20:09]
B
There are five or six different options that are being examined.
- [20:13]
A
You go again with your careful analysis.
- [20:15]
B
No, no, because there are, there are very different things that you can do around cgt. Leaving it just on housing, then. But again, you can actually do it. For how long? You can hold a property asset. So at the moment, at the moment it's 50. You get the concession 50% after. If you've held the house an asset for 12 months, you can change that. It is not very long. And that's why you get people who flip houses. There's been TV series all around flipping houses in short periods of time.
- [20:48]
A
And that's what they're paying.
- [20:49]
B
I know you do. That's why I wanted to reference it for you. But that. So you can do. Right. You can exclude or restrict it, change it to housing, you can do the timing, you can do the rate. So at the Moment It's a 50% concession. There are different options for reducing that concession, maybe to 25%, maybe to 33%. Or you change the way in which you calculate the concession. You could write a tiny story about all the different options, but there are a large number of options that are going on. And to go to the politics, Susan Lee immediately says, oh, Jim Chalmers has got a secret tax for housing. And you can see where the opposition wants to go in terms of, Right. This would be a tax on housing. It would be a tax on investors in the housing sector who clearly influenced the lift in housing prices that took off this century because of the concessions. Introduction.
- [21:48]
A
Yes, but I mean, I would make the point that firstly, a lot of economists I've seen modelling on this, that they say it will knock, you know, at best, if they, if these arrangements are changed, it will knock, you know, a few percentage points off housing prices, which, like, it won't make a huge material difference to housing prices. So it's a little bit of a token gesture in that sense. And the other thing is, as you said, there's a huge political risk for the government. Right. Because they're just going to be painted as big taxes. They don't have any ideas for fiscal reform. They don't have any ideas for raising revenue except to hike up taxes. That is such an easy claim to make. Even if it's like a really valid reform, is there any way that the government could counter that or to, you know, argue against that this will be.
- [22:31]
B
Part of a broader tax package?
- [22:33]
A
Yep.
- [22:33]
B
So this is how you get it'll.
- [22:35]
C
Be offset elsewhere or you'll get more elsewhere.
- [22:37]
A
Right.
- [22:38]
B
This is. We go back to when the capital gains tax was introduced by Paul Keating. He introduced the cgt, he introduced the fringe benefits tax, but he at the same time cut the company tax rate and at the same time cut the top marginal rate, which at the time was 60%. It was reduced to 49. This is how you sell it. And this is the political danger for the opposition at the moment.
- [23:02]
A
Right.
- [23:03]
B
And we saw this last year, which is, I keep saying we got a tax cut in the March budget, which no one had expected.
- [23:11]
C
Question for you, Shane. If they do go ahead with some kind of extra personal income tax at this budget, because, you know, the last few budgets, they've been very careful to say this measure is a cost of living relief. But it's not inflationary. It's not inflationary. Given that inflation kind of threatens to be spiking a little bit, is there a risk to giving people more money?
- [23:30]
B
There is always a risk giving more money.
- [23:32]
C
And how does the government manage that?
- [23:34]
B
The Reserve bank got asked about this. I've talked to them about it. Like, the tax cut that's coming is, to paraphrase Amanda Vanstone, it's not worth a milkshake in a sandwich. It is that small. It's about $5 a week.
- [23:49]
A
Right. It barely even buys you a coffee in Sydney.
- [23:52]
B
That's right. But if you say you doubled that to $10, you'd argue, right, it is cost of living relief. The Reserve bank will go, okay, that's not much. And you would argue as well on the economics that this is actually good for the labour market by you'd be bringing in more people.
- [24:11]
C
But do you think something like that will be enough then to offset politically, you know, any scare campaign or attack that comes with.
- [24:19]
B
I'll go to stage three tax cuts where they reformed them and they ended up with the top about 10% of the population ended up paying more tax and 90% of the population got bigger tax cuts. I would never get in the way of you make this capital gains is paid by 1 million people. There's another 16 million people who would get a larger tax cut who could.
- [24:43]
A
Get a milkshake, a milkshake and a hamburger out of it. So basically, the government would put through a suite of reforms and they would chuck them all into the same legislation, legislative package. So if the coalition was going to vote against the CGT changes, they would also have to vote against a modest but, you know, appreciable tax return or tax cut for ordinary Australians. Is that the idea?
- [25:03]
C
Yeah. It's all very political, isn't it?
- [25:06]
A
Yeah. Yeah. Listen, it's fascinating stuff. I actually find this stuff really, really interesting because it goes to basically, you know, the government spreading priorities, which is a lot about the values that they hold and they think Australians hold. And we fight that out every year when we talk about the budget, which I'm really looking forward to, guys, than, thanks so much for coming on. Thanks for doing this incredible research that you did about all of the spending. It is really dry stuff, but you managed to make it really interestingly accessible. So thanks.
- [25:31]
C
Thanks, Jack.
- [25:32]
B
We'll try not to do it again.
- [25:35]
A
We want you to do it again.
- [25:38]
B
Sure.
- [25:43]
A
You can read all of our political news on our website, cage.comau or smh.comau Today's episode was produced by Chee Wong with help from Debbie Harrington. Our executive producer is Tammy Mills. And our podcasts are overseen by Lisa Marksworthy and Tom McKendrick. Before you go, follow Inside Politics and leave a review for us on Apple or Spotify. I'm Jacqueline Maley. Thank you for listening.