CANBERRA, ACT, May 27 -- The Treasurer of Australia issued the following transcript:
Note
Subjects: latest inflation data, changes to capital gains tax, concessions for small business
Jim Chalmers:
Inflation came down more than expected in April, and that's a good thing, but we know that inflation is still too high in our economy. We've had an inflation challenge in our economy, which is made worse by the war in the Middle East. And what we see in these numbers is some encouraging numbers, but also, we understand that inflation is too high in these numbers, and that's why it's a big focus of the government. The moderation in the figures, as I said, was much better than the median expectation of the market. That's a very welcome development, even as we understand that we've got more work to do when it comes to getting inflation down. We think that the impacts of the conflict in the Middle East will linger for longer in the global economy. We're not immune from that here in Australia, and you can see that in the forecast that we released a couple of weeks ago in the Budget. So, headline inflation was 4.2percent in the 12months to April, down from 4.6percent to March. In the month of April, headline inflation was 0.4percent, which is down from 1.1percent. So, quite a substantial moderation in the month of April. Trimmed mean inflation came in broadly as expected: 3.4percent in the 12months to April, slightly up from 3.3, but flat month on month - 0.3percent month on month.
What these results show is that the government's decisive action to slash the fuel excise is helping to take some of the sting out of price pressures from the conflict. Automotive fuel fell 7percent in April. It was rising 32.8percent in March, and that's why we stepped in. Treasury analysis shows that our cut to the fuel excise reduced headline inflation by around half of a percentage point. Now, even though fuel was a big driver of the moderation in today's data, it wasn't the only driver. It's an important part of the story, but not the whole story. We also saw a really welcome moderation in food and in rents as well, when it comes to inflation. It's also important to remember that with inflation going down in Australia in April, it was going up in most major advanced economies. We can see that inflation picked up in April in Canada, in the Euro area, and in the United States as well.
So, a very welcome development to see inflation fall by more than was anticipated. But we know that there's still an inflation challenge in our economy. There was before the war, but the war in the Middle East has turbocharged that inflation challenge. And that's why the Budget was so responsible: more than the usual amount of savings, saving more than we spent in the Budget for the second consecutive update, net policy decisions improving the budget bottom line by $26billion, smaller deficits each year, less debt - all of this is about playing a helpful role in the fight against inflation, at the same time as we provide this responsible cost‑of‑living relief.
The fuel tax cuts are a really important part of putting downward pressure on inflation in the near term. We've also got more tax cuts on the way as well. So, tomorrow I'll be introducing the legislation for more tax cuts for Australian workers. That will mean that this government is cutting income taxes 5 times and 3 different ways. There's another tax cut coming in July, another one the July after that. We've got the standard deduction, and of course we've got the Working Australians Tax Offset as well. So, 5 tax cuts delivered 3 different ways by this Albanese Labor government. Now, it beggars believe, frankly, after what went on last year, that the Coalition looks like voting against a tax cut for Australian workers. And if they vote against a tax cut tomorrow, or whenever the vote comes on, for Australian workers, they will be voting once again for higher income taxes for millions of Australian workers who need and deserve this help that the Albanese government is providing through the tax system.
Journalist:
Given the impact of your fuel excise cuts to inflation, when will you decide whether to extend that beyond next month?
Chalmers:
Well, we keep that under review. I mean, it's not our - we're not anticipating extending that or expecting to extend it, but we keep it under review, really from week to week. And that's because what we're trying to do here is to provide cost‑of‑living relief in the most responsible way that we can, and that means, in this case, in a temporary way, so that fuel excise relief will come off at the end of June, as we announced at the time. But really, from week to week, we'll review it.
Journalist:
Are you worried about the impact on inflation when it does come off?
Chalmers:
Well, obviously inflation is still a challenge in our economy, even with these welcome numbers. And so, whether it's that element of it or other elements of it, of course when Australians are under pressure, this government's very focused on the challenge. That's why the Budget was so responsible; it's why we're providing cost‑of‑living relief via the tax system.
Journalist:
Policy decisions tip an extra $12billion into the economy this year and next, precisely when the inflation challenge is hardest. Do you think the spending is poorly timed given you have more work to do on the inflation challenge?
Chalmers:
No, we've improved the Budget since the mid‑year budget update. We've improved the budget in every year, and that's because we're playing a helpful role in the fight against inflation.
Journalist:
Treasurer, this carve‑out you're considering for capital gains, is it going to be about the size of the business, the time the business has been in operation, or the nature of the business? Isn't the fact that you're considering this carve‑out now a sign your budget approach was slightly ham‑fisted, because you didn't sufficiently think through the possible consequences of your changes on startups and the like?
Chalmers:
No, I wouldn't agree with that at all, Andrew. And the reason is, even before we released the Budget, and included in the Budget papers that we would be doing more consultation on implementation issues - we're now engaged in the consultation that we flagged on the night. And I've been doing some of that, the Treasury has been doing some of that, and other Ministers as well. And so, it's entirely normal when a government announces a big ambitious tax reform, as we did on Tuesday night, for there to be subsequent consultation on important issues, like, as we said in the Budget papers, the treatment of startups, to make sure that we get it right.
Now, if you think about other big instances of tax reform, whether it be around the GST, whether it be around the CGT changes that Howard and Costello made in '99, we think about all of the tax reforms that Paul did in the 80s, it's not unusual at all for there to be a piece of legislation in the first instance and then a series of implementation issues squared away in subsequent legislation. And that's what we've always anticipated doing, and that's what we're doing now. In terms of the outcome of that consultation, it's meaningful consultation, and that's why I don't want to pre-empt the outcomes.
Journalist:
What's your view on what sort of concessions are needed? Has that evolved since the Budget? Are you increasingly of the view that it does need to be broader than perhaps what you initially thought it should be?
Chalmers:
Not necessarily. I mean, you don't have a consultation process if you already know the outcomes.
Journalist:
The government was definitely leaning initially towards tech startups, and it seems like now you've broadened that to other ones.
Chalmers:
Well, I think that's your interpretation of it. But certainly, it's been our intention to consult with peak organisations. Of course, startups have been a focus of that, and we said that in the Budget papers. But I would caution you against this interpretation that says that there's anything unusual about a big, broad, ambitious tax reform package like this, consulting with peak organisations and others to get the implementation details right. That's happened -
Journalist:
Wouldn't you work it out before the Budget though?
Chalmers:
Just let me finish, Andrew. It's happened on other occasions and that's what we are engaged in now. And that consultation is happening in good faith, and because of that, I'm not pre-empting the outcomes.
Now, on Andrew's additional question, we had done some consultation in the lead‑up to the Budget. It's quite difficult to do that privately and so we've done what other governments have done is -
Journalist:
Who was that with?
Chalmers:
If you just let me finish the rest of the answer, please, Andrew. We've done what other governments have done, which is we've announced the tax reforms, and we've said we'll consult on some of the implementation details, and that's what we're doing now. Now, we'd had some conversations in the lead up to the Budget about some of these changes, but in order to formalise that, to make sure that we speak to as many of the peak organisations as is appropriate, then some of that consultation happens after Budget night. Again, that's not especially unusual.
Journalist:
Thanks, Treasurer. I appreciate you don't want to pre-empt the outcome of these consultations, but just going back to the substance of Andrew's question there, could you give some explanation of your thinking around whether you are interested in looking sector by sector, or there will be a more broad look at a particular structure or set‑up of business with a zero cost base? And do you have a timeline for when you want that consultation and that paper to wrap up?
Chalmers:
Yep. Well, first of all, you're right to anticipate that I don't want to pre-empt the types of outcomes from this consultation. It wouldn't be, I think - it wouldn't be especially meaningful, I think, if I had a formed view before the consultation was finished. Some of the issues that you're aware of - treatment of startups, the calculation of the cost base, for example, when it comes to startups - we're obviously aware of issues that people have raised with us around the eligibility for the 4 existing concessions and carve‑outs in the small business system. So, these are the sorts of things that are being raised with us.
In terms of the timeframe, obviously we would like to legislate the core elements as soon as possible. We will, in order for the consultation on implementation details to be meaningful, will take as much time as is as is necessary after that to do that. But ideally, we're talking about weeks and months rather than months and years to bed down some of these other pieces. And we want to bed it all down so that we can give the market some certainty. That's really one of the motivations for the legislation that we'll be introducing tomorrow.
Journalist:
Can I just clarify there? Are you saying the door is open to looking at those 4 existing CGT exemptions?
Chalmers:
No, I'm saying that there are 4 - I'm saying that there are 4 existing concessions and carve‑outs for small business. And one of the things that we're being lobbied about in the consultation, to give you an example of some of the issues that have been raised, and I've seen Skye and others in totally appropriate ways raise these issues publicly as well, but they've been raising issues around the eligibility for that. And one of the reasons why I raised that is I think one of the quite dishonest parts of the reaction to the Budget a couple of weeks ago is people who want to pretend that we're taking away concessions and carve‑outs for small business. There are 4 concessions and carve‑outs for small business in the existing CGT arrangements, and we're not changing those. They will still be available to people after the change is made.
Journalist:
Treasurer, one of the ideas being kicked about by some MPs is retaining the 50percent discount for some businesses. Would you give any consideration to retaining the old model for certain businesses? And just to Greg's question, the Budget papers said specifically the tech and startup sector would be consulted. There was no plural, there's no mention of small business. So, how is consideration of the existing CGT exemptions for small business not a broadening of the exemptions?
Chalmers:
Well, as I've said a couple of different times now and in a couple of different ways, we flagged that in the Budget as a specific example of consultation that happens on big ambitious tax reform packages. But - if you just let me. That's an example of the sorts of consultation that we're engaged in. But as I've said, I think in response to most of the questions so far, any government of both political persuasions consults on big, broad, ambitious tax reform packages. It would be stranger if we didn't. And so, we're engaged in that consultation, and in order for that to be meaningful, we're not pre-empting the outcomes.
Journalist:
And what about 50percent? Any consideration to keeping the existing discount for certain businesses with low-cost bases, or something else?
Chalmers:
Well, the reason that we are applying this change broadly, and not just to the housing market, for example, as some have suggested that we should, is because it doesn't make a lot of sense to replace one big distortion with another big distortion. I saw that Tom in The Guardian today had some comments from Paul Keating, I think, which made a lot of sense about this, which is that if you accept, as we do, and most objective observers do, that when the 50percent discount was put in place at the turn of the century, it created a big distortion in the housing market. It decoupled incomes from house prices and locked too many people out of housing. If you accept that that big distortion was a major driver of the problem we've got in the housing market, then it doesn't make a lot of sense to replace one big distortion with another big distortion.
And so, there are legitimate issues when it comes to startups. There's a legitimate conversation going on with the small business sector, for example. But it's important that we apply this change broadly so that we don't introduce another layer of distortions into our economy. We want people making decisions based on good investment in economic and productivity outcomes and not just chasing the best tax distortion that they can find in the system.
Journalist:
I was going to ask about ACCI saying you should narrow this to housing earnings. I think you've just answered that. But the other thing that Andrew McKellar said this morning, he's described this as 'all stick and no carrot,' because the tax cuts that you're offering in this package, you know, are there for individuals, they're relatively small, there's not a lot in it for business. You clearly marked out that you do want to do more in the next couple of years. Is this a case of holding onto stuff to announce just before an election? Why not do it all now, a bigger package?
Chalmers:
I haven't seen Andrew's comments, and I work closely with him and I respect him, but if you're accurately representing his comments, then he's completely and utterly wrong. Because there's $3.5billion worth of tax cuts for business in the Budget. One of the most important parts of the Budget is $3.5billion when it comes to loss carry back, making the instant asset write‑off for small business permanent, increasing the incentives for venture capital and startups. There's $3.5billion worth of tax cuts for business, with a real focus on small business and a lot of Andrew's members.
We'll go to Tom up the back, then to Matt, and then we'll try and come back through this way. I told Amanda Rishworth that I'd be finished by the time she stands up at the press club.
Journalist:
In a previous life I was involved in a lot of advocacy work from governments. Governments' orchestrations draw groups, like the accounting body I was an employee of, in close prior to announcements and it gave people a sense of what's coming along the way so that there wasn't a cold start when something hit. There was a greater willingness to entertaining the - we like the idea people are doing it. but there may be a couple of tweaks. You know, I'm not wishing to be difficult here, but do you regret perhaps not bringing some of the groups even in confidence along with you, so you avoided some of the, you know, fire and brimstone stuff heading your way now?
Chalmers:
Well, look, this is a consultative government, and I well remember standing at this lectern in August of last year, talking about the government's appetite for tax reform in and around the Economic Reform Roundtable that I hosted in the Cabinet suite, talking about intergenerational equity and simplification and business tax cuts, like I was responding to Katina's question about. So, there has been a lot of consultation broadly, seeking people's views on the best way to modernise the tax system to deal with issues in the housing market, cut taxes for workers, try and better align the tax treatment of labour income and asset income. So, there has been, I think, a helpful public debate, quite public debate, intentionally led by me and the PM and others, in and around the reform roundtable and subsequently about some of the challenges in our economy and about the role of tax reform in addressing them.
Now, if your point is that we didn't run through every element of every specific change in the Budget before Budget night, I think I said in response to Andrew's fair question that it's not possible to do that in the lead‑up to a Budget. I think people were broadly aware of the sorts of directions that the government was considering. And I mean - and without being flippant about it, I mean, Matthew and others in this room, the Fin and others, were giving people a pretty good sense of that. And so, there's been a big debate about some of these issues, including for some time. And so, it's not unusual for governments to announce substantial reform package, as I did on Budget night, and then to consult on the details afterwards.
Journalist:
Did Treasury model any behavioural changes with these tax changes? And do you have any concerns about the changes in behaviour because of the changes? And would that lead you to get Treasury to model the behavioural changes?
Chalmers:
Treasury conducted a whole bunch of work feeding into the advice that we received to put this tax package together. For example, the Treasury modelling says that 75,000 additional renting households will become homeowner households because of the changes to taxation of housing. And so, there's a number of pieces of analysis that we have -
Journalist:
Just to clarify, there's a difference between the behaviour and the rule sort of thing.
Chalmers:
I beg your pardon?
Journalist:
The difference between modelling the change of rule, and how much that would change [indistinct].
Chalmers:
Well, one of the behavioural changes we're anticipating is much more first‑home buyers in the market. And there's other pieces of analysis that we've released in the Budget. I encourage you to check out, you probably have already, but BS 4 is entirely about some of the analysis and advice that we're receiving in relation to this tax package. And so, a lot of work's gone into it, and Jenny Wilkinson's at the Australian Business Economists tomorrow as well and will run through some of the Treasury's thinking too. And what we're doing is consistent with the advice that we're receiving and the analysis that underpinned it.
Journalist:
Treasurer, you mentioned earlier on the consultation process, you'd like this to take, you know, a matter of weeks and months, not years. Would it then not make sense to just hold off introducing the legislation until that's done, and you could split the tax relief with the CGT and negative gear, et cetera?
Chalmers:
No, it makes a lot of sense to get the core elements legislated first in the way that other governments have done, to provide some certainty to the market around the foundations of the big changes, and then to consult on the implementation. I mean, if you look at the GST example, after they legislated the GST, they amended the GST legislation 7 times in one 12‑month period. And so, it's not unusual for governments to do this. I know that people have written otherwise, but we get the big pieces in place. The reason that we're doing the tax cuts and the CGT and negative gearing together is because one funds the other. That's how we pay for the tax cuts for workers and businesses. That's why they're in the same bill. And so, we get those core elements legislated as soon as possible, we do this consultation in good faith on the implementation details, which is entirely consistent with how governments of both political perspectives have done in the past.
Journalist:
Thanks, Treasurer. I think, going back to the roundtable, where you laid out the principles of the tax reform that you wanted to go down. Part of that was business productivity and simplifying the tax system. Now you're talking about layering additional carve‑outs and concessions for small businesses, [indistinct] around with the definition of a small business or which sectors are going to be excluded. How does that simplify the system and boost productivity, and would it not have been simpler to just keep the old regime for this?
Chalmers:
A couple of things about that. I mean, first of all, this is about fair and more neutral treatment across the economy. We know from our analysis that the change that was made in '99 overcompensated investment in established housing and undercompensated other kinds of assets, and so this is about applying a fairer, more neutral treatment across the economy, recognising that parts of the economy, like startups, have got a special case to make. That's the first point. Second point is there are a number of simplification measures in the Budget, including the standard deduction for workers - make tax time much easier for millions of workers if they elect to take the standard deduction, and they get a tax cut out of that as well. The third point is about productivity. And again, I think Paul has said, Paul Keating has had something to say about this this morning. I think it's a really strange argument that some people are mounting that says if we've had a quarter century of bad productivity outcomes, the best thing to do in this big, important part of the tax system is to leave everything exactly as it was. We've had 25years of investment distortions, and we've had 25years of subpar productivity growth. And that's because people have been chasing tax outcomes in the CGT system rather than good economic outcomes, because of this big distortion, this big policy mistake that Howard and Costello made at the turn of the century.
And so, in order for the economy to be more productive, we need investment to find its most productive home - and not for a purpose like established housing, which has not just been part of this productivity challenge that we've had in our economy, but more fundamentally has created a housing market that doesn't work for people, particularly for young people. And so, all of these legitimate questions people have about implementation, let's not lose sight of the main game here. The main game here is too many Australians are locked out of housing, and we're taking some difficult decisions to fix that. And people will try and focus on one smaller element of it or another, but at the end of the day, essentially, we're arguing for a housing market that works for people. And the people who are arguing for a status quo are arguing to leave in place the arrangements that have locked too many Australians out for too long.
Journalist:
People are arguing not to leave the status quo and housing in place, but to leave the status quo for -
Chalmers:
Some people are. Some people think that the current housing market and tax system is interacting perfectly, and we don't agree.
Journalist:
Just very quickly, [indistinct] to that same topic. There seem to be a lot of young people now [indistinct] these tax changes are actually going to make them worse off, which is the opposite of the narrative that you're trying to sell and trying to achieve as part of the Budget, and particularly around shares and the fact that they're trying to save up in [indistinct]. How are you going to turn this narrative around? What's your message to young Australians?
Chalmers:
Well, it depends where they get their information from. This Budget is the best Budget for young people that I have seen. And that's because there's a tax cut which overwhelmingly favours younger people. It's because the centrepiece of the Budget, the most important objective of the Budget, is to change a situation which locks too many young people out of housing.
And so, I know that there's an argument being put about young people in the Budget. This Budget has young people front and centre. Young people are the biggest beneficiaries of this Budget in the housing market, and when it comes to income tax cuts as well, and that's deliberate. There's not much point having a ladder if the first few rungs are missing. And for those younger people who have the enthusiasm and the means to invest and negatively gear a home, they can still do that. A new home. For young people who are investing in shares, there is a substantial amount of evidence, depending on the type of share and the duration and the marginal rate of the shareholder, that shares have been undercompensated in the current system. And so, I don't accept the analysis that says anything other than this is a Budget which is very good for young people.
Journalist:
Just on that same thing. The thing I don't get, you talk about the distortion that needed to be ironed out. You also say the main game was to redress the inequality in housing. So, why not distort it the other way? Why not drive investors away from housing, which was the problem you were trying to address? What's the harm in skewing investment to other asset classes like shares, and why, sort of, hit business on the way, which, after all, are the productive sectors of the economy? I mean, some economists have called this a tax on productivity because the businesses that do the best will pay the most under the new system.
Chalmers:
I think the change -
Journalist:
Would there be a problem with distorting it the other way, rather than flattening it out?
Chalmers:
I think the changes that we are making, which are all about applying fairer and more neutral treatment to capital gains, is more likely to have the kind of effect that you are describing than the current arrangements. Now, we talked a lot about the impact on the housing market from the turn of the century when the policy mistake was made. The other thing was, they said at the time, Howard and Costello said at the time, I think, that this would be good for shareholders as well. But share ownership fell dramatically because it was just ploughing people into the established housing market.
Because a fairer and more neutral treatment of capital gains will fix this issue, where housing's been, established housing has been overcompensated, and other investments like shares have been undercompensated. Some people will be better off under the new arrangements depending on their circumstances. And that's because a fairer, more neutral treatment of capital gains in the system makes more sense than the current distortion, which has been left in place for the same 25years that we've seen young people's prospects in the housing market materially deteriorate.
Journalist:
Treasurer, there's obviously a lot of complexity and confusion about the CGT changes, but I wonder if you can answer the simple question that small businesses across the country are asking themselves. How much more tax will the average small business be paying under these changes?
Chalmers:
Well, I think something like 9 in every 10 small businesses can access one of the 4 concessions and carve‑outs from the CGT system. And I know that there is a scare campaign being run in the small business community, but those 4 concessions and carve‑outs that the overwhelming majority of small businesses can access will stay in place. And broadly in the Budget, I say to every small business person in Australia, there are billions of dollars of tax cuts in the budget for small businesses: loss carry back is a very important reform, helps smooth out some of the difficult periods, including things like global oil shocks; the instant asset write‑off, making that permanent, that's been a source of uncertainty for too long; support for venture capital and startups. Billions of dollars in tax cuts for small business, and that's because we understand the crucial role that small business plays in our economy. That's why small businesses have got 4 existing concessions and carve‑outs, and that's why they'll still have 4 concessions and carve‑outs for the overwhelming majority of small businesses after the changes are made. Thanks very much.
Disclaimer: Curated by HT Syndication.
