Thu Sep 22

Can Jim Chalmers become a reforming treasurer?

Written by Michelle Grattan, Professorial Fellow, University of Canberra

Jim Chalmers’ long term ambition is similar to that of most treasurers. He wants to be prime minister. More immediately, he aspires to be a reformer, which has become harder in today’s electorate, with its low tolerance for pain.

Chalmers likes to talk about having “conversations” on economic matters with the public. On Tuesday – when he was playing down some good news about the $50 billion windfall in the budget outcome for 2021-22 – he spoke of the need for a “national conversation” about how we pay for all the expensive programs people want.

He’d been asked about Reserve Bank Governor Phil Lowe who last week said our fiscal problems demanded higher taxation, spending cuts or economic reforms to grow the economy, or all three. Desirably with a start this parliamentary term, said Lowe.

The governor, who’s in the gun for holding out the prospect of low interest rates continuing until 2024, is not elected and anyway, is not expected to be in his post beyond the expiry of his term in September next year.

Lowe has nothing to lose by being blunt. As a senior minister Chalmers has to be more careful. But he was pleased with Lowe’s words, as he was with similar public sentiments from treasury secretary Steven Kennedy recently.

“I do think we need to have a national discussion about the structural position of the budget, and how we fund the expectations that Australians legitimately have,” Chalmers said.

The cynic might say, talk’s cheap, action could cost votes.

Chalmers highlighted that five big spending areas – health, the National Disability Insurance Scheme, aged care, defence, and servicing the large public debt – were creating “substantial structural concerns”. The spending represented “a combination of the unavoidable and the desirable”.

Chalmers knows there must be a reckoning. But when, and in what form?

The government is squeezed by the promises it made (to remain a small target in order to get elected), the risks in breaking its word, and a volatile electorate.

We hear endless commentary about the (protected) Stage 3 tax cuts, but they are only one constraint. Apart from a crackdown on multinational tax avoidance, Labor pledged there would be no discretionary increases in tax this term.

In theory it has got greater flexibility on spending cuts and we can expect to see quite a few in the October budget, targeting the former government’s programs. This is not just a matter of removing “rorts” but also replacing that government’s priorities with its own.

Chalmers says this will be a “bread and butter” budget, suggesting the more fundamental attempts at reform will come later.

After this “standard” budget “there are multiple opportunities in multiple budgets over the course of the next three years or so, for us to properly engage the people in a proper national conversation about the services that we provide, and how we fund them,” Chalmers said.

Even so, making major changes this term will be difficult; equally challenging would be putting at the 2025 election a program for structural reform of the budget.

In 2019 Labor took to the election a big spending-big taxing policy; in 2022, it went for minimalism. Nevertheless, the election commitments involve extra spending, notably the generous child care policy, and improvements to aged care, including funding the (uncosted) wage rise for workers that will be handed down by the Fair Work Commission.

The government is also under pressure to do more on various fronts, for example, to extend paid parental leave.

Any “conversation” about what services people want from government can quickly get into tricky issues.

These include the sustainability of what’s being offered (think the ballooning NDIS, costing about $28.6 billion in 2021-22 rising to an estimated $34 billion in 2022-23), and the extent to which users should pay more for some services (think aged care).

Serious attempts to put spending on a better basis in the big areas would be met with loud protests from those losing out.

Then there’s the “conversation” about revenue. Leaving aside the Stage 3 tax cuts, many economists see the tax system as unfit for purpose. Certainly over the long term we need more revenue to finance programs.

But major tax reform takes political backbone, and efforts don’t necessarily come off. John Howard and Peter Costello introduced the goods and services tax, but the Coalition nearly lost the election at which it sought a mandate for it. Years before, when treasurer, Howard failed to get support in the Fraser government for a broad-based indirect tax.

And who can forget treasurer Wayne Swan’s attempt at a mining tax? Certainly not Chalmers, who worked for Swan at the time.

There was treasurer Scott Morrison’s spruiking of GST reform in Malcolm Turnbull’s government, which ended with him being slapped down by his prime minister.

Robert Breunig, Director of the Tax and Transfer Policy Institute at the Australian National University’s Crawford School says, “We’re really stuck on tax”.

“The Scandinavian countries are able to reform tax in anticipation of problems. Anglo-Saxon countries generally get into big trouble and are then forced into reform,” he says.

Breunig argues we have too much reliance on personal income tax and company tax, reducing economic incentives. He advocates targeting wealth, through changing tax arrangements on superannuation and imposing a national land tax, which would replace state stamp duties.

While reducing the tax breaks for superannuation might be obvious, the backlash when the Coalition undertook modest change some years ago was sharp. And a land tax-stamp duty trade off would involve getting the states on board.

What about changes to the GST? They would have been easier, Breunig says, in the days when the budget had multi-billion surpluses and losers could have been paid off.

Of course if Chalmers was really brave, he could push the idea of an inquiry into federal-state revenue arrangements, or even propose a tax summit as in 1985 (guarding against treasurer Paul Keating’s experience of his PM leaving him high and dry).

The reforming ambitions of a treasurer affect the dynamics of their relationship with the prime minister.

Bob Hawke, himself committed to economic reform, was supportive of Keating’s zeal, including on tax. But he also reined him in, when the politics came to the fore or there was insufficient stakeholder support for Keating’s goal.

Keating – whom Chalmers often speaks with and greatly admires – chafed under such restrictions.

So far Anthony Albanese has shown himself a cautious leader, in opposition and now in government. The exception is in a non-economic area – his commitment to a referendum on the Voice to Parliament.

Albanese and Chalmers appear to have a good relationship. It remains to be seen whether they will continue to march to the same beat on policy, or whether Chalmers will push for more and faster change, and how Albanese and other ministers react if that happens.

For a treasurer a “conversation” with the Australian people about economic reform must involve a whole other set of “conversations”, with the prime minister and colleagues. And those can test the mettle of all of them.