Interview with David Speers, Insiders, ABC

Subjects: tax reform, house prices, inflation David Speers: Jim Chalmers, welcome to the program. Jim Chalmers: Thanks very much, David. So, the Howard government had more than 10 months and an election between announcing their tax reforms and a vote in parliament.

You had just 6 weeks. Why the rush? Well, we’re very grateful for the support of the parliament, David, because it means that we’re cutting taxes for workers, we’re making it easier for first‑home buyers, and we’re making the tax system fairer as well.

This is how we deliver cost‑of‑living relief and deliver real change in the tax system. It’s not unusual for the core elements of big tax reforms to be legislated first, and then for there to be subsequent consultation and other pieces of legislation – that’s what we’ve seen in those other episodes of tax reform in this country, and that’s what we’re seeing now.

Yeah, but the question was about the speed here. These tax changes don’t take effect for another 12 months. Why did you have to do this so quickly?

Our objective here was to provide certainty for investors and others about the core elements of this tax package and whenever tax reform is undertaken in this country, it’s hotly contested, it’s contentious, there are all kinds of predictions that the sky will fall in and all other kinds of predictions which turn out to be wrong, we expect that to be the case again.

But we’ve legislated the core elements quickly because we want to provide that level of certainty. We’re engaged in that consultation. There will, as there always has been in tax reform, be subsequent pieces of legislation as well to nail down some of the final implementation details and next steps.

You talk about certainty, but with that haste comes the risk of unintended consequences, and one of those was this issue of negatively‑geared properties that are jointly held when a couple divorce or a partner dies. It’s been dubbed the widow tax. What is going to happen there?

We’ve made it clear that we’ll address that in subsequent pieces of implementation of legislation. Again, not especially unusual when it comes to tax reform for those sorts of details to be settled subsequent to the core elements. That issue has come up before.

It came up, for example, in the Senate inquiry. We have been working through it to make sure that we can address it properly. In the interim, we were describing the arrangements as they stand.

When the amendments were put before the Senate, we had to make clear that we were working through that issue and we intend to address it in subsequent pieces of legislation, and that’s the case. Are you suggesting you were aware of this issue before David Pocock raised it in the last few days? Well, it came up in the Senate inquiry the week before, for example.

It has been an issue that has been raised with us. And what we do when issues are raised with us, we work through them in a pragmatic way, in a sensible way, and when it became necessary for us to declare our position on those Senate amendments, which is not to vote for them in the form that David Pocock put them forward, but to work through them in a methodical way for subsequent pieces of legislation, we made it very clear that that’s what we intend to do.

So what does that mean? What are you actually going to do? We’ll make that clear with the pieces of legislation that follow, but clearly – So you’re not sure at the moment whether, if someone dies, will the widow or widower be able to keep negatively gearing the property or not?

We’ve made it really clear we’re going to address that concern that people have raised with us. How, is what I’m asking. I don’t want to pre‑empt the outcome, but in saying that, we’re going to address it, David, I think we’re making it incredibly clear that we understand that this is an issue that has been raised with us, and we intend to address it.

Well, with respect, Treasurer, it’s not incredibly clear what you’ll do. If someone next week loses their partner and they have to rearrange their affairs, can they keep negatively gearing the property? It is clear that we intend to address that issue.

The current tax system has arrangements which say that that is an acquisition, that’s how it applies, consistent with other parts of the tax system. But we’ve said we’re going to change that, we’ve said we’re going to address that. Katy Gallagher made it clear, Clare O’Neil made it clear, I made it clear in the course of that Senate debate that it will be addressed.

But do you understand that people watching this, they hear you say you’ll address it, but they don’t hear you say how. That’s because it will be made clear in the legislation, David. I don’t think that’s a particularly contentious way to say it.

We will address it. If you want to use a different word, David, we will fix it, and we’ll make clear the way that we will fix it in the legislation that follows. Again, that’s not unusual when it comes to tax reform for it to be undertaken in that way.

But someone in this situation, next week, the week after, until you address it, should they keep negatively gearing, or under the law, do they now have to stop negatively gearing? Well, nobody has to stop negatively gearing until the 1st of July 2027. And I’m not going to provide advice to individuals, but I can say to your viewers, David, as I’ve said probably half‑a‑dozen times already in this interview, but also in the course of the last week, we will address that issue, and we’ll make it very clear how.

Look, you also extended concessions to more small business when it comes to capital gains tax. Some will be better off as a result, but will some small business still be worse off under these changes? Well, every single one of the active small businesses will now have access to generous carve‑outs and concessions in the CGT system because we’re taking the turnover threshold from $2 million to $10 million, so at the very least, every business between $2 million and $10 million turnover will be better off.

For all of the others, it depends on the inflation rate, it depends on the marginal tax rate of the person who owns the small business. Some will be better off, for example, in periods of higher inflation, the inflation measure will be more helpful to them, but every single one of them will have access to carve‑outs and concessions, every active small business, and that’s because we have lifted that threshold.

I see some comparisons out there that you’re probably referencing in your question, David, and what those comparisons fail to recognise, first of all, is our turnover threshold is 10 million, our opponents say they’ll repeal that legislation, so that’s not an accurate comparison. Well, they had – I think they’re – Just to be clear for people, they have said they would extend that to a $10 million definition as well now, but anyway.

They assume that the business will be held for a period of one year, most businesses are held for longer than that. They make assumptions about the marginal rate of the person. They don’t even include, for example, the fact that there’s $4 billion worth of small‑business tax cuts in the Budget.

So those comparisons from the 3 right‑wing parties are not credible comparisons. We’ve made very, very sure that every single one of the active small businesses in our country can access generous carve‑outs and concessions in the CGT system. On the housing market, property prices have dipped in Sydney, Melbourne and Canberra.

It’s good news for those trying to enter the market, worrying news for others. Is there a point at which you would be concerned prices have come down too far. Would a 10 per cent fall be a concern to you?

Look, we’re not targeting a particular price or a particular percentage. You’re right to say that there has been a softening in the market overall, but not uniformly. There are a whole range of factors which go into house prices and auction clearance rates, interest rates, broader economic conditions, as well as tax settings.

We’ve seen house prices already begin to soften before the Budget, and the same is true of auction clearance rates. And so, a whole bunch of factors, but also not one homogenous market. I was looking, for example, on the way here, David, at auction clearance rates yesterday – preliminary numbers for yesterday compared to the preliminary numbers for last weekend.

Brisbane was up a bit, Sydney was steady, Melbourne was down a little bit, and so different markets are behaving in different ways. We’re not aiming for a particular aggregate outcome in price or percentage. The Treasury assumes that house prices will continue to grow in aggregate over the next couple of years, but a bit more slowly than otherwise.

But is there, I mean, any size drop that you honestly would start to think, that’s a bit of a worry, if it goes down too far? Well, it’s best not to overreact to data from a week or 2 or even a month or 2. We’ve seen a softening in house prices already for all of the reasons that I’ve run through.

It can be volatile. We saw in 2022, for example, a softening in house prices because interest rates started to go up, so it’s not especially unusual to see that sort of volatility in different markets. The Treasury assumes that prices will continue to grow, but a bit more slowly, and we see no reason at this point to change those assumptions.

You mentioned interest rates is a big factor when it comes to the housing market. I want to ask you about inflation because it affects interest rates and everything else. The Budget forecast headline inflation would peak at 5 per cent this year.

Do you still think inflation will peak at 5 per cent? Fighting inflation was a big focus of the Budget, and we’ve made more progress on that front than we expected even at Budget time, less than 2 months ago. So the Budget forecast for inflation around the middle of the year, as you rightly point out, was for 5 per cent headline inflation.

We are making more progress than that, getting inflation down, and so we now expect inflation around the middle of the year to be more like 4 and a quarter rather than 5. That is very, very welcome progress. I think it does illustrate the progress that we’re making together in this fight against inflation.

Now, there’s still a lot of uncertainty in the Middle East and elsewhere, there’s still more inflation than we would like in our economy as a consequence, but we are making more progress than we anticipated, and for that reason, we expect now that around the middle of the year, inflation will be closer to 4 and a quarter than to 5. Well, that’s interesting and quite a difference in the space of just 6 weeks since the Budget.

I assume that’s also because of conditions in the Strait of Hormuz, that you’re confident more ships will be able to pass through? We desperately need the ceasefire to stick. We can’t have another false dawn when it comes to the Middle East and particularly the Strait of Hormuz.

There have been some really welcome developments on this front, and we’ve seen the oil price come down quite substantially as a consequence. It wasn’t that long ago that a barrel of oil was in the 120s. This morning, when I looked, it was in the low 70s.

So that’s welcome progress. There are inflationary pressures elsewhere in the economy still as well. But if you look at the progress we made on inflation during the week, the welcome developments in the Middle East, and a number of other factors, what we actually saw through the course of the last week is that the market expectations for an interest rate hike actually went substantially down.

Didn’t read that in the media, but that’s what the market is expecting. Because of this progress on inflation, because of these welcome developments in the world, what we saw through the course of the week is that market expectations for interest rate hikes went down. Whether it’s about the next meeting in August or by the end of the year, obviously I don’t predict or pre‑empt those developments, but you can see the market reacting – You’re watching that market reaction, yes. – to this progress that we’re making on inflation.

We know the Reserve Bank looks more closely at underlying inflation, and it actually went up during the week from 3.4 to 3.6 per cent. Are you changing your forecast at all on underlying inflation? We’ll update those forecasts in the usual way in the mid‑year update, but even when it comes to underlying inflation, we’re ahead of schedule there as well.

I think a number of the private banks have made the point through the course of the week that we’re making better than expected progress on underlying inflation, as well, that has been coming in a little bit lower than some have anticipated. But what’s Treasury telling you? And obviously – If Treasury are now telling the headline forecast has come down to 4.25, are they telling you what they reckon will happen with underlying?

They forecast it in a slightly different way, they strip out the core elements, but Treasury would be seeing what the private banks are seeing, which is that progress on inflation across the board, we’re going a bit better than was anticipated. That’s obviously a very welcome development, which reflects the progress that we’re making on inflation and the welcome developments in the Middle East that we desperately need to hold because Australians have been paying too hefty a price already for this war in the Middle East.

Just a few other issues, Treasurer. You’ve committed another $3.8 billion in the Budget to the Suburban Rail Loop project in Victoria. is reporting some fresh evidence that the Victorian Government knew about CFMEU demands to employ far more workers than were necessary on Big Build projects, they did nothing about it. Are you worried about these reports?

We have absolutely zero tolerance for corruption or criminal behaviour of any kind. We’ve taken very harsh steps when it comes to the CFMEU, putting it into administration. In fact, that’s one of the reasons why these allegations are coming to light, because we took that decisive action.

Obviously, when it comes to Commonwealth funding, we insist on the highest standards, and Minister Catherine King, for example, puts obligations on state and territory governments to report any of this behaviour, any behaviour of this kind. It’s one of the many ways that we ensure value for money when it comes to these big Commonwealth‑funded projects. But if that Victorian Government that you’re relying on for that information knows things that it’s not making public, does that concern you that they’re not perhaps taking the same zero‑tolerance approach?

Oh look, from our point of view, I know that we insist on those obligations, we insist on that reporting. As I understand it, Minister King reminds the states and territories of those obligations from time to time. But we have zero tolerance for it, we insist on the highest standards, and we insist on value for money for these big, important projects, whether it be in Victoria or in other parts of the country.

On social media, the government’s getting tougher today on the social media giants. And I understand you’ll be seeking to pass legislation in the coming week, doubling the fines for breaches of the under‑16s age restriction and giving the eSafety Commissioner new powers to compel information from the tech giants. Is this an acknowledgement that the current system hasn’t been doing the job?

We’re leading the world when it comes to protecting our kids online, and we’re making really important progress, but we will do more because the big tech companies aren’t doing enough. We will strengthen the penalties, we will strengthen the powers of the eSafety Commissioner, and that’s because we recognise that the future of our kids, the safety of our kids, is too important to let the big tech companies wriggle off the hook or avoid their responsibilities.

So we will do more because the tech companies aren’t doing enough, and we’ll see that reflected in the parliament before long. And finally, Jim Chalmers, I’m keen to hear what you think of what’s been happening in British Labour, in the UK Labour Party. Prime Minister Sir Keir Starmer is stepping down.

A northerner, Andy Burnham, who’s regarded as a stronger communicator, is set to take over. What lessons do you take from this? Well, I think what we’re seeing in the UK is a bit like what we’re seeing right around the world.

The pace of change is accelerating, the global and generational pressures are intensifying, and people have got legitimate concerns about where they fit in that, and then we’ve got the anger industry and parties of the populist right trying to make that worse rather than trying to make that better. And so it is a difficult time around the world to be an incumbent government.

From our point of view, we are using the power of incumbency to take real action to deliver cost‑of‑living help, to deliver real change. The best antidote to anger is action, and that’s the approach that we are taking in delivering this real change, whether it be in the housing market or in the tax system or otherwise. And so what we’re seeing in the UK I think reflects a broader global trend around incumbency and around the legitimate concerns that people have.

The Albanese Labor government has chosen to address those concerns rather than dismiss them. The 3 right‑wing parties in our parliament, with their divisive anti‑worker, anti‑housing agenda, would make those pressures worse rather than better. We seek to address them and to alleviate them because we recognise that people do have these legitimate concerns, not just in Australia but around the world, and including in the UK.

So is the lesson if you keep taking action as a government, you don’t need to resort to the emergency scenario of having to refresh the leadership? I think there’s something more fundamental happening here, which is that people understand, as we understand in our government, that the status quo is not working for people, particularly in the economy, but in our societies more broadly.

And once you come to that conclusion, once you acknowledge what I think is a fact, then you’ve got 2 choices: to try and capitalise on it, as the 3 right‑wing parties are trying to do in Australia, or try to address it, as we are doing. And sometimes when you’re addressing this broken status quo, in our case in the housing market and in the tax system, it’s hotly contested, it’s contentious, it involves some level of political risk, but it’s worth it because these legitimate concerns that people have, they’re not made up, they’re not pretend.

Change is accelerating in our society and in our economy. These global and generational pressures are intensifying on people, and from our point of view, we’ve chosen to address that to deliver real change rather than to dismiss it or ignore it. Treasurer, Jim Chalmers, thanks for joining us this morning.

Thanks, David.