Interview with Tom McIlroy and Patrick Commins, Full Story podcast, The Guardian

Subjects: the Intergenerational Report, global fragmentation, fertility, migration, AI Tom McIlroy: I’m Tom McIlroy, Political Editor at Guardian Australia, recording on the lands of the Ngunnawal and Ngambri people in Canberra. We’re coming to you earlier in the week because Guardian Australia’s economics editor, Patrick Commins and I, have been speaking with Jim Chalmers, the federal Treasurer, on the latest Intergenerational Report which he launched here in Canberra on Monday.

The IGR is Treasury’s economic forecast for the next 40 years, and it’s a requirement of government that first began when Peter Costello was Treasurer in the Howard government. The purpose is to assess the long‑term sustainability of government policies, and this week’s report projects the shape of the economy and the country in the 2060s. It’s bleak reading in parts.

It shows major challenges on geopolitics and the rise of AI, and that for the first time deaths will overtake births in Australia within a few decades. Jim Chalmers: For us this Intergenerational Report isn’t just, you know, a one‑day exercise, we put it out because we have to and then we move on, you know, so much of the motivations for this government and its agenda is about trying to think long term, you know.

Not at the expense of the here and now, not at the expense of providing cost‑of‑living help, recognising the pressures that people are under right now, but really trying to embrace our intergenerational obligations. Chalmers talks to us about how Labor is preparing the country for these rapid shifts, and what can be done to ensure that the budget is on the best possible footing going forward.

This is the Australian politics podcast. Well, Treasurer Jim Chalmers, welcome to the podcast. Thanks very much, Tom.

We’re speaking on Tuesday morning, a day after you released the latest Intergenerational Report. Tell us why that’s an important document. Why should we trust the IGR considering that projecting out 40 years is a pretty difficult task in our changing world?

Well, of course it is, but that doesn’t mean you shouldn’t try, and the IGR’s really important because it helps us get our head around the big pressures playing out in our economy and our society over the coming decades, and for us it’s an opportunity to recognise that the risks in our economy and in our budget are very serious, but Australia’s advantages are very substantial.

And that’s why we can be realistic about those risks, but I think we should be optimistic about the future, even in the face of all of this global uncertainty, all of the change that comes from AI and energy, the changing nature of industry, the ageing of our population, the splintering of the geopolitical environment. All of that is obviously putting more pressure on our economy and on our budget, but there are still good reasons to be positive about the future, and that’s because Australia is better‑placed, better‑prepared, and I think has a better plan to meet our intergenerational obligations than other countries.

What about something like the war in Iran or, you know, Donald Trump’s often erratic decision‑making? Could an unexpected development like that push us off course in these projections pretty easily? Yeah, that’s always been the case.

And if you look at the story of the last couple of decades, you know, the relative calm of the 90s gave way to the absolute chaos of the 2000s, these rolling economic shocks. You know, Pat’s been covering the economy for a really long time, he would understand, as we do that we used to see economic shocks as punctuating long periods of calm and now we have these periods of calm punctuating long periods of rolling economic shocks.

You know, the GFC, COVID, Ukraine War, war in the Middle East, Liberation Day, now what we’re seeing with the increase in bond yields playing out in borrowing costs in debt markets around the world impacting us. And so we’ve become accustomed to understanding that the world is a much more uncertain place, a much less predictable place. But again, that’s not a reason to ignore our intergenerational obligations, it’s not a reason to ignore these big shifts that are underway in our economy and in our society.

On the contrary, I think it puts the premium on dealing primarily with the pressures of the here and now, essentially cost‑of‑living pressures, what’s happening with global oil prices playing out at the bowser and cost‑of‑living help we’re providing by tax cuts and bulk billing and higher wages. All of that is obviously primarily the government’s focus. But we’ve got intergenerational obligations as well, and they are heightened rather than lessened by the fact that the world is increasingly less predictable.

Patrick Commins: The Intergenerational Report’s the seventh one, and every intergenerational report has looked at a similar thing, an aging population, smaller families. So what does it say about Australia that in 40 years’ time there will be more deaths than there will be newborn babies? Yeah.

I mean that is in the Intergenerational Report, and we will hit that situation much, much later than other countries, in lots of cases decades later than other countries, some are already there or near there. And so the story that it tells about the ageing of our population, first of all, it’s obviously a good thing people living longer and healthier lives. It’s a welcome reflection of our universal healthcare system, the contribution that older people make, it’s worth every dollar of extra pressure it puts on budgets.

But it is a big phenomenon in every Intergenerational Report, as you’re right to point out, but if you think about fertility rates, for example, they are falling further and faster than what we anticipated in the last IGR, which was only a few years ago, and so that does create its own dynamics and its own pressures in our economy and in our budgets. It’s why it’s so important that we’re cutting taxes for workers, so that we take some of the edge off this disproportionate, increasingly disproportionate burden that they would otherwise feel in the tax system.

It’s why it’s so important we’re doing what we’re doing, difficult tax reforms in the housing market, probably the defining intergenerational issue is housing and first‑home buyers. And so, yes, the pressures are intense. Yes, in lots of ways they are accelerating, including that one that you’re right to pull out from the report, and all of that, I think, justifies and validates all of the difficult things that we’re doing.

Minimising the risks of AI, strengthening super, cutting taxes for workers, making the tax system fairer in the housing market for first‑home buyers. All of that has an intergenerational dividend. It still seems like – you look at the HILDA Survey from last year, and it showed that women on average would like to have 2.1 kids, and instead they’re having about one and a half and that’s falling.

I’d suggest that a lot of families would like to have more kids, but don’t feel like they are able to for various reasons. So wouldn’t it be good if we felt like we were able to have the families that we wanted? And how do we get to that?

So I think this is really important, right. So the first thing I’d say about that, you would remember, or would have seen, you know, in the first IGR, you know, that quite wonderful photo actually of Peter Costello surrounded by all those little kids. And he’s telling people, ‘Have one for you, one for mum, one for dad, and one for the country’.

I see these decisions about whether to start a family, when to start a family, how many kids to have, these are deeply personal. And so I don’t lecture people about the choices that they make, but I do embrace the responsibility to make it easier for people to have kids and to have more kids, if that’s what they want to do, which is what your question goes to.

So all of our efforts in early childhood education and care, expanding paid parental leave, paying superannuation on paid parental leave, the whole women’s participation agenda that Katy Gallagher does such a wonderful job on behalf of the government, all of that is about making it easier for people to make the choice. Now if you look at what’s driving those fertility rates coming off further and faster than we thought a few years ago, the interesting thing about it is it’s actually more about family size, which goes to your question.

So I think almost half the decline since the IGR, if I’m remembering correctly, comes from fewer families having 3 or more kids, and so that’s a function of people deciding to start a family later in life partly. Obviously, it’s a reflection of a whole range of other factors, including, no doubt, the cost of living. But there’s a whole bunch going on in this area which is driving those fertility rates lower than we anticipated.

The government’s made the case that making it easier for people to have kids is part of the solution, and you mentioned childcare yesterday and today on that one. Let me ask you, is universal childcare still the government’s ambition going forward? Is that becoming too expensive in the current environment?

It is still our ambition. You don’t go from kind of zero to 100. You know, we’ve always seen it as a series of steps, and the thing – I’m not saying you’re guilty of this necessarily, Tom.

But the thing which is often, I think, forgotten is the big steps that we took on the 3‑day guarantee is a really important part of getting a bit closer to universality. And obviously there are budget considerations we need to take into account, and all of that, but it remains the government’s aspiration to get as close to universal as we can, and that 3‑day guarantee is a really important part of it.

I see that in my own community, and how important it is that we see early childhood education and care as education, and not just care, and I think the government’s taken a series of very significant steps in that direction. It must be said that in the background there’s work going on on how much that would cost, what the system would look like. And you’re also, I think, spending $1 billion on building centres in areas where there are gaps currently?

Yeah. There’s a whole bunch of stuff going on. I mean Jason Clare and Jess Walsh, they do a mountain of work on behalf of the government here.

The Prime Minister’s a huge believer in the transformative impact of early education, as we all are, and we see it as a real force multiplier when it comes to the opportunities that our young people and how that plays out in communities right around Australia, including communities like mine. So a lot of investment, a lot of effort, including in those areas around building new centres where there’s been a drought.

The IGRs have, I think, and correct me if I’m wrong, when they started, they were about, you know, plotting a long‑term vision for the population, participation, and all these things, to get a feel for the longer‑term pressures on the budget and the economy. Now in this, you know, these IGRs, as you said, they point of growing pressures on spending, shrinking tax base, aging population, but there don’t appear to be any flashing red lights in this IGR.

I don’t feel a sense of urgency coming out of the IGR, and you’re smiling, and I disagree, but what does the IGR say about the urgency of budget repair? Well, it makes it really clear that the pressures on the budget are intensifying. You know, you wouldn’t get this sense of reading a lot of the coverage of the IGR, but one of the things where Australia stands out actually is the level of debt that we’re carrying and the level of debt that we expect to carry.

So the gross debt‑to‑GDP measure of debt right now we’ve actually got much lower than all of the major advanced economies, and if you look over the 40‑year horizon of the IGR, debt as a share of our economy goes down. Well, that’s right, that’s what I’m saying. And in a lot of countries it goes up.

But that doesn’t mean there isn’t more work to do. I think there is an urgency around all of these intergenerational pressures, not just the budget position. You know, there’s obviously an urgency in housing.

You know, we could have let that situation where young people locked out of housing playing out, cascading through the generations, we could have let that be if we wanted to, but we decided not to; similarly, strengthening super, tax cuts for workers. So there is an urgency to these intergenerational pressures. The debt story is better in Australia than in the countries we compare ourselves with.

But that doesn’t mean it doesn’t require ongoing vigilance, which is what you’ll get from us. So it’s more like an ongoing vigilance rather than a clarion call for – Well, in that regard it is, but I think overwhelmingly there is an urgency to these intergenerational pressures, because the longer you leave them fester, the harder they are to deal with; that’s what’s driven us in areas like housing.

Let me see if I can bring the IGR into the immediate political debate on the question of migration. Last week the government announced plans to cut some overseas arrivals, adjusting settings to make Australia slightly less attractive and re‑balance things to meet the net overseas migration target. But yesterday’s report says that the population’s going in the wrong direction.

Are these 2 things in contrast? Shouldn’t we be strengthening migration? Well, we’re strengthening the system, and you know, one of the most remarkable things not often acknowledged is that the government has been able to get net overseas migration down almost 50 per cent in those numbers that came out last Thursday.

We’re actually ahead of schedule, getting net overseas migration down to more normal levels. There was a big spike which began under our predecessors after COVID. We’ve been able to get that down almost 50 per cent, that’s a good thing, and our efforts that Tony Burke outlined so well at the National Press Club will be about getting those net overseas migrations down to more normal levels in a system which is more robust, more transparent, more responsible.

So that’s the first point. Now when it comes to the migration and these intergenerational pressures, I really firmly believe that migration can be a force for good in our economy and in our society, so long as it’s well‑managed, and those 2 things have to go together. But in the context of a population which is ageing and fertility rates which are falling, skills shortages in important areas like construction and the care economy, then I think what we are proposing to do, which is to get net overseas migration down to more normal levels and manage the system much more effectively, that’s in our national economic interest.

And what some of these other characters are proposing, I think, would be an act of economic self‑harm in the near term, but absolutely diabolical in intergenerational terms, absolutely diabolical what One Nation, the Liberals and the National Party are talking about, and that’s because they’re just looking for the most divisive politics, not the most sensible economics.

It’s possible to recognise the legitimate concerns that people raise with us about migration, we’re responding by getting the numbers very substantially down. At the same time as to have a sensible, robust, well‑managed system which meets our national needs, including our national economic needs. That’s our approach, and I think when you look at the pressures in the Intergenerational Report, again, I do think that validates and justifies the sensible approach that we are taking to migration, in contrast to the diabolically irresponsible way that our opponents are going about it.

Imagine it’s just the 3 of us talking, no one else is listening. Let’s have some realpolitik – This is hard to do with 3 microphones. Can the sensible approach that you describe, Tony Burke’s measures announced last week, win the politics here?

The country’s sort of very animated about immigration, and Pauline Hanson is blazing a path to the next election on this issue. Can you win the politics? Well, first of all, I acknowledge obviously it’s a big issue, and when people raise this with me privately in my own community or in other ways, I do not lightly dismiss the legitimate concerns that people raise about it.

That’s the first point. The politics are obviously very willing on this right now, and similarly, I don’t pretend that the polls are different to what they are now when it comes to reflecting movement, particularly on the right of politics. So those are established facts.

There are concerns, the political environment is very different, and our opponents are seeking to capitalise on that. I think those are all established facts. My view is if you get the policy right, the politics will take care of itself, and from time to time it does seem to be occasionally maybe a naive view about things, but over the long‑term, I believe it’s true.

I believe it’s true. And not just in migration, but in housing. You know, there’s a campaign being run against us on housing, you’d read that every day.

I know that we’re doing the right thing, and I believe in time we’ll be vindicated for it. So if you play a long game and you prioritise the right policy and the right economics over the politics, I believe it will pay off, I hope it will pay off. Time will tell.

AI is a big feature of the report and it’s the thing that we’re talking about every day at the moment. Overnight, the Prime Minister signed on with a group of countries at the United Nations calling for careful management of AI. Is it difficult for the IGR to make forecasts on this considering what has changed just in the last couple of weeks, let alone the last 3 years?

Oh, difficult but essential. I mean the big difference between the last IGR and this one is AI’s become front and centre, absolutely, I mean it’s the most transformative thing that will happen in our life time, you know, it will touch every part of our society and every part of our economy, and that’s why the global guardrails that the Prime Minister signed up to this week is so important, you know, safety standards, stronger safeguards, more transparency, independent evaluation; these are all key, because the only way to capture the economic upside of AI is to manage and minimise the risks, and the risks are very substantial.

You know, in the labour market, Amanda Rishworth’s doing a heap of good work, when it comes to data centres and National Standards, Tim Ayres and Andrew Charlton are doing a bunch of good work, on copyright, Michelle Rowland and Tony Burke and Andrew and others, really right across the Cabinet and under the PM’s leadership, we’re doing a heap of work on this because, if you look at the IGR, there’s a broad range of possibilities.

You know, this could go really well for us. We could capture the economic upside in a way that makes our people beneficiaries rather than victims of all of this change that’s coming at us from around the world. That’s what a good outcome looks like, but there’s enough about this in the risks that we have to manage and minimise them.

And so those global guardrails, I think, are really, really important, and the work that we do with other middle powers, the Canadians and others, is especially important in this regard because AI is just front and centre already, but increasingly over the life of the IGR period. Like so much of this is happening overseas, it’s driven from the states, it’s driven by the competition amongst these Big Tech firms.

How much are we in charge of our own future when it comes to AI? How much does it just happen to us, like the Internet and social media happened to us, and now we’re scrambling to get a handle on it. Yes, key question in AI, but also more broadly.

And a lot of our effort right across the Cabinet is about doing this the Australian way to the extent that we can. You know, we’re actually leading the world in some of these regards – the National Standards, for example, the way that we come at some of these difficult, thorny issues, we are leading the world in some areas, but we recognise as well that this is a global phenomena, and so that’s why the global guardrails are so important too.

And more broadly, even right now, from day‑to‑day, you know, every day I wake up, look at the global oil price, the first thing I look at now, and what’s happening with bond yields in the global debt markets, probably the second thing I look at, all of that is about recognising that to some extent we are hostage to decisions taken in Washington or on Wall Street or in Tehran in the near term, and that AI and these other influences are global phenomena.

But we’ve got our own set of advantages, we do have some levers that we can pull, and really overwhelmingly this is all about recognising the big global shifts and working out what’s the best version of this for Australia and doing what we can to achieve it. Some of those ex‑AI employees came out and said 10 per cent chance that, you know, AI’s going to drive humanity to extinction.

What percentage do you put on it? I don’t have a percentage of my own, but I mean – But seriously though, how is this – – yeah, I mean that’s a very serious question, because people who know what they’re talking about are not downplaying the very substantial risks, and again, neither are we. You know, a lot of the work that the PM’s doing on the global stage, a lot of the work that we’re doing is about taking those kinds of warnings seriously and making sure that we’re doing what we can to make AI a force for good rather than see the worst version of this play out.

Living standards are going to increase over the next 40 years, you know, we will have higher standard of living, higher wealth, and you know, this [inaudible] living standards is broad, economy on a per capita basis, but in, you know, 40 years. But the trajectory, the growth rate is slower. We just don’t seem to be progressing as fast as we used to in certainly the last 40 years.

So how do you kind of prepare expectations for Australians who have got used to a certain pace of progress, I suppose, and a new generation that won’t be seeing that? How do you manage those expectations, because even if we’re growing, we’re growing more slowly, and you can see these expectations thwarted. Well, I think 3 things: firstly, be upfront with people about the challenges, that’s what the IGR is all about.

Secondly, I think to recognise that we’ve got a lot of work to do, you know, making our economy more productive, dynamic, competitive, that’s what the big productivity package in the Budget is all about. And thirdly, taking the big intergenerational pressures seriously. And you know, for us, this Intergenerational Report isn’t just a one‑day exercise, we put it out because we have to and then we move on.

You know, so much of the motivations for this government and its agenda is about trying to think long‑term not at the expense of the here and now, not at the expense of providing cost‑of‑living help, recognising the pressures that people are under right now, but really trying to embrace our intergenerational obligations. And I keep coming back to housing because I think it’s the starkest example of where we see how these things are playing out or how we expect things to play out, and one of the defining challenges is obviously young people being locked out of buying their own home and owning their own home.

And so that’s really the third and most important thing is not to ignore the warnings in the Intergenerational Report, not to dismiss or move on from the risks and the pressures which are laid bare there in pretty stark and blunt ways, but to actually reform our economy in a way that meets our intergenerational obligations to people, so that when it comes to living standards, we can see rising living standards is a really important part of our future and not just something that we admire about the past.

Jim Chalmers, you’ve got a massive week with the IGR out. You’ve talked to us previously about nights and flights, how you turn off, some of your relaxation reading. What’s on the agenda at the moment when you’re not on the job?

Anything interesting watching or reading at the moment? I’m reading that James Curran book about Paul Keating’s international agenda, I’m enjoying that. And George Megalogenis has got a book out, which is you know, neat companion reading with the IGR, really, because it’s sort of a story of what’s changed in our society and in our economy, and I’ve got a lot of respect for George, and so I’m reading that as well at the moment, but I’m starting to turn my mind to that big stack of books that keeps growing, and what I might try and tackle over the summer.

But yeah, there has been a bit of nights and flights reading, and there’s no shortage of good stuff at the moment. Good to be thinking ahead to summer reading. Jim Chalmers, thanks for coming on the podcast.

Great to talk to you about the IGR. Thanks very much, guys. Thanks Treasurer.