Senator the Hon Katy Gallagher

PATRICIA KARVELAS, HOST: Later today, the Government will release an economic blueprint on what Australia will look like over the next four decades and how much more it will cost to sustain our population. The answer is a lot with the aging population and climate change alone expected to blow a budget hole of hundreds of billions of dollars and no clear way to pay for it. Katy Gallagher is the Minister for Finance and Women and she joined me a short time ago. Katy Gallagher, welcome.

SENATOR KATY GALLAGHER, MINISTER FOR FINANCE: Thanks for having me on, Patricia.

KARVELAS: The warnings around productivity and an ageing population are pretty stark. So in your view, having read this report, what's the most important message from it?

GALLAGHER: Well, I think the opportunity that comes with the IGR is really just to project forward and to provide, I guess, that long term picture of the pressures and opportunities that are coming your way and the ability for us as a Government to calibrate and focus on those as we deal with pressures year by year. So it's certainly, you know, I don't think many of the things in the IGR will surprise people we've been talking about them for a long time, but I guess it puts it, along with the assumptions that underpin it, a very clear kind of projection of what Australia is going to look like in 2063. And I think it's up to the governments of the day between them to manage the Budget, manage policies, make investments in order to deal with some of those challenges and prepare for that future.

KARVELAS: There's hundreds of billions of dollars of costs shown in this report with no concrete way to actually pay for the cost. The climate change revelations today are quite stark. So isn't it time for a discussion now, not for future governments, but now for that broader overhaul of the tax base in this country?

GALLAGHER: Well, we've been certainly making those modest adjustments to tax in our first two Budgets. You look at super or the PRRT or the work we're doing in multinational tax reform. So we are doing that in a way that's measured and we're doing it in every Budget. We're looking at revenue and how we can ensure that we're getting the revenue we need to pay for the services that we deliver. But it's not just a, I don't think a discussion about that. It's also looking at the way we're using the Budget now and you'll see we've made lots of savings in the last couple of Budgets to make sure we're adjusting that and being able to invest those in those key areas. But then the other important pillar is how do you grow the economy and seize the opportunities that are coming which will support the Budget in the long term as well. So I think the position we've taken, which is, you know, to make those modest changes to tax where we can but also have those other important conversations about spending, efficient use of spending. And also what are the opportunities going forward which the productivity — sorry — which the IGR report outlines as well.

KARVELAS: When you say modest, it strikes me that given the stark warnings in this report, modest isn't going to cut it, Minister. Don't you need to be more ambitious than modest and incremental?

GALLAGHER: Well, again, you know, when you look at our Budget plan, and I mean, we absolutely agree that we have to repair the Budget, rebuild the fiscal buffers, get the Budget in much better shape, and we're doing that and we're doing that partly with some of those important changes to revenue but we're also doing it in the way that we are using public money through the investments we make and through the savings that we look at and indeed through the revenue upgrades that we're returning to Budget so that we can rebuild those fiscal buffers. So I don't accept that it's just a conversation around revenue. I think there are other ways that we have to prepare the Budget to meet some of these pressures in the future. And we've been doing that. I mean, the issues that the IGR outlines, you know, say in the ageing population, we're already making those investments in the Budget to prepare for that — building the workforce, having a strategy on the care economy, and we're doing that at the same time that we are repairing the Budget, and in the 21/22 year, we'll deliver the first budget surplus in 15 years. And so it's a broader conversation, I think, than just jumping to "what are you doing on tax?"

KARVELAS: Yeah sure, and you have to have a broader conversation. But if you look at the forward estimates, its individual tax earners that will carry the burden in this country. Is that really the way to structure a tax system?

GALLAGHER: Well, I know there's lots of views about that, Patricia, and you know, commentators have expressed those views from time to time. Government's job is to look at these things as they come, you know, on our desk, year by year and make decisions about the best way to manage the Budget. And we've been doing that in our last two Budgets and we'll continue to do it going forward.

KARVELAS: Okay, so the other big thing that we're going to learn today is the impact of global temperatures increasing by more than two degrees on labour productivity. It could reduce economic output by up to $423 billion in today's terms over 40 years. Is that inevitable? Is that how you see it?

GALLAGHER: Oh, I think from when I read the IGR, I think its message to me is sort of playing out the cost of doing nothing or not dealing with the pressures that come from climate change. So I mean, again, it reconfirms the positions that we've been taking over the last 18 months, which is about, you know, being able to, you know, roll out and, you know, in a measured way, the energy transition and dealing with climate changing and adapting to climate change to make sure that we are getting the opportunities right, and the building, particularly in the energy system, the energy group we need for the future. And, you know, we do that against criticism from our political opponents. But I think again, you know, we do accept that climate change is real. We do believe that we need to make these investments to deal with the consequences of climate change. And I think the IGI gives us a bit of a stark warning on that

KARVELAS: Net overseas migration will remain fixed at the current level over the coming decades, meaning it will decrease as a percentage of the population. Why? What future policy settings mean we don't need the same proportion of migrants as we do now?

GALLAGHER: Well, I think we'll see through the work that Clare O'Neil is doing through the migration review that will give you the best sort of up to date picture of what our thinking is over there, but over the next you know the IGR points out I think over the next 40 years that our population growth will slow. But I think from our point of view, again, the more relevant piece of information is the work that we're doing now about reshaping the migration program to make sure that it is setting ourselves up to be able to deal with the pressures that the IGR points out, but that we all know as well.

KARVELAS: The Prime Minister gave a pretty significant speech last night to business and has told business he wants to set up what he called a structured dialogue with business for future economic reforms. That comes just after the Government also dismissed calls for cut to the company tax rate. How can you do both? I mean, are you just shutting down any proposal to reform company tax?

GALLAGHER: Well, I think what the Prime Minister was talking about and I was there last night at the BCA dinner and farewelling Jennifer Westacott after her incredible leadership over the last 12 years of that organisation, but the Prime Minister's comments I think were and it's no surprise this the way he operates as a Prime Minister, very consultative, he brings people together. And I think what he was saying was, instead of just having sort of informal consultations and discussions as we do across government, he was looking to a more formal process for engagement and I think that was welcomed by the business community. There's recognition that we're not going to agree on everything and every priority that the business community has, and then they won't agree with every priority that the Government has. But what we do know is when you get in a room together and talk there's a lot of areas of common purpose, and they're the latest report that they released on Monday is an example of that, whereas if you align that with some of the work we're doing, you'll see a lot of common threads and it's really important we work together on this.

KARVELAS: When you say more formal, what does that mean?

GALLAGHER: Well, I'll leave that for the PM to finalise, but I would imagine it's a formal structure or regular meetings that you know, are followed.

KARVELAS: But business has access to the Prime Minister pretty easily, I would have assumed if you look —

GALLAGHER: Well I think they have access to all of us, but I think there's also the opportunity, you know, and we've seen it in other ways where you pull together a group of people and you have, you know, formal, more formalised arrangements where you come together that doesn't stop you from doing all those other things. But again, I think it's a pretty sensible and it sounded very positive, it sounded very positive in the room. So I'm sure those discussions are ongoing about how that will work through. But it was welcomed last night because I think there's recognition between the business community and the Government that many of these things on skills, on training, on employment, on population, on the energy transition are all areas that their members care deeply about too and they want to work with Government on them

KARVELAS: Minister just on another issue, and it's huge for our economy, if China's economy continues to tank how high is Australia's exposure. What's the risk to us?

GALLAGHER: Well, I think I heard the Treasurer I think talking to you, PK, about this. This is something that we're watching closely, you know, the softening Chinese economy is a substantial risk to the global economy. And, you know, this is something that the Treasury watches closely, the Treasurer watches closely. I think it has emerged as one of the most — more significant risks facing our economy as well as the global economy. So yes, this is something that we are looking at very closely.

KARVELAS: And just on another point, in fact, we're about to talk to somebody just about that. The CEO of Woolworths is about to join us. Do you have concerns with how both major supermarkets have increased their profits during this cost of living crisis?

GALLAGHER: Well, I'll leave it to your next guest to explain that —

KARVELAS: But does it concern you there is a cost of living crisis and they're living large, aren't they?

GALLAGHER: Well, look, I think there are there have been costs associated with some of that disruption we saw from COVID. There's no doubt about that, with supply chains and some of the impacts of our, you know, our weather and natural disasters in Australia. So I accept that. But I also accept that as those costs moderate, you would hope to see some of the prices moderate. And I think for customers, you know, I do the shopping every week, you know, certainly notice it in the supermarkets, you know, the price increases that we've seen in the last 12 months. And I think the other thing I'd say is, you know, customers should shop around and try and get a better deal because, you know, we need to generate some competition. But I would hope and, you know, I'll listen to your interview next, but you know, that as we see those causes of inflation moderate, you would expect to see prices go down.

KARVELAS: Thank you so much for joining us.

GALLAGHER: Thanks a lot PK.