Senator the Hon Katy Gallagher

PETER FEGAN, HOST: Alongside Treasurer Jim Chalmers on the frontline is our Finance Minister, Katy Gallagher. Katy is one of the key figures steering Australia’s economic ship through some fairly challenging waters. And in the government’s recent mid-year budget update we’ve learned some pretty stark realities about the state of our financial affairs. The mining super-cycle which has filled government coffers for decades is fading, structural costs like health and aged care are driving significant increases, projections show spending will be up over $42 billion over the coming years, which is pretty scary. That’s left us staring down the barrel of recurring deficits through the end of the decade. And I’m pleased to say the Minister joins me on the line. Minister, a very good morning to you.

SENATOR THE HON KATY GALLAGHER, MINISTER FOR FINANCE: Good morning, Peter. Thanks for having me on.

FEGAN: Thanks for being here. Look, the government will try and defend it, I know that. And you’re in a position to do so. But it’s pretty hard for Australians to try and accept it when you’ve got $42 billion of black hole spending. I mean, it’s a stark reality, unfortunately.

GALLAGHER: Well, look, this mid-year update shows that the budget is in better shape than what we inherited. But there are still challenges and there’s a lot coming at us in terms of pressure on the budget. So, things like aged care and child care and Medicare, which are all important services that we need to fund for the community. But those pressures are there. And part of our job is to try and balance up all the decisions and find some savings and pay down debt, and pay down the interest on that debt, so that we can get the budget in much better shape. And we've been doing that, but there's more work to be done.

FEGAN: The figures do suggest a 5.7 per cent surge in real spending growth, the largest annual increase outside a recession or major financial crisis, that's since the mid-1980s. And look, Minister, I know COVID hasn't helped any of us, but the outlook is bleak. And I do accept that, yes, it was a bit of a mess when you inherited it, but you have had three years.

GALLAGHER: Yeah, and so we've found a lot of savings. We’ve found about $92 billion in savings since we came to government. And a lot of that spending that you are seeing in the mid-year update is what we call, well, the technical term is parameter variations, but what it means is it's demand programs. So, it's really the costs that are being incurred, like for medicines or Medicare or child care benefits, payments to veterans – those types of things. And certainly that we've seen an increase in all of those areas. So about $8.5 billion dollars in what we would see as unavoidable spending, important spending. So, there's no doubt there's pressure on the budget, I'm not going to pretend otherwise. But we've made some progress. We've got more work to do. But at the same time we've been, you know, trying to provide cost of living help to households and deal with, you know, some of the reforms like to the NDIS and aged care to make sure they're more sustainable going forward.

FEGAN: Would you say that your government's laws on immigration, or numbers of immigration, haven't helped either? I mean, I know that we are starting to cap it now. Foreign students, as well, is being capped. But would you say that over the past, sort of three years, you've probably learned some lessons about immigration?

GALLAGHER: Well, certainly, we inherited an immigration system under a lot of pressure, and we had three reviews that essentially said the program, the system, was broken and needed repairing. And so, we've been trying to do that. And yes, we've seen more people come to Australia, more than was expected post-COVID 19. And particularly in the area of international students, where we're putting in place some arrangements because we couldn't get some legislation through the parliament, Mr Dutton didn't support it. And so, we're now putting in place some administrative arrangements to manage the growth in student numbers. And that will start for next year, and that's really an important part of us making sure that we’re controlling the numbers, particularly of students coming into the country.

FEGAN: Minister, do you think we’ll ever get over COVID? I mean, it destroyed us, obviously. I mean, in terms of our budget and in terms of people in businesses in Australia, it's taking longer than expected. Do we ever get over it?

GALLAGHER: Oh, I think the Australian economy has shown to be pretty resilient, to be honest. When you look at how other countries have come out of that crisis, we've seen the inflation challenge around the world, and then we've seen, certainly, a number of advanced economies go backwards with negative growth. And we haven't seen that. We've seen a million jobs created in the last three years, which is really incredible. The unemployment rate has a three in front of it, which means more people are in jobs than ever before. And so, there's definitely strength in our economy, but I'm not going to pretend that people aren't feeling the pinch of what of the inflation challenge, some of those interest rate increases, and you know that slowing growth, obviously. And so, part of our job is to make sure we're looking at ways to, you know, keep the economy ticking along and support people while we go through this difficult time.

FEGAN: It's 7:42 AM. My guest this morning is the Finance Minister, Katy Gallagher. Minister, I just want to ask you about this. The Treasurer was unable to declare whether or not households will still receive an 18 per cent, or $275, relief on the 2021 energy cost. Now this was a major election promise from Anthony Albanese, one of the biggest election promises that, I say, helped him get into power. So, are we going to see the government break this promise? Yes or no?

GALLAGHER: Well, I think the Treasurer did deal with this yesterday.

FEGAN: Well, he didn’t give a guarantee, Minister.

GALLAGHER: Yeah, well okay, so what he said was the modelling was doing in 2021 for 2025, and we have had quite a bit happen since then. So, we’ve seen the war in Ukraine, for example, which certainly had impacts globally on energy prices. But at the same time, we have given every household – hopefully every listener that's listening to your show would be getting it – energy bill relief in the order of $300. Because we have recognised that energy bills are a major household, you know, have major household impact. But we're continuing on with our renewable energy implementation as well which will – cheapest form of energy – will lower costs in the long term. But we've certainly made that $300 provision, we’ve actually done two rounds of that, and both times the Opposition didn't support it.

FEGAN: Minister, the big question for me is – if I'm in the Labor Party or if I'm in government and I'm looking at strategy, I'm looking into next year, right? And I don't know how you can answer. I'm looking into next year. But you've got another budget to hand down, then you're looking at an election. We've got the RBA’s decision in February as well which I don't think, I don't think it's going to go our way. Does that mean that the boss is telling you all now to be ready for an election, say, perhaps in early March? Can you let us in on any secrets?

GALLAGHER: Well, that is way above my pay grade, for sure. And that is one of the great – well, I imagine it's a really hard choice for whoever has to make it, whenever they do. But we're planning a budget in March. That's what Jim Chalmers and I are working towards. So, we've got a lot of work to do on that front over the summer.

FEGAN: No pressure! No pressure, could decide which way the country votes.

GALLAGHER: Well, yeah, it'll be an important year next year. I mean, people will have a real choice. And, you know, obviously in your neck of the woods, in beautiful, sunny Queensland, you've got, you know, a choice about nuclear power plants or continuing on with renewable energy. And I tell you, the biggest risk to household bills will be that $1,200 increase to bills under Peter Dutton's crazy nuclear scheme, which it seems like is not going to get a run in Queensland anyway, because the Deputy Premier’s said they don't want to have a bar of it.

FEGAN: What about coal? We're forgetting about coal. Queensland loves coal!

GALLAGHER: Well, yeah, and you've been an important part of generating energy for the country. But those power plants, those coal-fired power plants are, you know, aging and breaking down and they are a substantial risk to the energy system at the moment. And, you know, that's the challenge that governments have. We have to deal with this. We have to deal with the fact that aging infrastructure, it is breaking down. And seize the opportunities that come with, you know, all the sun that you guys get in Queensland, more than we get down here in the ACT.

FEGAN: Well, the sun's only just come out. We've been in about a week of rain, so it's nice to have some sun out this morning, but the rest of the state is still pretty bleak. Minister, thank you for spending some time with us this morning. I know how busy you've been. It's going to be a big year.

GALLAGHER: Thank you, thanks for having me come on, and Merry Christmas.

FEGNA: Yes, Merry Christmas to you and yours, and let's hope we can catch up early next year. We may be doing it in an election month of March, who knows? Good on you, Minister.