The Morning EditionJust as Treasurer Jim Chalmers puts the final touches on his pre-election budget, the local threat emanating from Donald Trump's global trade war is becoming clearer.
Labor is boosting Australia's subsidised medicine scheme, but US big pharma companies want to boost their profits down under.
Meanwhile Peter Dutton is under pressure to set out a clear platform before the May election, and next week will be one of his last big chances.
From the newsrooms of the Sydney Morning Herald and The Age. This is inside politics. I'm Paul chuckle, filling in for Jacqueline Maley. It's Friday, March 21st. Just as Treasurer Jim Chalmers puts the final touches on his pre-election budget, the local threat emanating from Donald Trump's global trade war is becoming clearer. Labor is boosting Australia's subsidised medicine scheme, but US big pharma companies want to boost their profits Down Under. Meanwhile, Peter Dutton is under huge pressure to set out a clear platform before the election in May. And in his budget in reply speech next week, it will be one of his last big chances. Joining me to discuss are chief political correspondent David Crowe and our senior economics correspondent, Shane Wright. How are you?
Good day, Paul, and good day Shane. Lovely to see both of you gentlemen.
You've both covered more budgets than I've had hot dinners. How many is that for? You two.
Combined. Combine them. But I've really lost count And it hurts a bit to actually think back at how many there have been. I wish they were getting better.
It tests my mathematical ability to count them all up. Give us a ballpark. Um, 27 ish. Because we're in the weird situation. Jim Chalmers is going to give his fourth budget in three years. The last time a treasurer did that. It's even older than I am. Ben Chifley did it during the war years, so it's very unusual the situation.
So have they retained their importance in terms of the the political moment they represent in a in a term of parliament, the budget, or does the kind of new media cycle and the speed at which we move on from things.
It's true. There was this, um. Well, that's a fair point, because Howard brought in this idea of the constant campaigning. Right. And so it wasn't just the budget, you know, there was a lot of constant work through the term. Um, and so I do think that's been a factor. And now you get what what is really like a drop a thon before a budget where they hand out information about what's going to be in the budget for a good two weeks before the budget dropping it out the drop a thon. So I think you should.
Trademark that term drop a thon. I've never heard that one before.
Extends the media focus on all the budget measures. And I also think another thing is happening, which is there used to be a lot more focus on deficit surplus. It was a test of a government's capability surplus or deficit. And during the Howard years there were continued surpluses and surprise surpluses because the going was good on iron ore and so forth. And privatization made a big difference as well. I don't think there's the same focus on that. Now.
I think I'm going to challenge you a little bit on this. No, I don't think.
It cuts through to voters in the same way. And so that so the, the, the big moment of the budget isn't quite the same.
What do you think?
Well, budgets up until Paul Keating were beer and cigars up like they weren't big things. And Keating and Hawke really consolidated the importance of them as a major political event. And Keating wasn't dropping out stuff. It just coalesced everywhere. It was coalescing. Everyone was really focused on what would be the big agenda. And that's where you get the focus on surpluses. Because Keating delivered surpluses, and then you get through the problems through the early 90s, the recession, then and then numbers in politics like John Howard really faltered as a shadow treasurer in the is it the 87 or 90 campaign where he actually miscalculated all these numbers? And they had a huge hole going into an election campaign, and it really cost them dearly. But the change now, because economics has accelerated as well as politics over the last. Well, since these bloody iPhones got created. Yeah. And social media, the acceleration that you see in the media has come to big political set events like a budget.
Yeah. And I wonder what the Covid pandemic meant for the idea of debt as well.
Yeah, people became accustomed to spending, and the importance for the election campaign is we haven't we don't know yet how both sides will line up on who's got the better budget. Bottom line. That's been a big issue in the past. I'm not sure it's really going to cut through in the same way in this election because let's face it, we've had two years of surpluses. We know we're going into a deficit. So really between labor and the coalition, it's a question of who's got a slightly better deficit.
Angus Taylor is not going to be promising. I'll deliver budget surpluses within four years, which is where Joe Hockey got himself into running into 2013.
He has committed to, I think, one of the only things he's really put as a, as a point of clarity is that they will have a better budget bottom line than labor. How much better how they get there? Who knows? Yeah.
And what what does a better budget line mean? Like we I remember 2016, which is when Scott Morrison announced robodebt like the element of robodebt was announced as this big saving that would improve the budget. Chris Bowen was the shadow treasurer, had gone out with this idea of putting out budget estimates out over ten years, and the Liberal Party said, oh, what stupidity. We've focused on four years, not ten years. Get to the 2019 election. Are the Liberal Party endorsing embrace ten year forecasting? So in terms of the politics and the focus of those budget bottom line, yes, I think it is. It's really important to the state of the economy, the state of the budget, the nation's finances. But politically, like I think we've become a bit more insular into what the what voters are actually looking for.
Well, Shane, you're well known around these parts for wearing a tie with pigs flying on them during budget week, which I am.
My.
Friend symbolises kind of the heroic assumptions that usually underpin budget forecasting. What do you expect from the treasurer, Jim Chalmers, on Tuesday next week when he stands up in the House of Representatives, what kind of spin are we likely to see? What's the government likely to say?
Well, let's see, they are going to produce deficits. Like, remember, we've come out of two budget surpluses, which Jim Chalmers puts on his on his breastplate and proudly thumps it and says how fantastic spinning back into right, we're going to have a deficit maybe this financial year, around 20 billion, around $40 billion. That's a lot of money that's going out the door, which normally would be a death knell, like in terms of if we went back into the, oh, say, the noughties for an election campaign, no opposition could come up with those sorts of numbers, or a government can come up with those sorts of things.
A lot of luck involved there, right?
Revenue upgrades and downgrades, I think. So the numbers are almost secondary because people just go glaze over. Oh, there's another few billion dollars. We've already seen the spin about Cyclone Alfred or Alf, depending on where you're coming from.
1.2 billion, 1.2 billion.
In an economy that's 2.6 trillion. Yeah. It's barely it's barely touching the knees. So you'll get that spin. And then how? And this week he gave a speech, a really interesting speech in Brisbane where he talked about Australian exceptionalism because this is lining up to the election. So they're going to focus on interest rates are falling. Unemployment is the biggest success story of this government by some margin, like a million jobs created almost on their watch. The fact that interest rates have gone up so far, but the jobs market is still strong. Real wages growth, which we weren't having previously.
For a moment, what Australians have achieved together in our economy. Inflation, a third of its peak, are now in the lower half of the target band, the lowest average unemployment rate for any government in 50 years. Stronger employment growth.
He will focus on those positives and then tie it up with a bow, saying it's all because of our great budget and economic management. Why would you risk that.
In that speech, Shane? The treasurer effectively say that there might be some new cost of living announcements, but a lot of what the government has to say between now and the election in terms of new policy will be announced after the budget in the election campaign.
Yeah. And I think for David and myself, one of the biggest things will be just how much they expend in terms of energy supplements or some sort of cost of living payment. We've already seen some of the speculation. Last year it was $300, which everyone got. I think that'll be for David and myself. That'll be a key part of it. It's the politics and the economics of giving money to people to try and reduce their cost of living pressures.
It'll be a responsible budget, which helps with the cost of living, builds our future, and makes our economy more resilient in this new world of global uncertainty.
Well, I wanted to ask you, David, this will be the last big set piece before the election campaign. We expect it to be called possibly the Sunday after the budget, or maybe the week after that. I think more likely the Sunday right after. It puts Jim Chalmers, who's the best communicator in the government, according to lots of analysts right at the center of the government's message over the next week. What's the opportunity here for the government and how does how could this be a nice pathway into an election campaign for them? And what are the risks?
Yeah, the bigger opportunity for the government, the most important opportunity is to convince Australians that they've got everything under control and that they've got better times ahead, and they've got a frame that as the best choice at the election, compared to the risk of choosing a different government, the risk of Dutton versus all these good things that the budget shows. But as we've mentioned, it'll show a deficit, right. So it's not that rosy. However, they will be able to point to unemployment. That's not too bad. Real wages that are actually getting ahead of inflation, inflation being lower than it was when they came into government. And the growth forecasts for the economy being pretty reasonable in the circumstances in time of terrible global volatility and interest rates being lower after 12 rate rises on their watch, they've got to convince people about those better times ahead. And in a sense, that is the most important thing, more important than individual measures, even like the cost of living. So they will have energy bill relief and some other cost of living measures, I think. And we've also seen they're acting on the cost of medicine, for instance, straight to the to the hip pocket. So that is the opportunity. And they will be focusing very strongly on something which is part of budget week every year. But this time even more important. And that's Peter Dutton's budget reply on Thursday night.
Huge.
That sets up a very big contest on the economy, and we haven't seen a very high quality economic debate from the coalition yet. So the acid test is that Thursday night budget reply and then the government will want to really go after Peter Dutton on his budget reply. The morning after on Friday of budget week. And I expect that to get really serious about, you know, the election the morning after Peter Dutton's budget reply. I think it's the Friday morning, the news cycle on the Friday morning, the breakfast television on the Friday morning that would maybe be owned by the coalition because they would get to talk about everything that Peter Dutton said on the Thursday night.
They've got a big idea.
If they've got a big idea, they better have a big idea. I think I think we're getting to a real stage of the of the, of the political debate where, you know, the coalitions have has got to have something on the economy that's significant. But then I think the task for labor will be to throw everything at it on the Friday and to make the weekend after the budget all about whether the coalition idea flies or not and what the what the choice is for voters.
We'll get back to policy in a second. But now that we're on politics in the election, I just wanted to talk about the Coalition and Peter Dutton. He's set the agenda so much in this term, and he's so often leading the media cycle and shifting the narrative to where he wants to get it. And the government's often on the back foot in this term, particularly on culture war issues, on national security, energy. The last three weeks, he's looked a bit out of sorts. Peter Dutton, we've had this period of time post the cyclone when we thought the election was going to be called, where we're effectively just waiting for the budget. The coalition was expecting to go to a campaign. They were in their campaign office. Labor had announced most of their policy and Peter Dutton seemed a bit aimless. He's had some missteps on back to work on insurance company breakups, this idea of a referendum clamouring for more economic policy from his backbench. Personally, I'm surprised he had no policy to announce in this period to react to the fact that there were three new weeks that were effectively time come out of thin air. David, do you think the wheels are falling off the opposition, or is this a minor blip that we're noticing more than the general public because we're paying close attention.
Yeah, we are paying close attention to it because we find it so interesting. We find that the coalition is not working as smoothly as they have at other times in this term, and we find really curious moments where shadow frontbenchers are at odds with Peter Dutton on whether insurance companies are going to be broken up, or whether there should be a referendum on tougher laws on citizenship to cancel citizenship of criminals. These things have been missteps for the coalition, which are things we haven't seen before. On working from home, Peter Dutton went hard, realized that that was probably a really bad message for a lot of women who like working from home, and he seemed to be against working from home, so they softened the message. This is a really interesting sign. And I and I'm hearing this from people inside the coalition. I know that others here, you know, Paul, you've reported on it. They don't seem to have their machine working smoothly. We're getting signs of sand in the gearbox. And if they don't get it together, they'll be very scrappy. During the election campaign, you would expect better and a smoother operation at this stage of the cycle.
Shane, some changes in polling the last few weeks.
Now, this is where the political pollsters and the economic nerds like myself, are slightly at loggerheads and not at loggerheads. But I have always maintained that what we get good measures of consumer sentiment, of consumer confidence, and it's a great leading indicator for polls, always has been.
This is how people are feeling about the economy and how much they can buy.
So the RBA cuts rates in mid-February okay. Consumer confidence has stepped up like it had been in the doldrums, and it has demonstrably stepped up since that point in time. It was. And the government knew if the RBA didn't cut that cut rates, then it was going to be a really hell of an issue. But you can see that the fact that consumers happy consumers mean happier voters always have, and consumer confidence always has led what shows up in opinion polls. It's up to a month ahead, even six weeks. But you can see that the consumer confidence surveys and the ANZ and Westpac have different ones, and they're both showing the same thing is also and we'll come to the orange man in the white House. They are worried about Donald Trump. It's hurting consumer confidence in the United States because they are looking like they'll have a recession through the first 3 or 6 months of the year, but people are aware of Donald Trump and the damage he poses, that risky challenges to Australia. And they're not blaming the government for that.
Well, Aussies will be able to access cheaper medication under a re-elected labor government, pledging a $25 cap on medicines under the Pharmaceutical Benefits Scheme. But the PBS.
David, you reported a story about the risks from the Trump administration for our PBS scheme. Can you tell us what you found out and what you reported?
What I found was the formal message from a very powerful lobby in the US, the pharmaceutical companies, all the big brand name pharmaceutical companies telling the Trump administration, formally the Australian Pharmaceutical Benefits Scheme is a problem. We want that addressed. And this was in the argument for reciprocal tariffs by the Trump administration. The US trade officials are fielding these submissions to then enact reciprocal tariffs from April 2nd. So this is very, very real. It's not just an, you know, a theoretical argument. In Washington DC, we've got a very unpredictable and powerful president in the white House. We don't know how it's going to hit us, but I think it's going to hit us in some way. They don't like the PBS. And just to cover the basics on the PBS for a moment. It's a government scheme that basically decides which drugs are worth subsidizing. And when the experts in Canberra decide on those drugs, they can delay the entry of a US drug, which really irritates the US drug maker because they're locked out of the market and they call that a denial of market access. But it also dictates terms on pricing to those American companies. And they don't like that either. But the net effect is fantastic for Australian consumers, because it means they get this check by the government to push down the price of the drug and to subsidise it, so that it costs Australian patients much less than it would in a totally open slather free market. And so the message from the pharmaceutical companies in the US is that they don't want that delay to the introduction of their drugs into Australia, they want a free market. So they just come in and sell what they want when they want also, they don't want this price setting mechanism, which sets a price below what they think they should be getting for their new drugs. Now, that doesn't mean that they can force change on the PBS. All of that comes down to whether Anthony Albanese or Peter Dutton would be willing to change the PBS, and they would be mad to do that. But it does highlight this pressure on Donald Trump to find other ways to punish Australia. It's been very interesting that Anthony Albanese and senior leaders in the coalition have all said the PBS is not on the table in any negotiation, so that's an assurance for voters that they will get subsidised medicine here.
We will do everything again we can to protect the PBS. It's simply not up for negotiation, whether with America or any other country for that matter.
What does that look like?
But just bear in mind that that powerful lobby group in Washington, which dines with Donald Trump and donates $1 million to his inauguration, will be influencing his thinking about what to do about tariffs on Australia. So it's a very live situation and it works in a very interesting way domestically because Anthony Albanese, you know, is very firm in his public remarks in the wake of that story backing in the PBS. But so is the coalition. So it's not really easy to see which way it might pan out, but it could have that rally around the flag kind of effect that we're talking about here.
I think it suits the incumbent.
It's got to say the same thing.
Well, great minds think alike or fools never differ. One of whichever one you want to take.
Quicker on the buzzer.
But yeah, I think that's the PBS because like PBS starts under Ben Chifley, like, labor went down this path many, many years ago, and now both sides see it. I think James Massola, our colleague, said it best when he said, if either side gave up on the PBS, it's like it's like a bucket of warm sick. Like that's the sort of impact it would have if you gave up. Like, I think you'd be consigning yourself to opposition for a very long time.
Why would anyone do that?
That's right. And the fact is, Canada has its own central pharmaceutical system. Japan. Does everyone in the Western Europe, British. This is this is the US pharmaceutical industry looking to increase its profits at the expense of Australians and everyone else's healthcare.
Just quickly, there's probably one way in which to alleviate a bit of concern. If American drug companies want faster approval and bigger profits for their new drugs. One way to achieve that is even more money into the PBS to approve more drugs and to subsidize them with even more public taxpayer funds in Australia. So it would be a very expensive option for an Australian government. It still doesn't resolve the key American complaint about the PBS, which is that it is a single buyer in the market because it minimizes the market power of those big drug makers, because there's one buyer, the Australian government, and it sets the terms and it sets the pricing deal and they hate that and they'll always hate it.
And Shane, final one what effect is Trump's trade war and the potential upside risk to global inflation going to have on the budget.
Well this is one of the biggest questions. And we actually saw it this week from the Federal Reserve, the central bank of the United States, where their chairman, Jerome Powell, actually said Donald Trump's tariffs are going to push up inflation and they had to downgrade their economic outlook. Um, they they've wiped 0.4 percentage points of economic growth this year for the US. They are right at the at the heart of it. But this is the ripple effect. And so we've seen like even the early drops out of this budget suggesting a 0.1 percentage point effect to GDP over just from steel and aluminium, just from something as small as steel and aluminium, like it's about $1 billion of exports. if it ends up in pharmaceuticals, if it ends up in beef, it ends up in almost everything else that we that we send around the world. Then whoever wins the next election is going to face a really tough time. And you will see Chalmers pointing to a bit of that in his budget speech on Tuesday night.
Thanks for joining us, guys.
Thank you all.
It's been lovely.
Today's episode of Inside Politics was produced by Julia Carcasole with technical assistance from Debbie Harrington. Our executive producer is Tammy Mills. Inside politics is a production of The Age and Sydney Morning Herald. To support our journalism, subscribe to us by visiting The Age or smh.com.au. Forward slash. Subscribe and sign up for our Inside Politics newsletter to receive a comprehensive summary of the day's most important news, analysis and insights in your inbox every day. Links are in the show notes. I'm Paul chuckle. This is inside politics. Thank you for listening.
