The budget drop-a-thon

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 pressure to set out a clear platform before the May election, and next week will be one of his last big chances.

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Episode Transcript

S1 (00:01):
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

(00:24):
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,

(00:47):
Shane Wright. How are you?

S2 (00:48):
Good day, Paul, and good day Shane. Lovely to see
both of you gentlemen.

S1 (00:51):
You've both covered more budgets than I've had hot dinners.
How many is that for? You two.

S2 (00:56):
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.

S3 (01:05):
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

(01:27):
the situation.

S1 (01:28):
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.

S2 (01:39):
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

(02:00):
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.

S3 (02:07):
Trademark that term drop a thon. I've never heard that
one before.

S2 (02:10):
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

(02:32):
and so forth. And privatization made a big difference as well.
I don't think there's the same focus on that. Now.

S3 (02:38):
I think I'm going to challenge you a little bit
on this. No, I don't think.

S2 (02:43):
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.

S1 (02:49):
What do you think?

S3 (02:49):
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.

(03:10):
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

(03:30):
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,

(03:52):
the acceleration that you see in the media has come
to big political set events like a budget.

S1 (03:57):
Yeah. And I wonder what the Covid pandemic meant for
the idea of debt as well.

S2 (04:01):
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

(04:21):
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.

S3 (04:28):
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.

S1 (04:36):
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.

S3 (04:47):
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

(05:09):
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

(05:33):
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.

S1 (05:42):
Well, Shane, you're well known around these parts for wearing
a tie with pigs flying on them during budget week,
which I am.

S3 (05:48):
My.

S1 (05:48):
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?

S3 (06:01):
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

(06:25):
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 numbers.

S1 (06:38):
A lot of luck involved there, right?

S3 (06:39):
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.

S1 (06:53):
1.2 billion, 1.2 billion.

S3 (06:56):
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

(07:18):
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.

S4 (07:33):
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.

S3 (07:48):
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.

S1 (07:56):
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.

S3 (08:09):
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

(08:31):
part of it. It's the politics and the economics of
giving money to people to try and reduce their cost
of living pressures.

S4 (08:38):
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.

S1 (08:49):
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

(09:10):
how does how could this be a nice pathway into
an election campaign for them? And what are the risks?

S2 (09:15):
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

(09:36):
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

(09:56):
growth forecasts for the economy being pretty reasonable in the circumstances.
In a 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.

(10:19):
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

(10:39):
Thursday night.

S1 (10:41):
Huge.

S2 (10:41):
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

(11:04):
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.

S1 (11:23):
They've got a big idea.

S2 (11:24):
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

(11:45):
budget all about whether the coalition idea flies or not
and what the what the choice is for voters.

S1 (11:52):
We'll get back to policy in a second. But now
that we're on politics in the election, 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

(12:15):
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

(12:37):
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.

S2 (12:57):
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

(13:20):
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.

(13:42):
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,

(14:02):
you would expect better and a smoother operation at this
stage of the cycle.

S1 (14:07):
Shane, some changes in polling the last few weeks.

S3 (14:11):
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.

S1 (14:30):
This is how people are feeling about the economy and
how much they can buy.

S3 (14:33):
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

(14:55):
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,

(15:15):
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.

(15:38):
And they're not blaming the government for that.

S5 (15:48):
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.

S1 (15:58):
David, you reported a story about the risks from the
Trump administration for our PBS game. Can you tell us
what you found out and what you reported?

S2 (16:05):
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

(16:26):
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

(16:46):
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

(17:09):
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

(17:31):
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

(17:52):
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

(18:13):
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.

S6 (18:29):
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.

S5 (18:37):
What does that look like?

S2 (18:38):
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

(19:01):
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.

S3 (19:14):
I think it suits the incumbent.

S1 (19:16):
It's got to say the same thing.

S3 (19:17):
Well, great minds think alike or fools never differ. One
of whichever one you want to take.

S1 (19:21):
Quicker on the buzzer.

S3 (19:23):
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

(19:43):
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.

S1 (19:49):
Why would anyone do that?

S3 (19:50):
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.

S2 (20:07):
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

(20:28):
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

(20:50):
hate that and they'll always hate it.

S1 (20:52):
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.

S3 (21:00):
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

(21:22):
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

(21:44):
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

(22:07):
to a bit of that in his budget speech on
Tuesday night.

S1 (22:11):
Thanks for joining us, guys.

S2 (22:12):
Thank you all.

S3 (22:13):
It's been lovely.

S1 (22:16):
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
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(22:36):
a comprehensive summary of the day's most important news, analysis
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the show notes. I'm Paul chuckle. This is inside politics.
Thank you for listening.