Treasurer alludes to major foreign investment reform, iron ore to affect budget surplus

Australian Treasurer Jim Chalmers appeared on ABC Insiders to discuss the upcoming budget. (ABC News: Nick Haggarty)

Treasurer Jim Chalmers has alluded to tax incentives targeted at certain industries in the May budget and an imminent overhaul of foreign investment laws, flagging the iron ore price could negatively influence a possible surplus.

There has been no shortage of pre-budget announcements in the past week. Mr Chalmers announced the biggest overhaul of merger laws to improve competition and Prime Minister Anthony Albanese announced the Future Made in Australia policy, which would include subsidies and incentives for green technology and renewables in Australia to join what he described as the “global race” for jobs.

“We’ve done more economic reform in the last 23 months than we’ve seen in this country in the last 23 years,” Mr Chalmers said.

He said there would be “significant investment” in the budget for Future Made in Australia and industry, however, it “still won’t be the biggest piece of the story”, adding that the budget would also have a large focus on “how we attract, employ and absorb private sector investment as well in the service of these really important national economic objectives”.

The treasurer said Australians shouldn’t expect to see a lowering of the company tax rate in the upcoming budget.

“We are contemplating whether or not there are ways to use the tax system to incentivise the tax system to ultimately benefit our workers, businesses and investors,” Mr Chalmers told ABC’s Insiders.

“I think people can expect to see some combination of all of the levers available to government. We have a willingness and enthusiasm really to come up with something which is robust and rigorous, with strict tests governed by the act that the prime minister flagged during the week.”

The treasurer also flagged he wanted to streamline foreign investment in the country, to “attract the right kind” of investment and had been working on strengthening Foreign Investment Review Board processes.

He said he hoped to make an announcement before the budget.

“We want to streamline it for investment that is in our national economic and security interests, but we want to strengthen it. We want to make it more robust when that investment is riskier,” he said.

Iron ore price could steal Chalmers’s surplus

Treasury analysis indicated that the recent drop in iron ore prices would significantly impact the May budget. That drop has resulted in a $35 billion reduction in the upgrade to the nominal economy and a decrease of almost $9 billion in the upgrade to tax receipts over the forward estimate period.

Mr Chalmers told Insiders that iron ore prices, which has recently been bouncing around in the low $90s a tonne, previously at $130 a tonne, would have a significant impact on budget spending.

“So you can see the drop-off in the iron ore price, you can see why this is one of the reasons why we expect much, much smaller revenue upgrades in the budget than we’ve become accustomed to on the last couple of occasions,” he said.

“That demands a bit of a different approach to the budget and that’s what you will see on 14 May.”

When asked if he still had the safe surplus goal he had set after the mid-year budget findings, Mr Chalmers said it was still his goal.

“The first surplus that we delivered in 15 years last year was an important way to put downward pressure on inflation in our economy. We would like to have a second one, if we can. We are not there yet,” he said.

“The degree of difficulty has gone up a bit, but it is an important way to put downward pressure on inflation. It is not an end in itself. It is how we engage in the fight against inflation and make our budget stronger in the context of the global economic uncertainty and fund our priorities.”

Inflation and the future made in Australia

Mr Albanese highlighted, earlier in the week, a global trend of governments supporting domestic businesses and declared his intention to join in with more government intervention to build more in Australia.

“We need to identify where Australia has a comparative advantage, such as in green hydrogen, producing green steel and green aluminium, producing batteries as well. And we need, as well, to look at our national sovereignty and where we need to ensure that we can stand on our own two feet,” he told the ABC earlier in the week.

“We can’t be vulnerable.”

Just under a month away from the federal budget, Mr Chalmers said of the prime minister’s announcements that the world was changing, that the pace of change was accelerating and the government wants “a slice of the action”.

Mr Chalmers said he wanted that action, “for our businesses, workers and investors and the opportunities lie at the intersection of our energies, our energy, our resource base, our skills and human capital and our investment strategy, and this is how we align our national and economic security interests”.

“It’s how we deliver another generation of prosperity, by making ourselves an indispensable part of the global push to net zero.”

Other countries heading down this path include the United States with its Inflation Reduction Act, which has seen large amounts of investments in American industry. The treasurer flagged an upcoming trip to the US this week, where he said he would meet with his G20 counterparts.

The Future Made in Australia Act would be put to parliament in June.

When asked about his view on the inflation outlook, Mr Chalmers said US inflation was going up, there was a substantial slowing in the Chinese economy, conflict in the Middle East and other countries in recession — which would all have an effect on the upcoming budget and the Australian economy. However, he had seen inflation come down in Australia in “welcoming and encouraging ways”.

“We’re seeing it go up in the US and that reminds us that even though inflation has come off substantially from the peaks from a couple of years ago, it’s not always in a straight line.

“It can zig and zag and that’s why a primary consideration in the budget will be continuing to fight against inflation as we deal with slowing growth, as we try to make ourselves more resilient to the global economic uncertainty.”