JIM CHALMERS:
We're nearing the end of a couple of really busy, valuable days here in Washington DC. We tried to make the most of this opportunity to take the temperature of the global economy as we put the finishing touches on the Budget, something like I think 19 different meetings and engagements in 43 hours – a 17‑hour day yesterday, we really have tried to make the most of this very brief visit while we've been here to confer with as many of our G20 counterparts and colleagues and the IMF and the World Bank and others.
Global factors will weigh really heavily on the Budget we hand down next month. There are at least 5 really important factors which have featured here in the discussions and which will be factors in the Budget on the 14th of May. Inflation is moderating but lingering, growth is slowing, tensions are rising, supply chains are fragmenting and the global economy is transforming, particularly in the context of the net zero opportunity. And so these are the key factors that have been discussed here, they will be key influences on the Budget next month that we hand down as well.
Absolutely central to the important discussions here the last couple of days has been the difficult geopolitical conditions geopolitical tensions which are casting a shadow over the global economy. The events in the Middle East in recent days combined with the ongoing war in Eastern Europe, obviously 2 big influences on the global economy, on our own economies and on our budgets as well. More danger in the global community means more downside risk in the economy.
If you take the war in Ukraine, I was able to meet with Minister Marchenko, the Finance Minister of Ukraine, I was able to agree with him to extend the tariff concessions in Australia for imported Ukrainian goods. This is another way that we stand in solidarity with the courageous people and leaders of Ukraine.
Obviously, in recent days, we've also seen conflict flare up even more substantially in the Middle East. We don't want to see the conflict in the Middle East become a broader conflict. There has been enough bloodshed in the Middle East already. We don't want to see more innocent lives lost. We don't want to risk a miscalculation which could turn the events of recent days into a full blown regional war. The conflict in the Middle East risks another spike in inflation and after we've been making welcome and encouraging progress around the world and indeed in Australia, the global economy cannot afford another spike in inflation which comes from escalations in tensions in the Middle East. This is primarily a concern about the innocent people in the Middle East. We don't want to see more lives lost but we also don't want to see more damage done to the global economy. Conflict in the Middle East, rising, escalating tensions in the Middle East do risk another spike in inflation and we need to avoid that.
So global factors will be a big part of the next few weeks as we put the finishing touches on the Budget. We're obviously monitoring very closely the situation in China. We're monitoring very closely the consequences, the implications of escalating tensions in the Middle East, we saw some small spikes in the price of oil and gold on the weekend and more recently, and this is really just another indication of the economic consequences of the conflict that we're seeing in that important part of the world. So in this context, our Budget will put a premium on responsibility and an emphasis on security. You will see a much bigger emphasis in the Budget, not just in on investment, not just on growth, but also in economic security as well. We want to align our national security and our economic security interests, this is how we help relieve cost‑of‑living pressures, repair our Budget and reform our economy as an antidote to the kinds of risks that we see escalating around the world. We want to make a future that is prosperous, that is secure – the Budget will be an important part of that, these discussions that we've had here in Washington DC will be an important part of that as well.
JOURNALIST:
[inaudible].
CHALMERS:
Well, we've made welcome and encouraging progress in the fight against inflation in Australia. Inflation has come off really substantially since its peaks in 2022 but what we've seen here in the US, and indeed, in a headline sense in Canada, is that inflation doesn't always moderate in a straight line, it can zig and zag. And here in the US, inflation actually ticked up a little in the most recent data, as you would have noticed. And so the Australian experience is encouraging. Inflation is coming off, we'll get another number next week, quarterly CPI number next week, which will tell us more about the situation with inflation. But the other thing that is clear, apart from the fact that inflation is moderating in Australia, is our policies are helping – the first surplus in 15 years, cost‑of‑living relief, which is taking the edge off inflation, rather than adding to it, cheaper electricity, cheaper early childhood education, rent assistance, all of these things are playing an important role and if we can do more on each or any of those fronts in the Budget in May, obviously, that's something that we'll consider in the coming weeks.
JOURNALIST:
Did you get a discussion with Jerome Powell and regardless, what's your sense as to a rate cut this year in the US?
CHALMERS:
Well, the chairman of the fed has made comments publicly and in some of the closed door sessions here. They are consistent – his public commentary was that he is not yet confident that it's time to start to cut interest rates here in the US, and he can speak for himself. But obviously, those comments were a pretty heavy focus of the discussions here in Washington DC because of their implications for the global economy. I was in a number of meetings with the fed chair and had another number of conversations with our American friends, including Secretary Yellen. I think the public public commentary that both of them have made in recent days reflects their views as well.
JOURNALIST:
I know you won't want to cut across the independence of the RBA, but you talk about the implications for the economy of the fed chair's comments, can you give us a sense of what you think they are in an Australian context?
CHALMERS:
I am reluctant to do anything that makes it look like I'm predicting or pre‑empting future decisions on interest rates. Governor Bullock is here as well. She is a very important contributor to these discussions and she can describe that part of the situation as she sees it. For me, really, the inflation story is incredibly important as I said before. We'll learn more about that next week when we get the March quarter CPI but the direction of travel is really clear on inflation in our country – we've got moderating inflation, we've got real wages growing again, we've got faster jobs growth than any major advanced economy, our budget is the biggest improver in the G20 in the last couple of years and so we've got a lot of things going for us. When the Reserve Bank sits down to weigh up on the 7th of May decisions about interest rates, they will factor all of that in and weigh all of that up, including the international situation and the trajectory of interest rates here in the US.
JOURNALIST:
Treasurer on the international situation, the Australian Government's called for restraint from both sides. What does that actually look like?
CHALMERS:
It's in nobody's interest to see a further escalation of the tensions in the Middle East. The Acting Foreign Minister, Katy Gallagher, has made some comments overnight. Our view is we don't want to see the capacity for a miscalculation. We don't want to see tensions in the Middle East become a full blown regional conflict and that's why we call for restraint. We want to see this de‑escalate rather than escalate, most importantly, because we don't want to see innocent lives lost but also because conflict in the Middle East is a genuine threat to the global economy and indeed, to our own economy and particularly when it comes to the inflation challenge that we've been talking about in these other questions. It's not hard to imagine an escalating conflict in the Middle East putting upward pressure on inflation just when we've been making welcome and encouraging progress.
JOURNALIST:
And on that point, Australia has leverage with Israel more than it does with Iran, given that they are a close friend. Has the government been using that leverage at all to try to put pressure on them to de‑escalate the situation?
CHALMERS:
I'm not in a position to go into that and any conversations that might have been had. What we say publicly is what we say privately – it's in nobody's interest for this conflict and this tension in the Middle East to escalate for reasons of safety, people who live there, but also for economic reasons that I've outlined.
JOURNALIST:
[inaudible] Was there any intel that you picked up in those meetings that will force you to rethink or change your Budget?
CHALMERS:
I think it's pretty clear that the pressures on our economy and the pressures on our Budget are different now than they have been in the last couple of years – not completely different, but the balance of risks has shifted in our economy and that means our Budget strategy, our fiscal strategy will need to change a little bit as well, and not to abandon the fight against inflation, but to recognise we have to fight inflation at the same time as we have got sluggish growth, our labour market is beginning to soften and so the degree of difficulty in this Budget, I think, is a little higher than the first 2. The first 2 had not a sole focus on inflation, but an overwhelming focus on inflation – this one, you'll see a focus on inflation, we have to finish the fight against inflation, but we also need to make sure we're investing in the foundations and the drivers of growth into the future and that's what a Future Made in Australia is all about.
JOURNALIST:
Treasurer, can I just ask – in some of your discussions with the Americans, and indeed some of the other country finance leads – what areas and what efforts are people making that could see some changes on how countries like Australia are dealing with the China overcapacity problem?
TREASURER:
Well, that has been a feature of some of our discussions here in Washington DC. There is a concern, I think, felt not just in Australia but elsewhere about the ability of big players to manipulate markets by controlling some of the arrangements around supply. We have had our own challenges as you know, in Australia, for example, when it comes to the nickel industry, the way that the nickel market, global market for nickel has changed substantially because of the entrance of new players. Obviously, that's a concern to us. Secretary Yellen and others have raised this publicly and formally as a challenge for the global economy to deal with and we agree with that.
JOURNALIST:
Will there be something in the Budget coming up that would speak to this?
CHALMERS:
We want to build resilience in our economy and in our Budget and a big part of that is making sure that we make the most of these immense opportunities in areas like critical minerals. The big opportunity for Australia in the context of a global net zero economy is at the intersection of our industry, our resources, our skills, our energy base, and our investment opportunities and if we get the intersection of those things right, and we will, we can align our economic and national security interests and we can make ourselves an indispensable part of the global net zero economy – that's our objective and that's what a Future Made in Australia is all about. And so a Future Made in Australia will be a huge emphasis in the Budget. It is a great strategy but it is, above all, an opportunity for us not to retreat from the world, but to make ourselves an indispensable part of the way that the world is heading.
JOURNALIST:
You said on China that the budget will forecast its slowest period of growth since the opening up in the late 70s. Can you explain what perhaps quantified the revenue implications that you're looking at around that?
CHALMERS:
First of all, we got a China growth number on Tuesday which was a little bit stronger than the market had anticipated but still, by Chinese standards, relatively weak and the last update of our Treasury forecasts which I saw before that number had 3 consecutive years of Chinese growth with a 4 in front of it and that would be the weakest 3 years since China began opening up around the end of the 1970s. And what that means for us is that some of the really important sources of revenue in our Budget, whether it be commodities, whether it the other important parts of our export offering, we won't see the same kinds of upgrades to revenue that we've seen in the last couple of budgets and that will be a really important difference. To be really blunt about it, we won't see anything like the revenue upgrades that we saw in the first 2 budgets in our third Budget and that is part of the reason why we need a slightly different fiscal strategy to try and do more with less but also to try and recognise that in a global economy which is slowing, a Chinese economy which has been sluggish, that has big implications for us. If you think about the iron ore price, for example, it was about $130 at the start of the year, it was about $90 not that long ago. We think the difference between $130 and $90 in our Budget over that period was about $9 billion in revenue and so that gives you a sense of the sort of magnitude.
JOURNALIST:
Treasurer, 2024 is an election year here in the US. Have you had any meetings with the Trump team given that he is easily in the polls or are you planning on it? And how are you preparing for a potential change of administration?
CHALMERS:
I haven't but that's because the agenda here is pretty tightly focused on the current administration and my ministerial counterparts, whether it's here in the US or around the world and central bank governors. And so it's not unusual that the engagement has been with the current administration, rather than any possible future administration. Obviously, I engage a fair bit with our ambassador here, as well and from an Australian point of view, our job is to make sure that Australia's interests are represented here and they are represented really well and to recognise that we don't have a role to play in the American election, we play the cards that we’re dealt in Australia. The Americans choose their own presidents and leaders, and that's obviously appropriate but we are confident that in either scenario, we’ll continue to be well represented, we'll continue to have our interests recognised here in the US because we're such close friends, and not just leader to leader but administration to administration. That's what matters and that's why their relationships, and it's so good and so enduring.
JOURNALIST:
With those conversations with the ambassador, did you talk about what outreach he's doing given those comments from Donald Trump which weren't exactly fluttering about the ambassador?
CHALMERS:
I'm not going to get into those conversations.
JOURNALIST:
Given the IMF has said that economic growth has slowed everywhere since the GFC, is there anything that you believe you need to do more to put more policy in place to address this productivity and growth beyond [inaudible].
CHALMERS:
Growing our economy the right way, making it more productive, making it more competitive and dynamic and innovative, these are really central objectives and they will be well served by a Future Made in Australia but there are other policies that we're putting in place to serve those interests. In the last couple of weeks, we've had an overhaul of our competition settings when they come to mergers and acquisitions. Before long, I'll be talking about overhauling our foreign investment regime as part of that effort, as well as a big investments in skills, adapting and adopting technology, all of these things are important for productivity and so they will be collectively a big focus of the Budget too.
JOURNALIST:
Just on the back of Carrington's question, President Biden this week was talking about massively increasing steel tariffs on China. His opponent has a plan for a sweeping tariff on all imports. Are you concerned by that increasing push to protectionism here in the US and do you reflect on risks that might have for Australia?
CHALMERS:
First of all, the risks of that particular decision are very limited. That's the very clear advice and I saw that President Biden himself said that he didn't want to see a trade war escalate between the 2 biggest players in the global economy. That's our view as well.
JOURNALIST:
But some members of Congress here have actually suggested from both sides of politics that there should be a carbon border adjustment scheme. How do you feel about that?
CHALMERS:
Chris Bowen has said before that we've had I think, from memory, some reviews and some work done on that front. I think most countries are investigating something like that. We haven't taken a decision about whether or not we go forward on that front.
Thanks guys.