ROSS SOLLY:
I nearly fell off my chair yesterday, if I was sitting on a chair at the time, in fact, I was walking. And I nearly fell into a bush when I heard the new - the latest inflation figures come out because it wasn't meant to be like this. We're supposed to be getting a cap on all of this. We're supposed to get things under control. Dr Andrew Leigh, Assistant Minister for Treasury. Good morning to you.
ANDREW LEIGH:
Good morning, Ross. How are you?
SOLLY:
I'm okay. I've got over my stumble and fall into a bush yesterday. What did you think when you heard the figures?
LEIGH:
Well, inflation is unacceptably high. This is the highest annual inflation since 1990: 7.8 per cent. Particularly pushed up by domestic travel, international travel, accommodation, new dwelling purchases. Ross, the initial inflation story was a story of goods inflation, largely driven by supply chain blockages. But as with other countries, it's now started to bleed over to services inflation as well. Still, most of the price rises are in goods, but an increasing share is in services. So we think that inflation has peaked, but we won't know for sure until the next set of figures come out.
SOLLY:
Yeah, and in the meantime there's a big decision, and I know you want to preempt what the Reserve Bank might do, but it's got to be a big decision for the Reserve Bank governor to make. Talk this morning by some economists that we might not just have one more interest rate rise, but it could be up to three. And really, that's going to be hard for a lot of people.
LEIGH:
Absolutely. And people who are stretched on the mortgage will certainly find that that's a big challenge for them. The independent Reserve Bank is given a mandate of keeping inflation between 2 per cent and 3 per cent. So, an inflation figure coming in 8 per cent does call on them to take action to bring it back within the target band. But we understand that that puts pressure on households. The challenge for us as a federal government is to make sure we're doing all we can to unlock those supply chain blockages, to make sure we're working on the supply side to deal with inflation while the Reserve Bank's works on the demand side.
SOLLY:
Do you worry that some people are going to go to the wall if it happens, if we continue to increase interest rates?
LEIGH:
Absolutely. People are stretched on their mortgages and we've had this very long period of historically low interest rates. One analysis by the bank of England said that interest rates in the 2010s were the lowest in 5000 years. So, I think people got locked into those low interest rates. We're already seeing that the business sector, some of the neobanks appear to have had a start‑up model that was really based on near‑zero interest rates and have gone to the wall now. And in the household sector, I'm concerned about people who overstretched and now find themselves copping big increases in their monthly repayments.
SOLLY:
Is it a price we have to pay, though, to try and get the economy back on track? Is it a price that you're happy to accept that there may be people who are going to lose their houses? There are going to be people who are going to find it very hard to put food on the table. There are going to be people who are finding it very, very hard to get their kids school stuff organised? Is that a price that we have to be prepared to pay?
LEIGH:
Well, as a federal government, we're doing all we can to make sure that we're supporting households. Ensuring that, say, the child care relief that's coming in the middle of the year, flows through to assist people in their household budgets. But we also need to recognise that high inflation does have significant costs. It makes it more difficult for families to save and plan. It makes it more challenging for economies to grow because of the instability that tends to come with high inflation. Periods of hyperinflation have tended to be absolutely disastrous for countries, and even the high inflation that Australia had in the 1970s was a significant problem for our economy. So we've got to bring inflation back within the target band, and I don't want to pretend that that doesn't come with some pain.
SOLLY:
Yeah, you've made it the passion of your life, Andrew Leigh, I don't want to overstate it here but to study the financial markets and how finances work and what are the most efficient ways. Do we have any other tricks up our sleeve? I mean, at the moment, it's just a blunt instrument, isn't it? It's interest rates. The Reserve Bank is basically the only tool we have. I've heard people say, well, maybe a fairer system might be to increase the GST and that way it might spread the pain and lessen the impact on some. Is it time that we had that conversation again? Or is that just something that's never going to happen because we have to get all the states and the territories to agree. It takes a lot of work.
LEIGH:
Yeah, the way we tend to manage the ups and downs of the business cycle, Ross, is through monetary policy, through adjusting interest rates rather than through fiscal policy, through taxes and transfers. Fiscal policy has got a role to play if you're talking about sustaining demand, say, through the Great Depression or the recent recession. But in terms of bringing inflation back under control, that's principally going to be an issue for monetary policy. And having that monetary policy independence has served Australia well. But we're under no illusions about the pressures that Australians face. And we're working on policies such as housing, child care, and supporting families in order to make sure that the bite of those were higher interest rates is less than it would otherwise be.
SOLLY:
And on the GST?
LEIGH:
We don't have any plans to raise the GST. I think that the suggestion that the GST could be used as a form of countercyclical fiscal policy isn't going to work.
SOLLY:
On Australia Day, Andrew Leigh, what are your thoughts about it? What instructions have you given to your staff and to your office today? And what is the future for this day, do you think?
LEIGH:
My staff and I aren't working, and I don't imagine there's many people working in Parliament House today, Ross. But clearly, there's a variety of views in the community. Certainly polling seems to suggest the Australian public is split and I can understand the views of people like Tom Calma, our terrific new senior Australian – …
SOLLY:
He’s fantastic.
LEIGH:
He’s great, isn't he – when he says that he believes it's not the most appropriate day. People are welcome to have that debate, people are welcome to protest today or to celebrate today. They're welcome to work, they're welcome not to work. We certainly understand the way in which that debate is evolving. You know, I think back to the Bicentennial in 1988, when there was much less recognition of the role that Indigenous Australians played, and you look to a country like the United States moving away from Columbus Day, and you can see those sorts of debates over the role of Indigenous people playing a bigger role around the world.
SOLLY:
Do you think it's only a matter of time before some sort of significant change is made?
LEIGH:
Yeah, it's hard to know, isn't it? You know, here in Canberra, we've got a clear marker of indigenous protest against Australia Day with the Tent Embassy, which was set up on 26 January 1972, 51 years ago, as a direct protest against Australia Day. I can understand those Indigenous Australians who refer to the day as Survival Day. We as a government do not have any plans to change it, but I think the debate is going to continue.
SOLLY:
Kath wants to know if you've run the Majura today already?
LEIGH:
I did. I'm training for a run from Cradle Mountain to Lake St Clair in ten days’ time. So I did twice up Mount Majura this morning.
SOLLY:
Cradle Mountain to Lake St Clair. What a beautiful run that would be -
ANDREW LEIGH:
Just sensational.
SOLLY:
Have you done it before?
LEIGH:
I've done it as a walk. Once a year, they open it to runners, so 60 of us get to run straight through.
SOLLY:
So how far is that?
LEIGH:
80 kilometres.
SOLLY:
And what sort of time do you have to do it in?
LEIGH:
I would expect to finish it in around 12 hours or so. You've got to run it -
SOLLY:
You're a show off. You're such a show off, Andrew Leigh.
LEIGH:
They make you take all of this gear in there because they basically can't get you out except by helicopter, so you have to run with all kinds of emergency survival gear that allows you to survive a snowstorm.
SOLLY:
Well, good luck to that. I hope you get through okay. Good training, though. Lots of good - I know a lot of people walk up and run up Mount Ainsle to prepare for these sorts of runs. Do you feel like you've done the work, Andrew Leigh, for it?
LEIGH:
I think I'm in reasonable shape. Mount Majura is about the best mountain in Canberra for testing on that. And we're just insanely lucky as runners to live in this city, aren't we, Ross?
SOLLY:
Sure are.
LEIGH:
You must feel it after your time overseas, coming back here and just how glorious it is to be able to exercise outdoors.
SOLLY:
I went around the lake yesterday and it was just beautiful. We are so fortunate. Good stuff, anyway thank you, Andrew Leigh, good luck with the run. And yes, big challenges ahead for you and the government this year with interest et cetera, and the challenge that will be, and I should just mention, a lot of people coming off their fixed terms, aren't they, which is going to add to the pressure in the next couple of months.
LEIGH:
That's right. So typically, you could fix for a maximum of three years. So, a lot of people fixed. The people who fixed at the beginning of 2020, then rolled off their fixed term to the beginning of 2023, and that will continue over the next few months. And so, for them, it's an especially big jump. That three year period is one that's been raised with me by a range of financial institutions. We're going to look to these pressure points. We've got to be there with the support that those households need as we, as an economy, try to get inflation under control.
SOLLY:
Andrew Leigh, good to talk to you this morning.
LEIGH:
Thanks Ross, take care.
SOLLY:
That's Assistant Minister for Treasury Andrew Leigh on the inflation rate yesterday and what's lying, what's in store for Australians as they prepare to deal with perhaps even more interest rate rises.