Melissa Clarke:
But first with federal politics and economics. As you’ve been hearing this morning, the Reserve Bank did decide yesterday to raise the cash rate to 4.6 per cent, a level not seen since 2011. The federal Treasurer, Jim Chalmers, has pointed to the conflict in the Middle East as one of the main drivers of inflation in the economy. Meanwhile, the Reserve Bank Governor Michele Bullock has reiterated that inflation has been driven by domestic capacity pressures, saying that what’s happening in the Middle East is an additional pressure.
[Excerpt]
Michele Bullock:
Inflation is too high and has been driven by domestic capacity pressures. Domestic spending and investment have been stronger than expected despite weak sentiment and the softening in housing market conditions. Productivity growth remains weak and the labour market remains a little tight. And outside of Australia, the global economy has also been more resilient than many expected. The conflict in the Middle East has escalated again in recent weeks and oil prices have risen significantly. Separately, the global AI investment boom has driven significant price rises for some inputs within the AI supply chain.
[End of excerpt]
Clarke:
Reserve Bank Governor Michele Bullock speaking yesterday after announcing that rate rise decision. Joining me now is the Assistant Treasurer, Daniel Mulino. Daniel Mulino, welcome back to Radio National Breakfast.
Daniel Mulino:
Oh, thanks very much for having me on, Mel.
Clarke:
So, it seems clear from Michele Bullock’s statement there that domestic pressures are the key driver of inflation here, is that right?
Mulino:
Well, I think if you look at the statement that the RBA issued yesterday, they drew out 2 factors explicitly. One was higher‑than‑forecast impacts from global energy prices as a result of the conflict in the Middle East. And the other was this global demand for AI and what that’s doing to technology prices. The Governor did talk in her press conference about the fact that ultimately all of these different factors come into aggregate demand and aggregate supply in the domestic economy and whether they’re in balance or not. But if you look at their statement, the 2 big factors that they talked about were the conflict and then also technology.
Clarke:
But Australia would be in a better position to deal with a global energy shock if there weren’t already so many pressing domestic supply chain constraints, isn’t that right? That wouldn’t be such an issue if the domestic fiscal position were different.
Mulino:
And so when we think about aggregate demand at the economy wide level, if we look at the increase in aggregate final demand of every $5 that’s being generated in aggregate increased final demand, $4 of that has come from the private sector and $1 from the public sector. So, it’s important to put that in context –
Clarke:
Sure but the public sector is the lever that you have, right? You don’t want to encourage businesses to do less business. That public demand is the lever that you have and that is easier to help manage these kind of impacts.
Mulino:
No, you’re right. And that’s the lever the government has in its control. But if you look at the last Budget, we put in place $64 billion in saves across a range of portfolios. The largest single one was the NDIS. That was a really difficult set of saves for us to put in place, but it was important. It’s $40 billion from that set of measures alone over the forward estimates. We will do it in a way where we are still achieving the NDIS’s goals, where we still support people in need. But many of those measures have now been not just put into the Budget, but have been legislated. So, these are savings that are ongoing, that are recurrent and what it shows is the government is very committed to achieving real saves in relation to the levers that we have control over.
Clarke:
I think the question here is, is it sufficient? I mean, we’ve heard in a new interview with the Institute of Public Affairs, the former RBA Governor Philip Lowe had this to say.
[Excerpt]
Philip Lowe:
So, now we find ourselves running sizable budget deficits at a time when we’re at full employment and commodity prices are very high. We should be running structure, sizeable surpluses.
[End of excerpt]
Melissa Clarke:
So, is Philip Lowe right? Should you be running budget surpluses at this time?
Mulino:
What I would point to is the fact that if we go back to Monday and the budget deficit from last year, it came in at $22 billion, which was 6 less than had been forecast. But importantly, it came in at just over half of what had been originally forecast back when we came into government. So, we have achieved very significant improvements in the fiscal position. And when you look at –
Clarke:
But not enough to get back into terms – not enough to get back into surplus, which is Philip Lowe’s position there.
Mulino:
Yeah, but I think I would also say that when you look at it in aggregate terms, if you look at where we are in terms of government debt, we’re around $200 billion better off than the trajectory we inherited. And that’s a result of 2 surpluses in our first 2 budgets. But also in the last Budget, those very significant saves and reprioritisations that I pointed to. So, I think very significant progress has been made. And that reduction in total debt compared to the trajectory we inherited will have very significant benefits for interest payments over the coming decade and for the future generations that Philip Lowe refers to.
Clarke:
You’re listening to Radio National Breakfast, where Assistant Treasurer Daniel Mulino is my guest. What are the banks telling you about mortgage arrears and hardship requests? Obviously it would take a little while for this latest rate hike to go through, but households – many households are already absorbing those 3 rate hikes we had earlier in the year. What’s the level of hardship that people are experiencing as a result of that?
Mulino:
So, I haven’t talked to them since yesterday’s announcement, but I have engaged with the banks and I do engage with them frequently in the lead up to yesterday’s announcement. And what they had been saying was that mortgage arrears that defaults, that requests for hardship had not been increasing markedly. And that probably reflects the fact that unemployment remains quite low by historic standards. What I would say is that it’s very important that if we do see an increase in any of those measures, that the banks provide people with appropriate flexibility and then they’ve certainly committed to doing that in discussions I’ve had with them.
Clarke:
The government, particularly in this term, has had a big focus on trying to improve productivity. Had the productivity roundtable at the start of the term, but Michele Bullock yesterday was very clear that productivity is weak and is clearly pushing hard for there to be improvement here. She pointed to the need for businesses to take more initiative here but is there also a need for the government to do more than it has already to try and make progress in improving productivity?
Mulino:
Well, we will continue to look for additional measures that we can take in relation to productivity. What I would point to is the fact that a number of important measures have already been passed and the EPBC Act is one of the most significant. That was something which had been sitting there for a number of years. That was something which experts from business, the environmental movement and right across the board had been calling for. Measures like that are very significant, but they can take a while to manifest themselves in productivity numbers because it requires ultimately projects to be undertaken for businesses and other actors to take action in relation to those measures.
There are a whole raft of other measures where we’ve tried to reduce red tape, improve regulatory design, including in my own portfolio. Looking forward, AI is clearly a huge opportunity but what I would say is the way the Prime Minister has approached this, I think is the right one, where we need to try to embrace as much of the benefits as possible, but we need to do that in a way where we bring the community with us, where we put in place the right safeguards as we go on that journey. So, bringing it into Prime Minister and Cabinet, coordinating that, bringing it into National Cabinet, I think that’s the best way that we’re going to be able to embrace the upside while making sure the community is giving us the social licence for investing in that and rolling it out.
Clarke:
Daniel Mulino, thanks very much for speaking to us this morning.
Mulino:
Thanks very much, Mel.
Clarke:
That’s Daniel Mulino, the Assistant Treasurer.