Patricia Karvelas:
For some reaction from the government to today’s interest rate increase, I spoke to the Assistant Treasurer, Daniel Mulino, just before the Reserve Bank Governor spoke.
Daniel Mulino, welcome to the program.
Daniel Mulino:
Hi, PK. Thanks for having me on.
Karvelas:
Does the government take responsibility for today’s interest rate increase, the highest in around 15 years?
Mulino:
Well, what the RBA made clear today is that the decision they took was largely based on international factors such as higher than expected pressure on international energy prices as a result of the conflict in the Middle East, but also they explicitly referred to the fact that increased demand for artificial intelligence is putting upward pressure on a lot of technology cost. These are global factors.
But, look, the government does take responsibility for factors within its control. And we have managed the budget very responsibly over recent years, including 2 Budget surpluses, including significant cuts in spending in the last Budget. And that is putting significant fiscal alignment in place between what we’re doing and what the RBA is seeking to achieve.
We also understand that there’s a lot of people doing it tough. And that’s why we are providing supports through cheaper medicines, through bulk billing, through 5 income tax cuts provided in 3 different ways.
Karvelas:
While the war in the Middle East continues, it’s certainly a factor that the RBA has mentioned – not the only factor though – but while it continues, do you think it’s possible for inflation to return to band?
Mulino:
Well, I think what the RBA is saying is that they see the use of the tool that they have – interest rates – as better aligning aggregate demand and aggregate supply. What we can do as government is to continue to use what we have control over, which is our management of the budget. And as I mentioned, if you look at where the budget position is at now, we have total debt, $200 billion approximately, lower than it would have been based upon the situation that we inherited.
If you look at the fiscal position announced yesterday, the budget deficit came in $6 billion better than had originally been announced, but, importantly, around half – a bit over half – what had originally been handed to us by the opposition when we took over the reins. So we are putting downward pressure on government spending. We’re responsibly managing the budget, and that’s really important in this context.
Karvelas:
And does this demonstrate, if we’re seeing this rate rise and the RBA Governor has basically just said recently that the board will raise rates again if that’s what is needed to get inflation down, so they are prepared to go again, does it show that you have to be more active in pulling back funding, pulling back spending in the economy?
Mulino:
Well, look, I think what the RBA has indicated is that there is uncertainty in the global economy at the minute. It’s very difficult to forecast what’s happening in the war. It’s very difficult to forecast what’s happening, for example, in relation to technology prices. So I think they’re foreshadowing that they will have to deal with future data as it comes. I don’t want to speculate on what they may or may not do. But I do reiterate that we do have a role to play with responsible budget management. And we’ve done so over the last 4 years and we’ll continue to do so.
I would also just add to that that we have a role to play in pursuing productivity growth. And in the last Budget we had a succession of measures right across a range of portfolios, including passing the EPBC Act, including freezing the National Construction Code, a raft of measures in my own portfolio, and in aggregate these totalled to over $10 billion in better regulation. There’s a raft of measures around better competition, higher penalties for anti‑competitive behaviour, better notification of mergers. And then there’s things like instant asset write‑off being made permanent. So the productivity agenda is something that this government has embraced, and that is also important.
Karvelas:
In the RBA’s monetary policy statement it says – and I quote – there are uncertainties about the economic effects of the downturn in the housing market. It sounds very like the central bank is concerned about the downturn in the housing market. Why isn’t the government then?
Mulino:
Well, what we’ve said is that we will manage the budget responsibly to deal with some of the immediate pressures when it comes to inflation. But we’ve also said that now is not the time to ignore long‑term reform needs. And when it comes to the housing market, what we’ve pointed to is that there was almost unanimity when it came out of the 3‑day Economic Reform Roundtable that we needed to do better when it came to distortions in the tax system in relation to housing, when it came to intergenerational fairness.
And so dealing with negative gearing and the interaction that had with the old capital gains tax indexation was absolutely critical. What it had led to was over 25 years 400 per cent increase in house prices, 200 per cent increase in incomes. It wasn’t sustainable. So, look, we can deal with fiscally responsible management of the budget, but also deal with longer‑term reform challenges. That’s what the governments need to do.
Karvelas:
Yeah, and, again, in this statement, it’s quite clear that productivity is the biggest problem. Is the government just hoping that AI fixes the productivity problem? Because it seems entrenched, and it’s giving us fundamental problems, including that Australians who have mortgages now have to pay higher mortgage repayments as a result.
Mulino:
Well, I’d just return to the fact that, as I mentioned, we have a whole raft of productivity measures. We passed the EPBC Act which experts from right across a range of disciplines, including economics but also environmentalists, had said was overdue. That will help us get projects delivered from projects in construction through to the clean energy transition. And there’s a raft of other productivity measures.
But specifically on AI, what the Prime Minister is doing is leaning in on AI to say that we need to get the guardrails in place, we need to get protections in place, we need to embrace AI but in a way where we have social licence. If we are truly going to enjoy the benefits of AI, both in terms of productivity but all the other benefits it produces, we have to do so in a way where we bring the community with us and can assure them we have the appropriate protections. It’s the right approach, and in the medium and long term the approach that the Prime Minister has signalled – bringing it into Prime Minister and Cabinet, coordinating better, but also bringing it into National Cabinet – is going to be the best approach.
Karvelas:
But isn’t AI investment also leading to the inflation challenge we’re seeing? Isn’t that clear in the RBA statement?
Mulino:
Well, so, the RBA did point to the fact that globally what we’re seeing is a huge surge in AI investment and that is putting some upward pressure on technology costs. And so that’s a shorter‑term measure. But I think what we need to look at when it comes to the productivity benefits of AI, which is more of a medium to long‑term opportunity. I would return to the point that I think we need to move forward in such a way that we can provide the community with assurance that we are providing appropriate protections.
I do believe that we need to embrace the positive side of AI but we need to do it in such a way that people are confident we’re providing them with the appropriate protections.
Karvelas:
In retrospect, would it have been better if the Reserve Bank held on interest rates last year? Did they cut too early?
Mulino:
Well, I don’t want to second‑guess what they’ve done in the past and I don’t want to forecast what they’re doing in the future. But I say that, you know, we focus on what we have control of, which is the fiscal settings. And we’ve managed the budget very responsibly, and the productivity settings, and we’ve been a very forward‑leaning government in that sense. The last Budget included a whole raft of measures coming out of very detailed policy development over the last 18 months. So they’re the things that we can control and we’re very much leaning in on those.
Karvelas:
On OpenAI, they put out a statement. They’ve apologised again and provided more details of the breach. It also offered Australian governments and industry credits from its $1 billion Daybreak cyber‑defence fund. Will you accept that funding?
Mulino:
Look, I haven’t heard of that specific offer. But, look, I do welcome the fact that they’ve apologised for that breach. I do welcome the fact that it seems as though they’re going to participate in our inquiry into AI. I think the government is looking to have very constructive relationships with the large AI companies. The Prime Minister has met with a number of them, the Deputy Prime Minister met with a number of major company CEOs when he visited the US recently. There’s a lot that we can achieve together. We just need to make sure that we step through this in a very orderly way and that we bring the community with us.
Karvelas:
OpenAI’s chief strategy officer, Jason Kwon, will fly in from the US to appear before parliament’s Joint Select Committee on Artificial Intelligence. Should the CEOs of the companies be the ones fronting up?
Mulino:
Well, look, we want senior representation. With global companies sometimes it’s not always possible to have the CEO. Obviously I’ve been a chair of a parliamentary committee myself in the past and when I was chair of house economics we would always seek to have CEOs. But, look, I think the fact that somebody that senior is flying out from the US is a sign of good faith. You know, obviously you always want the most senior person possible.
But, as I said, I think both with that parliamentary inquiry but also with ministers, with our Prime Minister, with the government more generally I think we want to continue to engage in good faith with the large AI companies. A lot of them are investing in Australia, and that’s positive. But even more so, their technology is being laid out in Australia and we need to make sure that happens in the most productive way.
Karvelas:
Just finally, some new analysis from The Economist shows Australian MPs are among some of the highest users of AI in the world to write parliamentary speeches, outranking Britain and the US. Do you use it?
Mulino:
Well, look, Australia is a technology‑adopting country. Look, probably I need to use AI more than I currently do if anything I suspect in a lot of my daily habits. No, look, I think in many contexts I actually tend to speak off my notes and ad lib, which probably infuriates my office at times. But, look, I haven’t used AI overly much in terms of crafting speeches. But I am increasingly using it in terms of research, which I think is incredibly powerful.
Karvelas:
Thank you so much for joining us.