Peter Stefanovic:
Well, the RBA Governor Michele Bullock has confirmed domestic capacity pressures are contributing to high inflation, which seems to be at odds with the federal government, including the Prime Minister and Treasurer, who’ve sought to pin the blame purely on the war in the Middle East, which certainly is a factor. But not the only one. Joining us live is the Assistant Treasurer Dan Mulino this morning. Dan, thank you for your time. So, inflation is too high and has been driven by domestic capacity pressures. That was the quote from the Governor yesterday. What do you think she means by that?
Daniel Mulino:
Well, thanks for having me on, Pete. And look, can I say that if you look at the RBA statement that was issued yesterday, it explicitly pointed to 2 things that had materially changed. The first was the fact that energy prices globally, as a result of the conflict in the Middle East, had increased faster than had been forecast. And secondly, it explicitly pointed to the fact that increased demand for AI investment had pushed up technology prices so –
Stefanovic:
Okay, yeah but that was the statement. Then came the press conference when she said inflation is too high because of domestic capacity pressures. So, what do you think she means by that?
Mulino:
No, and you’re right. And so then during the press conference she talked about the fact that there’s a whole range of factors affecting the economy and ultimately what the RBA looks at in aggregate is aggregate demand and aggregate supply. And if you think about aggregate demand, what we’ve seen over recent times is that of every $5 in aggregate demand increase, 4 is –
Stefanovic:
Yeah, I got this 4 dollar, one dollar thing from the Treasurer yesterday. But what do you think domestic capacity pressures mean?
Mulino:
Well, and so what she’s saying in relation to domestic supply constraints is that she wants to see more productivity growth, and that’s actually been a real priority of the government –
Stefanovic:
Do you think government spending is included in that?
Mulino:
– aggregate supply constraints. Well, I think to the extent that government spending is a factor in all of this, it would be part of aggregate demand. But as I said, I mean it’s a small minority of the increase in aggregate demand. And what we’re also seeing, Pete, is that the government through successive budgets is really pulling back on government spending in a range of areas –
Stefanovic:
This is still at a high outside of COVID. 27 per cent of GDP is a 40‑year high, Dan, you know that. So, do you concede that government spending is a factor or a contributor to high inflation in the country right now?
Mulino:
What I would say is the 64 billion in saves and reprioritisations is an incredibly significant achievement in the last Budget. But it will see –
Stefanovic:
My question is about government spending, and do you concede that government spending is a contributor to high inflation?
Mulino:
But what I’d say is as a result of decisions in the last Budget, it will be declining over the forward estimates.
Stefanovic:
So, it is a factor you’re conceding that it is a factor.
Mulino:
No, no, and that’s why we are leaning in, in this area and we are achieving a huge amount. We’re a government that has delivered 2 surpluses in the last Budget we made –
Stefanovic:
You’re still not answering the question. So, why don’t you, the Prime Minister and the Treasurer and every other member of the Labor Party can see that spending is contributing to inflation?
Mulino:
No, no, but Pete, what I’m saying is we are acknowledging the fact that we have to manage the Budget responsibly. And that’s why if you look at the government’s overall position, it’s around $200 billion better off than the trajectory we inherited. So, we are trying to address this and we are addressing it. And if you look at the major measures in the last Budget –
Stefanovic:
So, you’re addressing spending. So, you’re conceding that spending is part of the problem. Can you at least concede that?
Mulino:
Well, what I’m saying is that we need to continue to work hard on reducing spending and that’s what we’re doing. So, I’m addressing that direct point you’re making. But you know, if you look at the last Budget, we are working on that issue. We are achieving on that issue. The NDIS measures that were identified in the last Budget, we’ve now seen major legislation already passed through the parliament. So, this is something that we’re working on and that we’re already seeing results on. So, government spending is something that we need to work on. That’s something within our control. But the point I would make is that there are other factors in addition to that. That private demand has been a big contributor to aggregate –
Stefanovic:
No you are right. And we pointed to that as well, it is the war in the Middle East. It is the AI boom. We’ve acknowledged that as well. But what you’re not acknowledging, or the Treasurer hasn’t been and the Prime Minister hasn’t been, is that your own spending, which is at record levels, looking at the debt at a trillion dollars and spending‑to‑GDP at a record level of 27 per cent, that is a considerable factor in the problem that we are all now having to face.
Mulino:
But so when you refer to debt being at a trillion dollars, I think the important contextual piece here is that if we had continued on the trajectory that we inherited from the previous government –
Stefanovic:
But you’re still talking about the other guys, you’re not talking about the issue that you’ve got right now.
Mulino:
No, no, but so what I’m saying, I’m talking about what we’ve achieved. So, we’ve brought it down by around 200 billion and that’s really important as a measure to help fight inflation. These are things that we’ve actually achieved. And what I’m actually pointing to is what we’ve done. So, we’ve delivered 2 surpluses in the last Budget. We’ve identified significant savings across a number of portfolios and not only have we identified them in the –
Stefanovic:
You still don’t have a surplus, though. We don’t have a surplus for 40 years according to the intergenerational report.
Mulino:
But if we look at last year’s Budget, for example, the figures released by the Treasurer on Monday showed that the budget deficit came in at 22 billion, 6 billion less than had been forecast.
Stefanovic:
Still deficits.
Mulino:
But also it’s around – just over half of that has been handed to us by the other side. So, they are much better deficits, much smaller deficits than had been handed to us. And so the point I guess I’m making, Pete, is that we have achieved significant fiscal repair and that is helping in the fight against inflation.
Stefanovic:
So, what – but what recurrent expenses would you consider cutting, as pointed out by Warren Hogan on the program earlier, that need to change to possibly get yourself into a surplus? Would you consider reducing the size of the public service, which has been per capita the highest in the world?
Mulino:
Well, I might say those comments are coming from an opposition which when in government basically achieved –
Stefanovic:
It wasn’t opposition, it was Warren Hogan’s.
Mulino:
Oh, sorry, I misheard who said it. But no, look, okay, so what I would say in relation to that is that if you look at the NDIS saves, that goes to recurrent expenditure, that goes to money year in, year out, that will be reduced significantly as a result of the changes that we have made to the NDIS expenditure. That’s 40 billion over the forward estimates. And as I mentioned, a significant number of the measures involved in pulling back NDIS spending have now passed the parliament. So, these are things that –
Stefanovic:
Okay. But what beyond that? Again, are you going to have to make more changes to the public service, though, because you’re going to need to make more cuts to get yourself back into surplus at some point?
Mulino:
Well, so we put in place measures in relation to reprioritising infrastructure, in relation to some of our energy programs. So, we’re putting savings right across the board. These are very significant and these were tough decisions. These weren’t easy. But we believe we’ve been able to achieve savings while still achieving the government’s core policy goals. And so the achievements that we made in the last Budget in relation to pulling back on spending are very significant and they are recurrent spending reductions.
Stefanovic:
Alright, well, the former RBA Governor Phil Lowe has said in an interview overnight that what you are doing right now is basically robbing from the future. It means our kids are going to be paying for the problems of yours and previous governments because the right policies haven’t been in place. So, is he right?
Mulino:
Well, I think if you think about this in terms of current future generations, the debt that we have at the moment, as I mentioned, is around $200 billion less than it would have been if not for all of the Budget tightening that we have achieved on the –
Stefanovic:
Yeah, but the question is about robbing from the future, is that what we’re doing now?
Mulino:
No. In fact, I think we’ve improved the situation for future generations in terms of the debt that we have as the trajectory going forward. And that significant reduction in debt compared to what it would have been is the result of successive work over 4 budgets that’s going to significantly reduce the energy, sorry, the interest bill over the coming decade. And that will significantly benefit people over the medium term, but – future generations.
Stefanovic:
Okay, Dan Mulino, we’ll have to leave it there this morning. The Assistant Treasurer, Dan Mulino, thank you.