JIM CHALMERS:
First of all, happy new year and all the best for 2023. Thanks for coming out to Logan. I wanted to say a few things about the Population Statement that I'll be releasing later in the week and also a few things about the global economy, and obviously happy to take your questions as well.
I wanted to thank Katy Gallagher for minding the shop over Christmas. We work as a team in the Albanese Cabinet, and in her characteristically selfless way, she's minded the shop for us in the Treasury team and economic team over Christmas, and I really appreciate that. I also wanted to shout out to all of the essential workers in this country in every community who do their bit over the holiday period to keep the wheels of the economy turning. We really do owe our essential workers a debt of gratitude, whether it's in the emergency services, in retail and hospitality, and in all other parts of our economy and our community. We deeply appreciate the work of our essential workers all around the year, but particularly at Christmas time.
This week, I'll be releasing a Population Statement from the Treasury's Centre for Population. This will be an important snapshot of the way that our society and our country is growing and changing. A growing population presents some challenges, but mostly opportunities for a country like ours and for an economy like ours. We really welcome the rebound in the fertility rate since the worst of COVID. It is a good thing to see that fertility rate edge upwards but we are still ageing as a population and as a society, and so we need to make sure that we've got the workforce to support our society as it changes, as it evolves, and as it ages. In an ageing population, despite this welcome improvement in fertility, we need to be doing what we can to boost our workforce. That's why it's so important that we're making early childhood education cheaper, so parents can work more and earn more if they want to. We're investing substantially in skills and training to get that workforce of the future that we need. And Clare O'Neil is working with Andrew Giles and other colleagues on a sensible migration policy. So, good to see the fertility rate up but we're still an ageing population. That's why it's so important that we're doing what we're doing, to build the kind of workforce that we need to support our population as it changes, as it grows, and as it ages as well.
2023 is going to be a big year. We are optimistic about the future, but we are realistic about the global economy in 2023. We are optimistic and realistic at the same time. Most people expect that 2023 will be a difficult year in the global economy and we won't be completely immune from that, but we've got a lot going for us as well at the same time. The world economy is slowing and ours will as well, but we've got a lot going for us. We've got that low unemployment, we do have the beginnings of wages growth, and we're getting good prices for our exports on world markets at the same time. And so all of those things are reasons why we are confident but not complacent, optimistic but realistic about the global economy and what that means for our own economy in 2023, as well. We won't be immune from another global downturn but we do have some of the foundations that you want to have heading into a difficult period. We won't be completely immune from it, but we start from a position of relative strength when you compare us to other countries around the world.
The key factors for us in the economy in 2023 will be the war in Ukraine pushing up energy prices and inflation, it will be China's management of this wave of COVID, it will be what happens in the big developed economies - the US the UK, Europe, and elsewhere as well. The impact of interest rate rises determined by the independent Reserve Bank will be a big factor in our economy in 2023. And of course in Australia, we're always conscious that natural disasters have the ability to throw us off course - so optimistic but realistic as well. This year will be about more than battening down the hatches, more than building our buffers against another global downturn. It will be about building a better future so that Australians can grow out of this global downturn the right way - strong, inclusive, sustainable, the kind of economy and the kind of country that we want for our people.
JOURNALIST:
With the new COVID restrictions in China affecting supply chains, is Australia experiencing or expected to experience any shortages of critical goods that we rely on through summer?
CHALMERS:
The COVID wave in China is already having a substantial impact on supply chains, and we expect that to get more difficult before it eases. When you've got a COVID wave like they're seeing in China, when they've had until quite recently a zero COVID approach to managing the pandemic, then that has obvious consequences for the Chinese workforce, and for supply chains right around the world. And so that is something that we're very conscious of, we're monitoring very closely, the impact of COVID on China and on supply chains. It is one of the key risks to our economy in 2023.
JOURNALIST:
Which sectors are you particularly concerned about?
CHALMERS:
We are heavily reliant on Chinese markets and Chinese workforces for a lot of the goods in our economy. It's really right across the board. And so as we look ahead, to what will be a challenging year for the global economy, a big part of that in a whole range of industries will be the pressure on supply chains brought about by this COVID wave in China. A lot of analysts are expecting it to get more difficult before it gets easier in China. They're obviously going through a transition period when it comes to how they manage COVID and that will impact supply chains really right across the board. And the flow-on impacts on our economy could be substantial.
JOURNALIST:
[inaudible]
CHALMERS:
Ever since we came to office in May last year, one of our key priorities is to make our economy more resilient and that means making our supply chains more resilient as well. And that's why whether it be the National Reconstruction Fund, whether it be investing in our own workforce, whether it be investing in cleaner, cheaper, more reliable, increasingly renewable energy - our economic strategy is about making our economy more resilient, and our budget more responsible, so that we are less vulnerable to the sorts of global shocks that we're seeing emanating from China, Ukraine, and elsewhere.
JOURNALIST:
Will you revisit the stage three tax cuts in the Budget?
CHALMERS:
Our position on the tax cuts hasn't changed. We are working over summer, to begin to put together the May 2023 Budget. That will be an opportunity for us, again, to make the economy more resilient, and the Budget more responsible. There will be cost-of-living relief in the Budget, of course, because we're working with the states and territories on some assistance for energy bills in particular. And that will be something that will factor into the Budget in May. We will always do what we can to support people dealing with high inflation, provide responsible cost-of-living relief as we did in October, as we will in May, if we can afford it.
JOURNALIST:
Are you comfortable with the way China is going with COVID at the moment?
CHALMERS:
Obviously China's got its share of challenges when it comes to their management of COVID. They were still pursuing COVID zero later than most countries. They're having a really quite substantial wave right now and that's presenting its own difficulties. I'm not going to second guess the decisions taken by Chinese authorities when it comes to managing COVID. Our job is to manage the pandemic well here in Australia and we've been doing that. We're making sure that our arrangements keep up with developments around the world when it comes to COVID. And obviously, the decisions taken in Beijing will have consequences for us here, for our economy most particularly.
JOURNALIST:
And what have you heard from business leaders about their concerns with the supply chain issues?
CHALMERS:
Business leaders want us to strike the best balance between managing the health aspects of COVID-19 and making sure that we can keep the wheels of the economy turning. And clearly when the Chinese market and Chinese suppliers are such a substantial part of our own economy - people, not just business leaders but economists and others - have their concerns about the impact of this COVID wave in China on our economy. I share those concerns. It's one of the key things that we will be watching, because it will be a key determinant of our prospects in our own economy in 2023.
JOURNALIST:
Do you have any modelling or predictions on when that will really hit the supply chain?
CHALMERS:
It's pretty clear from the analysis that we read in the public domain that this COVID wave in China's got a little way to play yet. And so it will have an ongoing impact on supply chains in our economy. That impact will be felt really across the board because the relationship with China, the economic relationship, is so central to our own prospects. And so we expect there to be a period of difficulty in China when it comes to managing COVID. We expect that to have a substantial impact on supply chains and on the Chinese workforce. And that is why that's one of the 5 key determinants of what will happen to our own economy as the global economy slows in '23.
JOURNALIST:
Some medical experts have criticised Australia’s decision to test arrivals from China - what’s your response?
CHALMERS:
There are typically a range of views when the circumstances change, when management of the pandemic evolves, as the pandemic itself evolves. There are typically a range of views about that, we listen respectfully to the views that people put forward. But the decision that we've taken as a government, to rely again on some testing when it comes to international arrivals, I think is a sensible one. It strikes the right balance and it's consistent with what a lot of other countries are doing around the world.
JOURNALIST:
Are you concerned about China retaliating in any way?
CHALMERS:
Not especially, I think every country makes its own decisions about how it manages this pandemic. And what we've tried to do since we came to office, is listen to the expert advice, try to strike the right balance, to pay attention to what's happening around the world and to come up with the right decisions for Australia. And this is the right decision for Australia, it's a sensible outcome, it recognises the COVID wave in China is a substantial one. And it acts in a way which is consistent with a lot of other countries around the world.
JOURNALIST:
When do you expect the hit from the cost of living of increased mortgages in Australia?
CHALMERS:
Australians are already feeling the pinch of high inflation combined with the rising interest rates, which began to go up before the election. And we understand and we appreciate that a lot of Australians are doing it tough because of that high inflation and because of those rising interest rates. Sometime in 2023, a large proportion of people on fixed rate mortgages will roll over onto a variable rate, and that will put a lot of pressure on people. They will roll off a low fixed rate onto a much higher variable rate, and we understand that that will put a lot of pressure on household budgets. And so our job as a Government is to provide responsible cost-of-living relief without adding to inflation. That's why it's so important, that just yesterday, we made medicines cheaper. That's why we're making early childhood education cheaper. That's why we'll be providing responsible relief when it comes to the cost of electricity at the household level and for small businesses, if we can. These are all important ways that we can help Australians through a difficult period. The cost of living is really the key pressure on Australians as 2022 turns into 2023. We understand that, we appreciate that and we're acting where we responsibly can.
JOURNALIST:
[inaudible]
CHALMERS:
That's not our intention at the moment. We're seeing the fertility rate come up in welcome ways - that's important, we'd like to see it go even higher. We want the right balance between homegrown population growth and a sensible migration program at the same time as we make sure that we've got the kind of workforce that can support an ageing population. And so for some time it's been clear to us - it's been clear to governments of both political persuasions, to be clear - that when you've got an ageing population, the absolute best thing you can get is a higher fertility rate. We're seeing some of that in the numbers that I'm releasing this week from the Treasury's Centre for Population. That's a good thing. If it could go even higher, that would be even better. We're doing what we can to make sure that we've got the right workforce to support the way that our society is changing and growing.
JOURNALIST:
What are your priorities as Treasurer for 2023?
CHALMERS:
We've got a big Budget to hand down in May, the second Budget of the Albanese Government. We've already begun work on that - Katy Gallagher, myself, the economic team, the Expenditure Review Committee and the Cabinet. We've already done a substantial amount of work on the May Budget - that will be my priority. But I've got an opportunity when I receive the review of the independent Reserve Bank to renovate the Reserve Bank, to make sure that it's the best institution relying on world's best practice. So that's a good opportunity there, of course. We'll be releasing an Intergenerational Report, we'll be releasing the nation's first wellbeing budget, an opportunity to renew the Productivity Commission - there are a whole bunch of really important things happening in the Treasury portfolio in 2023. I'm really excited about the year ahead. I'm optimistic about the future of this country. I'm realistic about the conditions, but we've got a big economic agenda. It began with the October Budget - some important beginnings there but it will continue in the May Budget and in all of these other ways that I've just run through.
JOURNALIST:
So a new warning from the IMF director overnight about the world economy facing a tough 2023 - are you still confident Australia will avoid a recession?
CHALMERS:
It's our expectation that Australia will avoid a recession in 2023 - that's what the Treasury forecasts expect. Obviously, as the conditions evolve and change, so do our forecasts. But it's not Treasury's current expectation that the Australian economy will go backwards in 2023. But there is an expectation amongst the economists and analysts that the global economy is at real risk of a substantial downturn, and we won't be entirely immune from that. That's why I'm optimistic about the future but I'm realistic about the global conditions that we will confront. There will be a global downturn in 2023. The magnitude of that, the extent of that is still to be determined and that means that the impact on the Australian economy is still to be determined as well.
JOURNALIST:
Have we passed the peak now of inflation? And how soon can Australians expect some relief and how much of an uptick in unemployment are you expecting this year?
CHALMERS:
The Treasury expects inflation to peak around now, but of course there are a lot of variables there, whether it be global energy prices, whether it be the impact on groceries, fruit and vegetables of the natural disasters that we had for a substantial portion of the second half of 2022. It remains to be seen whether inflation has peaked. The expectation was that it would peak somewhere around now. We'll get that data in due course. Some of the most important determinants of inflation have come off a bit - shipping costs, for example, and some other key determinants. But global energy prices have obviously been a big challenge for the global economy and the Australian economy because of the war in Ukraine and natural disasters have been a challenge as well. Both of those things are having and have had substantial impacts on inflation here in Australia. Whether or not it is peaked or not, remains to be seen. The October Budget had a number of important forecasts for the economy in 2023. Treasury does expect our economy to slow as a consequence of higher interest rates as well as a slowing global economy. They expect consumption to come off a fair bit as part of that and obviously one of the consequences of a slowing economy here and around the world is higher unemployment. Our current expectation is that unemployment will tick up a little bit, but not substantially higher than the record lows that it's at right now. One of the reasons I'm optimistic about our economy is we go into this global downturn with a series of advantages: incredibly low unemployment, good prices for what we sell the world and the beginnings of wages growth. But we know that we've got a lot of work to do not just to batten down the hatches, not just to build buffers, but to also build a better future which is the mission of this Albanese Labor Government. Thanks very much everyone.