ANDREW CLENNELL:
Joining me live from Toowoomba in Queensland is the Treasurer, Jim Chalmers. Jim Chalmers, thank you for your time.
JIM CHALMERS:
Good morning, Andrew, from the beautiful provincial Queensland city of Toowoomba.
CLENNELL:
So when the inflation figure comes in on Wednesday, are you expecting a figure under 3 per cent to emerge?
CHALMERS:
Andrew, those monthly figures can be pretty volatile and unpredictable, and we’ve said that before. I think most economists expect that the number will be down and will show further welcome progress towards lower inflation in our economy.
Whether it’s in the low threes or in the high twos, what it will show is that inflation in monthly terms is around half what we inherited a couple of years ago when we came to office, so that would be welcome and encouraging progress.
What we’ve seen in the inflation data, what we’ve seen in some of the other indicators is that we are striking the right balance with our responsible economic management. We are broadly on the right path, we are broadly on the right track, and our policies are helping.
CLENNELL:
What data are you being told about by Treasury that makes you assume inflation will fall this month?
CHALMERS:
Obviously the Treasury advises us on their expectations for inflation, but also the market has its own economists who report regularly, and some of those economists, I suspect you’ve been reading them as closely as I have, Andrew, have said that they expect the monthly number to come down quite substantially.
Some of them expect it to be in the high twos – but whether it’s the high twos or the low threes, what we’ve seen over a period of time now is inflation’s come off quite substantially, and that is partly a function of our responsible economic management, turning 2 big Liberal deficits into 2 big Labor surpluses as well as designing our cost‑of‑living relief so that it can put downward pressure on inflation rather than be part of the inflation problem.
We’ve seen some good progress, some welcome and encouraging progress, we’ll learn a bit more about that on Wednesday.
CLENNELL:
Let’s say it’s under 3 per cent. Does that mean it’s time for a rate cut, or you need several months and a quarterly figure that says that?
CHALMERS:
First of all, the Reserve Bank takes its decisions independently, and they weigh up a whole range of factors and a whole bunch of different data and numbers in the economy.
The quarterly CPI, the quarterly inflation number is usually the one they focus on a bit more substantially than the more volatile and more unpredictable monthly number, but they look at the unemployment figures, they look at broader growth in the economy and some of the other data around consumption, for example, and so they weigh all of that up.
As you know, I don’t get in the business of pre‑empting decisions that they take independently. They’ve got an important meeting over the next couple of days.
Interest rates in Australia have been on hold since November of last year, nobody really in the market thinks that that’s going to change this week, but it’s not for the market to decide what interest rates are, that’s for the independent Reserve Bank, and I’m not going to pre‑empt their discussions over the next couple of days or their decision on Tuesday.
CLENNELL:
We do have a situation now, Treasurer, where banks around the world, including the Fed are cutting their rates. Why is it taking longer in Australia for inflation to come down and for rates to be cut? Is it because the Central Bank didn’t go hard enough initially?
CHALMERS:
I think the main reason why our inflation’s a little bit higher than some of those countries is because they peaked earlier than we did, and in many cases much higher than we did.
The Reserve Bank Governor and others have pointed out that the shape of our inflation is broadly the same as a number of other countries but a couple of months behind the trajectory that we’ve seen elsewhere.
The other really important point here is that even with that 50 basis point interest rate cut in the US, their interest rates are still higher than in Australia. They went up by more, inflation was higher, their interest rates went up by more, and even after this interest rate cut they’re still higher – that’s true in the UK as well.
When we compare ourselves to these other countries, we’ve got to make a full comparison. Some of these countries that our opponents like to bandy about; Canada, the UK, New Zealand, some of them have got higher unemployment, they’ve got higher interest rates, many of them went up by more over the last couple of years, and so you need to make that full comparison.
Here in Australia inflation has come off really substantially, interest rates aren’t as high as they are in some of those other countries, but the shape broadly of this inflation challenge has been pretty similar around the world.
CLENNELL:
How much have you spoken to Reserve Bank Governor Michele Bullock recently, and during those conversations, I assume you’ve had them, have you expressed any concern to her about her warnings in August we could actually see a rate hike? Have you expressed any concern to her about the Reserve Bank economist, Sarah Hunter, who told a parliamentary committee that the economy was running too hot?
CHALMERS:
First of all, I obviously don’t go into the private discussions I have with the Reserve Bank Governor, I’ve got a really good, respectful working relationship with Michele Bullock, and we speak pretty frequently, sometimes formally, sometimes less formally. We catch up from time to time, we do compare notes on the economy, we compare notes on the progress of the Reserve Bank reforms, and we have that good, respectful engagement from time to time. I spoke with her last week, as it turns out, as part of that regular engagement.
CLENNELL:
Were you annoyed when Sarah Hunter made those comments?
CHALMERS:
No, I wouldn’t describe it like that, Andrew. The way that I saw it at the time, and I think I was asked about those comments at the time, is that I said very respectfully that I didn’t think that the data supported the view that the economy was running too hot.
And I think that’s been borne out by the data that we’ve had since then as well. But it’s a good thing that the Reserve Bank officials and the Reserve Bank Governor make themselves available to talk through how they’re seeing the economy and what they’re thinking about the trajectory of the economy. That’s a good thing, transparency is good, accountability is good.
I don’t see a problem, frankly, if a comment like that is made with the Treasurer of Australia, whether it’s me or somebody else at some other point, pointing out how the government sees the economy. And overall we’ve got the same objectives as the Reserve Bank, that’s why I work closely with Governor Bullock, because we’re trying to get on top of inflation without ignoring the risks to growth in our economy, and we saw some pretty weak outcomes in those last National Accounts.
We’ve got the same objective, to beat inflation, we’ve got slightly different responsibilities, and from time to time we’ll have slightly different perspectives, but overall we’re on the same page.
CLENNELL:
Well, we’ll soon get the final budget outcome for 23–24, and you’ve previously said the surplus will be in the mid‑teens. Is that still the case, and what is affecting a result different to the $9.3 billion forecast we saw in May?
CHALMERS:
You’re quite right, Andrew, we did forecast a surplus of about $9 billion at budget time in May, we do now expect it to be more like the mid‑teens. Katy Gallagher and I will release the final budget outcome before the end of the month, most likely Monday week, 8 days away.
What it will show is that upgrade in the surplus from $9 billion to the middle teens is not actually a pick‑up in revenue, actually what it shows is that we’re getting less revenue towards the end of that last financial year than we anticipated in May. The big improvement is from less spending; all of the big improvement is from less spending.
So what that final budget outcome will show is that we have turned 2 big Liberal deficits into 2 big Labor surpluses. That’s because of our spending restraint and our responsible economic management and the Reserve Bank Governor has said that those 2 surpluses that we’ve now delivered are helping in that fight against inflation.
CLENNELL:
We saw net migration figures out during the week that indicated you’re not going to hit your target of reducing net migration to under 400,000. Why is that? And it was reported this morning there’s a record number of asylum claims in the community. Should Australians be concerned about that?
CHALMERS:
Those net overseas migration numbers show that net overseas migration is coming down, it has already peaked in the past and it’s been coming down ever since. And so that’s important. And also those numbers are from before our new migration policies kicked in on the 1st of July, they pre‑dated that, so those are a couple of important caveats.
But the main thing that we’re seeing in net overseas migration is actually when it comes to departures. More people are staying and fewer Australians are going overseas, and that impacts on the net overseas migration level as well.
When it comes to arrivals we’re more or less tracking as we expected, but when it comes to departures, that’s been the big difference, and that’s why there is likely to be a revision of those net overseas migration forecasts because of those fewer departures.
CLENNELL:
So it will be over 400,000 most likely. Is that fair?
CHALMERS:
We’ll update them in the usual way, but one of the factors that will be really important to that update that we release before long is the fact that fewer people are leaving. Arrivals are coming off, departures are not, and that will impact the updated figures when we release them.
CLENNELL:
You’ve seen NDIS and aged care costs blow out in your time in the job. Now the Productivity Commission is calling for a bigger government spend on childcare. As Treasurer do you see what the Productivity Commission is asking for in terms of a bigger childcare subsidy affordable?
CHALMERS:
As Treasurer I’m a very, very big supporter of early childhood education, I see it as a game‑changer for families and for the economy. It makes it easier for parents, and especially mums to work more if they’d like to work more so that they can earn more and keep more of what they earn, and so that’s our objective here.
We’ve already made enormous investments in making early childhood education cheaper, we’re paying educators what they deserve for the first time in a long time, and I’m a big supporter of that as Treasurer.
Now this Productivity Commission work that we received, we’re very grateful for that, it will be a big part of our considerations and our work over the coming months, because we do understand that we need to get a bit closer to a system that looks like it’s universal, but we need to do that in a responsible way, a methodical way and affordable way. None of this is cheap, but it’s important, and so we’ll go through it in the usual considered, methodical way, the report that we’ve got from the Productivity Commission.
CLENNELL:
So this week you’re the first Australian Treasurer to visit China in 7 years. What’s the purpose of the visit and who will you be meeting?
CHALMERS:
It will be the first Treasurer’s visit for 7 years. This is part of our effort to stabilise a really important economic relationship. This is a relationship full of complexity but full of opportunity as well, and we believe that you get more out of this relationship when you engage as we have been.
The main purpose of my visit to Beijing later in the week will be the Strategic Economic Dialogue, primarily with the NDRC and its Chair, Zheng Shanjie, and I’ll be meeting with a number of my counterparts in order to compare notes on the economy, to work through any issues that we might have between our 2 economies, but recognising that a more stable relationship, and particularly a more stable economic relationship between Australia and China is a good thing for our workers and our businesses and our investors and for our country more broadly.
I will be engaging enthusiastically with my Chinese counterparts on Thursday and Friday this week.
CLENNELL:
At the same time we see a trip to China, we see the PM over there with the US and Japanese and Indian leaders for another instalment of the Quad, which is all about the security threat posed by China. Quite the juxtaposition, isn’t it?
CHALMERS:
Not necessarily, Andrew. I think we’ve made it clear as a government from the Prime Minister down, and I salute his leadership, but Penny Wong and Don Farrell and Richard Marles and other colleagues, Madeleine King, we’ve made it really clear that stabilising the relationship with China is a very key economic priority. We can do that while we manage the complexities in the region, some of which are being discussed by the Prime Minister and his counterparts as we speak.
We’ve shown an ability and a willingness to engage because we believe it’s good for our country when we engage. My part of that is the Strategic Economic Dialogue, engaging with decision makers in China and counterparts, making sure that we maximise the opportunity and manage the complexity of this really crucial economic relationship for Australia.
CLENNELL:
Just briefly, how concerned are you about the current Middle East tensions upsetting the world economy right at a time it’s slowly starting to get back on its feet?
CHALMERS:
My primary concern in the Middle East is for the human cost of this violence and these really quite extraordinary developments that we’ve seen in the last few months. So my primary concern is for the human cost, but there will be an economic cost as well we see that in the volatility in the oil price, for example.
We are gravely concerned about the consequences of a broader and deeper regional conflict in the Middle East. There’s a human cost to that, which is the most important, but there is an economic cost as well.
The global economy is really uncertain right now, whether it’s Russia, Ukraine, the Middle East, whether it’s other issues playing out. There is a lot of uncertainty, there is a lot of volatility, a lot of that comes from geopolitics and conflict, and so we monitor that really carefully, because what happens in the global economy has big consequences and implications for us.
CLENNELL:
And briefly again, Peter Dutton’s giving a speech on his nuclear plan tomorrow in Sydney. As I understand it, he won’t be outlining the cost of the plan yet. What do you think about how viable the plan is and what it will mean at election time?
CHALMERS:
I think Peter Dutton’s nuclear fantasy is economic insanity. It costs more, it will push power prices up, it will take longer, it will only at best deliver a sliver of what we need in energy, and it will turn Australia’s back on our unique combination of advantages.
He has gone characteristically for the most divisive option with the least details. He needs to come clean tomorrow in this speech: what will it cost, what will it mean for power bills, how will he pay for it, and what will Australia do for the decades it will take to build these reactors.
I think that this is economic insanity what Peter Dutton is proposing, it is divisive, and there are no details. His speech is a big opportunity to come clean on the details, on the costs, on the timing, so Australians know what he’s seeking support for at the election.
He is a big risk to energy and to power prices in this country. The fact that he’s not prepared to release those details, I think should ring alarm bells for every Australian. It’s time for him to come clean.
CLENNELL:
And finally Treasurer, I saw the Sydney Swans win live on Friday night. Saturday, last night, Brisbane had a famous victory. Will you still be in China when the game’s on and trying to watch from there?
CHALMERS:
I’ll be on my way back. Hopefully I’ll be in an airport somewhere on the way back watching the mighty Brisbane Lions, they’ve shown a lot of fight and a lot of heart the last couple of weeks. I know that your team, the Swans, have been for most of the season the form team in the competition, but we’ve shown a lot of fight, we’ve shown a lot of heart, and I think that was personified last night by the Big O dislocating his shoulder not once, but twice in the same prelim. I think that was a real indication of how much heart there is in this Brisbane Lions squad. I think it’s going to be an amazing grand final next week, and I hope we can get over the top of your Swans.
CLENNELL:
Treasurer, thanks for your time.