DAVID KOCH, HOST:
Well, there’s expected to be more bad news about cost of living when the Treasurer delivers his economic update later today. Headline annual inflation has increased to 6.1 per cent, the highest it’s been since the introduction of the GST. The cost of essential items like food, petrol and housing have increased by 7.8 per cent, and the pressure on family budgets is forecast to get worse before it gets better.
Joining me now is Federal Treasurer Jim Chalmers. Treasurer, where’s the economy going? Are we headed for economic recession?
JIM CHALMERS, TREASURER:
Good morning, Kochie. No, that’s not our expectation. And what I hope to do today in releasing a whole bunch of figures and forecasts about our expectation for the economy is to bring Australians into our confidence about how we see the economic challenges and opportunities ahead as we frame this Budget for October.
And what I would like to do in bringing people into our confidence is to not tiptoe around some of these difficult issues, including the inflation challenge that you were just talking about a moment ago. Now, we expect inflation north of seven per cent by the end of the year, but then we expect it to moderate after that. But there will be a difficult period ahead for many Australians as we try and deal with these pretty extreme cost‑of‑living pressures.
KOCH:
Okay. So no recession on the horizon. That’s good news. Inflation, yes. But explain to Australians why we need to put up interest rates to keep inflation under control? Because the major drivers yesterday were food basically because of the floods; petrol because of the Ukraine situation; and housing and cars because of supply chain issues that we can’t get goods from overseas. That’s got nothing to do with us as an average Australian. Why should we be penalised?
CHALMERS:
Well, you’re right that this inflation problem has got a number of sources, and those ones that you ran through I think are broadly right. We would agree with those. What the independent Reserve Bank is trying to do is to take some of the sting out of inflation by managing demand in the economy. But as you rightly point out, something I 100 per cent agree with, Kochie, is that there are issues on the supply side of the economy, if you want to use the jargon, and that’s why our economic plan is about cost of living relief but it’s also about dealing with some of those issues in the supply chain, whether it’s energy costs, whether it’s skills and labour shortages, whether it’s lifting the speed limit on the economy essentially so that we can grow without adding to these price pressures. That’s a primary focus of our economic plan because we do recognise that while much of this inflation problem is global, some of it is domestic, and we’ve got to focus on what we can actually influence. And so, for governments that means taking responsibility for some of those issues.
KOCH:
Will putting up interest rates impact what we pay for petrol or what we pay for a lettuce? That just has to work its way through, doesn’t it?
CHALMERS:
If you ask the Reserve Bank, they would say when you’ve got inflation like this and relatively strong demand still, then they’ve got a job to do with interest rates. But I don’t – as you know, we’ve spoken about this quite recently – I don’t sort of second guess the independent Reserve Bank. What I do do is take responsibility as Treasurer in the things that we can influence on the supply side of the economy. You’ve just mentioned a couple of them. We’ve got a role as a country. We’ve got a job to do to get energy prices down, to build infrastructure, particularly digital infrastructure, to get that skills and training, to make childcare cheaper. These are all the key elements of our plan which are more important than ever now that we’ve got this high and rising inflation and these rising interest rates.
KOCH:
Are you going to help us out by not bringing back the fuel excise?
CHALMERS:
I think that’s going to be too difficult to do, Kochie, to be perfectly up‑front with you and all of your viewers. You know, we said before the election and after the election that it’s very expensive to extend that temporary price relief at the bowser forever – some billions of dollars. And we need to be up‑front about that as well. We inherited a Budget which is heaving with a trillion dollars of debt. We can’t do everything that we would like to do. And so, our focus on providing cost‑of‑living relief is in areas like medicine, like childcare, like getting wages moving again so that people can keep up with these skyrocketing costs of living and manage them at the household level.
KOCH:
Okay. So you’re bringing down a new Budget late October. Obviously it’s going to be stingy by the way you’re talking.
CHALMERS:
I’ll use a slightly different word to describe it, Kochie.
KOCH:
Well, be stingy. Now, the Greens, though, say, “okay, you’ve got a Budget problem.” We’ve got these stage three tax cuts coming through, which you supported in Opposition, worth $220 billion, but the Greens say favour the rich. So why not just delay those tax cuts? Would that help? Are you thinking of doing that?
CHALMERS:
We’ve said repeatedly, Kochie, that those legislated tax cuts – they’re already legislated – they come in in a couple of years’ time, that we don’t intend to change that. And those tax cuts kick in at about $45,000 and go up the income scale. And the Greens do have a view about that and they asked me in the Parliament about that. But we need to recognise that even if we were to pick up that suggestion and run with it, it wouldn’t have any impact on the inflation challenge right now because those tax cuts don’t come in for a couple of years.
And so, I respectfully listen to the views that are put to me, but we’ve made our view on that pretty clear. Our priority when it comes to repairing the Budget is trimming some of this waste and some of these rorts which have been a defining feature for too long in the Budget.
KOCH:
Just quickly, I know the Reserve Bank is independent. What’s your gut about how high interest rates will need to be lifted?
CHALMERS:
Well, they’ve flagged themselves, the Reserve Bank Governor has said that there is – there are more interest rate rises to come and people need to brace for that. You know, I’m not prepared to nominate a number. The Treasury, when they make their forecasts, they use an assumption about what the market is expecting. And it’s not really for me to do that. But interest rates are going to go up further, and that will make life harder for people who are already dealing with these skyrocketing costs of living.
KOCH:
Jim Chalmers, appreciate your plain speaking. Thanks very much for joining us.
CHALMERS:
Thanks very much, Kochie.
KOCH:
Nat, no recession expected. Good news.
NATALIE BARR:
That is good news. Thank you, Kochie.