DAVID LIPSON:
Treasurer, thanks for being with us. We have avoided a recession, we've avoided negative growth, only just, but economists say we are in a per capita recession. Would we be in a period of negative growth if not for the high level of migration right now?
JIM CHALMERS:
Well first of all it's not unusual for the per capita measure to go backwards. I think from memory this measure went backwards something like six times under our predecessors. It's gone backwards the last few times in this data, and we don't lightly dismiss that, but it's not unprecedented for the per capita measure to go backwards. It is a combination of two things – our economy is slowing in ways that we anticipated as a consequence of global economic uncertainty and higher interest rates and cost‑of‑living pressures here at home, combined with population growth which has been relatively robust, so that's how you get this kind of outcome – not unprecedented but really just an illustration of the relative weakness in our economy towards the end of last year.
But even weak growth in the circumstances that we find ourselves is welcome growth because we do have all that global economic uncertainty, we do have pressures here at home, and so even slow growth is significant growth given those combination of challenges.
LIPSON:
So just to be clear, robust population growth, we've had about half a million migrants come to Australia this year, and the government is trying to reduce that number. But how much has that migration saved us, if you like, from negative growth?
CHALMERS:
Oh, you certainly see the impact of it in numbers like the services exports number, which shows whether it's tourism or education or in other sectors. We do see some strength there and obviously the amount of people coming to visit us as tourists, as longer‑term tourists, is obviously a key driver of that number, so it has been a factor but not the only factor in our economy.
Really what these National Accounts show is that consumption came off quite substantially, particularly for nondiscretionary items that people spend their money on – that's because of higher interest rates and global economic uncertainty.
On the plus side, we saw a good outcome when it comes to business investment, we saw productivity tick up a little bit, we've seen wages growing, we saw the tax take come down a little bit as well.
So overall, in aggregate, these are quite weak growth figures. They are weak in ways that we have anticipated but there's signs of strength as well – we've got real wages growing again, we've got the budget in surplus, unemployment's still only 4.1 per cent – we've got a lot going for us at the same time as we've got a lot coming at us from around the world.
LIPSON:
As you say, we've got weak growth numbers today, and you've said that that shows that the balance of risk is shifting from inflation to growth, which is if you like the risk of an overheating economy is diminishing, but sluggish growth is potentially emerging as a problem. Does that mean that the government will also shift from saving more, as you've done in the last few budgets, to spending more to help ease the cost‑of‑living pressures, which are still very real?
CHALMERS:
First of all, it's important to acknowledge that we are nowhere near mission accomplished when it comes to inflation. Inflation is still the main challenge that we have in our economy even though it's come off in quite welcome and quite encouraging ways since those very high peaks in 2022.
So inflation is still the main game but it's not the only game. We do need to recognise that growth has slowed considerably in our economy at the same time as we're getting on top of this inflation challenge, so in our third budget in May we will do what we did in the first couple of budgets, which is to make sure that our budget settings and our economic plan is really carefully calibrated to the economic conditions that we confront. And it is a more difficult balance to strike right now because we've got this slower growth, we've got this inflation challenge still hanging around. And so what we will try and do is to make sure at the same time as we get the budget in better nick, at the same time as we roll out cost‑of‑living relief if we can afford to, at the same time as we lay the foundations for future growth, we need to balance those two competing pressures now, inflation as well as growth.
LIPSON:
So what do you say to people who are hanging out for something more, you've done a lot but something more on cost of living?
CHALMERS:
Well I think the most important thing is that every taxpayer will get a tax cut from 1 July this year, and that is a $107 billion cost‑of‑living package which represents bigger tax cuts for more people to help deal with these cost‑of‑living pressures.
We've also got tens of billions of dollars of relief rolling out right now – rent assistance, cheaper medicines, electricity bill rebates and the like. All of that is important too. And if we can do something meaningful and responsible and affordable in addition to all of that in the May budget, then that's something that we will consider over the course of the next five or six weeks.
LIPSON:
Okay. So if there is something in that space, some more cost‑of‑living relief in the May budget, at the same time as we're seeing disposable income rising, with wages up and income taxes, as you say, about to come down from July, could all of that combined in the second half of this year actually delay interest rate cuts?
CHALMERS:
Well as you know, David, I'm very reluctant to predict or pre‑empt future movements in interest rates. I see that legitimately as the role of the independent Reserve Bank to offer that kind of commentary. Certainly the markets are expecting interest rates to come off at some point, but for good reason I don't buy into that.
In terms of the fiscal position, it's been really clear to here and it will be really clear from here that whatever we do will be consistent with the objectives of the independent Reserve Bank, not running at cross‑purposes. We have played a meaningful role in seeing inflation come off in our economy off those high peaks. It has come off quite substantially. Others have recognised the role of our responsible economic management and the way we've designed our cost‑of‑living help in getting that inflation to moderate. We don't want to get in the way of that. We want to see inflation come down further and faster. That's a key objective, that's our primary objective still, even as we manage and balance that against some of these other priorities, including making sure that our economy continues to grow.
LIPSON:
And how important is a surplus for you now?
CHALMERS:
Well the first one was very important, the first one in 15 years. It meant we save an absolute bomb on interest repayments, which is a good thing, and that was a good start.
I would like to deliver a second one if we can. It remains to be seen whether we can, but we are definitely a chance of a second surplus and that would be a good thing too, because we've never seen these surpluses as an end in themselves. We see them as a foundation from which to make these other investments and fund our priorities and deal with some of the pressures that are coming at us. It's much easier to do that if you do that from a foundation of a stronger budget.
The first surplus was a big part of that effort. A second one is in prospect but not yet assured but it would be a good thing if we could continue to get the budget in much better nick – that gives us the flexibility to respond if we need to in a more substantial way if the economy turns down more than what we're anticipating.
LIPSON:
Treasurer Jim Chalmers, thanks for being with us.
CHALMERS:
Much appreciated, David, all the best.
LIPSON:
Jim Chalmers there, the Federal Treasurer.