Haidi Stroud‑Watts:
Australia and Japan are seeking to deepen ties through a new dialogue framework to enhance economic security cooperation. The 2 countries plan to share information on investment trends and coordinate on supply chain issues to support growth. Let’s get more now with the Australian Treasurer, Jim Chalmers, who joins us exclusively in Tokyo.
Treasurer, really great to have you with us. We appreciate your time. Of course, back home, things are in quite a state of economic flux. We’ve got interest rates at 15‑year highs and there’s a fair bit of scrutiny and criticism in terms of what your government has done in terms of running budget deficits at a time when we’re near full employment, inflation is running high and there’s been a commodities boom. Would you like, sort of, the chance to speak to that criticism in terms of how much the inflation that we’re seeing is being driven at home and how much of it is truly external, as you say, pointing to elements like the closure of the Strait of Hormuz?
Jim Chalmers:
Well, what we’ve seen in the Australian economy and in the Australian budget is that public‑demand growth has been easing while private‑demand growth has been growing. That is a good thing to see the private sector leading growth in our economy. But if you think about the last year or so, compared to the year before, public‑final‑demand growth has halved while private‑final‑demand growth has tripled. And so that gives you a good sense that there are other factors at play. Of course, like every country, including here in Japan, we are being impacted by this prolonged war in the Middle East, pushing up inflation and weighing heavily on growth at the same time.
And on the domestic front, in addition to our inflation challenge, we also, again, like a lot of countries around the world, we’ve had a long‑standing productivity challenge as well. And so we’ll continue to manage the budget responsibly. We’ve actually delivered 2 surplus Budgets and got the other deficits down much smaller than they were when we came to office. We’ve got the debt trajectory down as well, and you can see the fruits of that in some of the other indicators.
But overwhelmingly, Australia’s economic story is a positive one. We’ve got a lot of private investment in our economy. Jobs growth has been strong. Only the US has stronger growth amongst the G7 than Australia does through the year. And so we’ve got a lot coming at us from around the world, but we’ve got a lot going for us in Australia. And I’ve welcomed this opportunity to speak with Japanese friends, investors, the government and others about the remarkable strengths that Australia has, even as we acknowledge whether it’s inflation, productivity or global economic uncertainty, there’s no shortage of challenges either.
Stroud‑Watts:
As you say, these challenges are really afflicting many economies around the world. The other challenge at the moment, of course, we’ve been talking about is the surge in global bond yields, and Australia is not immune to that either. How does that fit into the broader scenario and risks of the servicing of government debt? And does that feature in, sort of, your budget scenarios going forward, too?
Chalmers:
Yeah, I was listening with some interest to your analysis just before I came on. Clearly what’s happening here is that global bond yields have risen sharply around the world. If you look at the US 10 Year Treasury, I think the highest in about a quarter of a century. We’re seeing it in other countries as well, including here in Japan. The Australian bond yield, 10‑year bond yield has come up a bit, but not as much as in other countries.
But right around the world, including in Australia, these higher borrowing costs will play out in our budgets. I’ll update the Australian budget before the end of the year. And one of the big upward pressures on the budget unfortunately will be as some of this cheaper debt rolls off and is replaced by more expensive debt. Now the good news for Australia is that we have a sliver of the debt‑to‑GDP that other countries are carrying. Our debt‑to‑GDP is lower than any major advanced economy. That means we’re better placed and better prepared to deal with a lot of this volatility than other countries. But we won’t be immune from what we’re seeing on these global debt markets.
We know that what’s driving this is higher inflation out of the Middle East, expectations about interest rates around the world. We know there are concerns in other places about fiscal policy. There’s the competition from the hyperscalers and there’s also this backdrop of uncertainty more broadly. The technological revolution, the energy transition, industrial and demographic change, and all of this geopolitical fragmentation as well. All of that is playing out in global bond markets. And all of us, all of the advanced economies, all the developed economies will be impacted in one way or another.
Shery Ahn:
Treasurer, to your point, we are actually seeing higher yields here in Japan as well, right? JGV yields at multi‑decade highs. When it comes to you being here in Tokyo, how much harder does that become to pitch to Japanese investors to put their capital in Australia? Do you need to offer a sort of premium in order to attract that capital? We have seen how Japanese capital could have been really worsening the debt crisis that we’re seeing in France already.
Chalmers:
No, we’re seeing an immense and very welcome level of interest from Japanese industry, Japanese investors and bankers, indeed from the Japanese government in the opportunities provided by Australia and in Australia. We offer stability, geography. We offer some remarkable opportunities right across data, defence, energy, critical minerals, housing. Our superannuation sector is a big national strength as well. And so we’ve got a unique and welcome combination of advantages which make us really compelling here in Japan.
If you think about what we have in common, Japan and Australia are islands of opportunity in a sea of uncertainty. And it’s hard to think of 2 economies which are more complementary to each other than the Australian economy and the Japanese economy. So, I’m pushing on open doors here. We are meeting with some of the CEOs and chairs of the most important companies here in Japan, indeed some of the world’s most significant companies and investors.
There’s a lot of interest in Australia and for good reason. We are better placed and better prepared than other countries for all of this global uncertainty. And we do have a plan to attract more investment in some of these really important areas, data centres, critical minerals, the energy transformation and the like. And so I found Japan to be incredibly welcoming, incredibly receptive to the good story that Australia has to tell here.
Ahn:
How complementary are the investments that you’re looking at, Treasurer, from Japanese investors? Because I believe that Australia has wanted to really diversify and try to get more capital into downstream investments rather than just simply exporting raw materials. Are you seeing the types of investments that Australia needs right now?
Chalmers:
Well, obviously that’s a big part of the big opportunity, particularly when you think about critical minerals, but in other resources as well. We’ve got an extraordinary advantage here when it comes to our resources base, both in traditional areas, but also in the necessary constituent parts of new and emerging technologies. And Japan obviously will play an important role in all of that. And so, really, from Finance Minister Katayama all the way down, through all of the engagements that we’ve had here in Tokyo and in Chiba, what’s been very clear to us is there was a lot of interest in value adding. There’s a lot of interest in securing more reliable supply chains. That’s a huge part of the reason for the Memorandum of Cooperation that I signed with Minister Katayama last night.
Also, the major investment entities, JBIC here in Japan, Export Finance Australia, and other entities, have also signed a Memorandum of Cooperation, which is about more closely aligning our investment advantages when it comes to some of these areas you’re asking me about. Value adding, making sure we’ve got those secure and reliable supply chains at a time when we are seeing a lot of fragmentation around the world. We are seeing the trading system that we had been accustomed to, you know, in recent decades, of which Australia was a massive beneficiary, it is changing. And it would be crazy to pretend otherwise. And so we’re shoring up our supply chains, we’re attracting more investment and we’re making sure that this relationship between governments and industry, Australia and Japan, is closer than ever, because there’s a lot that we can do together.
Stroud‑Watts:
Treasurer, the national debate and conversation around AI and the rollout of data centres is intensifying. And as I’m sure you know, today we’ve got one of OpenAI’s most senior executives facing questions in parliament. Can you tell us a little bit about the true economic gains that you perceive in this opportunity and how that’s going to be balanced out in terms of some of these concerns over national security, over Australia’s AI sovereignty?
Chalmers:
Well, artificial intelligence will be the most transformative influence on our economy and on our society in our lifetimes. And Australia is confident that we can maximise the opportunities of AI at the same time as we minimise and manage the very substantial risks. And so in some respects, Australia’s a world leader in thinking through some of these issues. For example, legislating national standards for data centres to give investors clarity about our minimum expectations when it comes to energy use and water use and other key considerations.
So, people have got legitimate concerns about the way that we harness and control this technology going forward to make sure that we capture the immense economic benefits at the same time as we don’t dismiss or ignore the threats that are posed by the accelerating change that comes from AI. And so in Australia, indeed around the world, we are grappling with these really important issues. When it comes to the impact on the economy, clearly, if we do this right, there will be a productivity dividend for Australia and for every economy around the world, if we get it right. That’s why we put so much time and effort and energy into making sure that we do get it right.
Stroud‑Watts:
The data centre gold rush, it’s been compared to the sort of new iteration of Australia’s mining boom. Whether you agree with that comparison or not, I do wonder what are some of the things that Australia can do differently this time so that those longer‑term economic gains can be captured from this opportunity?
Chalmers:
Yeah, I mean, you’re quite right. If you look at Australia’s CapEx figures, it’s been absolutely extraordinary, the explosion in investment in data centres and related infrastructure and technology. It’s been very welcome investment. You know, we’ve got a wonderful Australian success story, building data centres here and at home, AirTrunk. And you see the incredible amounts of investment that they are making, that’s overwhelmingly a good thing. And so, there is a boom.
And you’re quite right that we are getting in early to make sure that we establish expectations, as I said, around the national standards. We have to get the – and we will get the copyright issues right, we’ll get the issues around the labour market right with effort. And so that’s all about picking up and accepting the challenge which is at the core of your question, which is to make sure that as we look all around us and see this boom in AI and data centre investment, that we make sure it works for us and not against us, that we make sure that Australians are beneficiaries of this accelerating change, rather than victims of it.
Stroud‑Watts:
Treasurer, we appreciate your time with us today. Jim Chalmers, the Australian Treasurer who is in Tokyo today.