JAMES GLENDAY:
Treasurer, thanks for joining News Breakfast this morning.
JIM CHALMERS:
Good morning, James.
GLENDAY:
Interest rates at 3.1 per cent even though the Reserve Bank said they would stay at 0.1 per cent until 2024. I think most people agree raising rates right now is the right move. I've asked you this before, I'm going to ask it again: given what's happened, do you still really think that Philip Lowe is the right person to head the Reserve Bank?
CHALMERS:
I do, James, and they've got a difficult balance to strike obviously. We do have an inflation problem in our economy at the same time as we want to make sure that it can continue to grow strongly. These decisions are taken independently by the Reserve Bank. We have had 8 consecutive rate rises since before the election. That is making it tougher on Australians with a mortgage and the thing about these interest rate rises is that the impacts of them are felt immediately on people's mortgages and on their repayments but the impact on the economy takes a little bit longer to flow through. And so the full impact of these rate rises is yet to be seen.
GLENDAY:
Economists, journalists are poring over the bank's comments this morning trying to work out which way rates are going to go next year and whether or not we're going to avoid a recession. But given how wrong the bank got it early on, coming out of COVID, do you still trust what they say and does the institution now need a major overhaul?
CHALMERS:
First of all on the guidance that the RBA Governor gave in years gone by during COVID, during the pandemic, he has come out a few times now and given an account of why he said what he said and when he said it. This is an independent institution. The Reserve Bank and its Governor does its work independent of commentary and pressure from the Government. But my job is to make sure that the Reserve Bank has the best institutional arrangements to do its job the best it can and that's why I do have this Reserve Bank Review underway. I've been engaging with the Review panel, as have others. They've got a heap of submissions. And in March of next year, they will give to me a whole set of recommendations to make sure that our Reserve Bank is drawing on world's best practice, that it's the best central bank in the world, and that it's best set up to make these difficult decisions into the future.
GLENDAY:
On best practice, a few people have suggested it should be subject to more scrutiny. Should, for example, the RBA be holding more press conferences to explain their rates decisions? Do you believe that there needs to be some more rigorous oversight that from Parliament than is currently the case?
CHALMERS:
Let's see what the Review team comes up with. But I've made it pretty clear that there's an opportunity here to make sure that the Reserve Bank Board is as strong as it can be, that the institutional arrangements around the board are improved, that we've got the best way of communicating decisions and thinking to the public. All these sorts of things are key considerations of the Reserve Bank Review. It is an independent institution, it's important that politicians don't take pot shots at the independent institution, but it is possible to work out how do we make sure it's the best possible version of itself. It's not beyond reproach. The Reserve Bank Governor defends the decisions taken by the board. I've got a very different job and that is to make sure that I'm managing the Budget in the most responsible way I can at a time of high inflation, that we're making our economy more resilient. That's what the Budget in October was all about, that's what the Budget in May will be all about as well.
GLENDAY:
On that, obviously interest rates are taking money out of the economy to try to cool inflation. Are you looking in your next Budget making some substantial cuts to try to do the same thing? Should government policy be doing some more heavy lifting in this area right now?
CHALMERS:
I think the Budget, the one that we handed down in October, was defined by the times that we're in and designed for the times we're in - in the sense that we've got this big inflation problem. We're doing well out of higher commodity prices flowing through to the Budget. And so what I did in October was to make sure that we're letting that revenue surge flow through to the Budget, not spending it as our predecessors would have, not adding to these inflationary problems in the economy. So restraint is in order and that's what we showed in October and what we will show in May. Every budget is different. We try and make sure that it's carefully calibrated to the economic conditions as we find them - that's what we did in October. That's why the ratings agencies and other informed commentators have said that we got the Budget in October absolutely bang on when it comes to that restraint that we showed. We had billions of dollars in savings, we showed restraint, we had some sensible tax changes, at the same time as we implemented our election commitments on cheaper early childhood education, skills, energy and some of these other important areas.
GLENDAY:
Your first Budget also forecast a 56 per cent rise in the power prices in total. How close are you to a deal with the states on capping coal and gas and is this now simply all boiling down to a discussion about how much money the Commonwealth, how much money you will have to find to pay some of those bigger states - Queensland and New South Wales – compensation?
CHALMERS:
No, it's much more complex than that, James. We are acting with some urgency but we're recognising the complexity here. It does involve multiple levels of government, it does involve different parts of our economy, different industries have skin in the game here. And so we're working with urgency, but making sure that we're putting the thought into it, we're doing it in a considered way and in a consultative way. And so, as you'd expect, in the lead up to the energy ministers discussion tomorrow, and the leaders meeting on Friday, there is a lot of discussion with the states and with industry and with the regulators to see if we can take some of the sting out of these high energy prices, which is such a big part of the inflation problem in our economy. We are realistic about it, we are being responsible about it, and we're being reasonable about it, so that the conversations with the states and with others are in good faith, they're constructive, and they're respectful. And we'll see where we can get to by the end of the week.
GLENDAY:
Okay, finally, Treasurer, I just wanted to ask you about these new laws that are coming into effect in a couple of years’ time in Indonesia, and particularly the section that would make it punishable by a year in jail for people to engage in a sexual relationship outside of marriage. Do you worry that Australians or indeed expats living in Indonesia could be caught up in this?
CHALMERS:
I can understand the concern that people have, James, I haven't been following that development as closely as I've been following energy markets, the National Accounts and interest rate changes. No doubt there'll be a considered response from our foreign facing colleagues, but I can see why people are anxious about this and in time we will make our view known in a considered way.
GLENDAY:
Treasurer, thank you so much for your time this morning.