KIM LANDERS, HOST:
Treasurer, how much strife is Australia's economy in?
JIM CHALMERS, TREASURER:
What I hope to do today, Kim, is to paint a more accurate picture of the Australian economy, but also to give people the reassurance that we expect that our economic conditions will improve, but first we've got to endure what is going to be some pretty heavy weather and there's no use pretending otherwise. So, it will be a pretty blunt assessment of the economic challenges that we've inherited. We will bring Australians into our confidence about these challenges as we put together the October Budget. But I think Australians understand that the combination of high and rising inflation, which is pushing up interest rates, combined with a global economy, which is walking a pretty perilous path, means that there will be downgrades to our own expectations for economic growth here, about half a percentage point downgrade to growth for the last year, for this year and for the next year, and that will flow through to the Budget as well.
LANDERS:
Is Australia going to face a recession?
CHALMERS:
That's not our expectation. Our expectation is that the Australian economy will continue to grow, but so will our challenges, and I've mentioned —
LANDERS:
Well, let me pick up on one of those challenges. Inflation, for example, is a challenge. Is it going to rise above the 7 per cent forecast by the Reserve Bank?
CHALMERS:
That's our expectation, Kim, and I’ll go through that in some detail around the middle of today.
LANDERS:
How much above that 7 per cent mark is it going to get?
CHALMERS:
I'll take the Parliament through that around the middle of the day, but I think Australians can expect that inflation will go higher than 7 per cent this year, most likely, where it will peak, and then it will start to moderate after that. And that's another important part of the story too. Inflation will get harder for Australians to deal with in the near term, but it will begin to moderate next year before it comes down to more normal levels.
LANDERS:
When you talk about "moderate", is that going down one or two percentage points?
CHALMERS:
Well, I'll go through all those figures in the Ministerial Statement, but I think your listeners can expect that the numbers that we provide will have inflation peaking this year, higher than 7 per cent, moderating next year as well. So, we're in for some heavy weather when it comes to the costs of living. I think people understand that. That inflation is primarily global but not exclusively global. There are issues in our own country which are pushing up inflation too and making it harder for our goods and services to get through those difficult supply chains. And so our focus, our plan, is about dealing with those supply chains so that we're influencing what we can influence here at home.
LANDERS:
Many of the measures that you've flagged to ease the strain on households like cheaper childcare, for example, they don't come into effect until next year. They're not going to help pay for higher food and petrol right now. So why not dump those stage three tax cuts for higher income earners to free up some money in the budget to help people who are struggling?
CHALMERS:
As you know, that's not our intention, and one of the reasons for that is —
LANDERS:
Why isn't it? Why are you digging your heels in on that?
CHALMERS:
Well, those tax cuts are already legislated, and they don't come in for a couple of years now, so even if we were to walk away from them, that wouldn't have an impact right now on this inflation that we're seeing because they don't come in until 2024.
LANDERS:
So, what's in your toolbox to fix this in the short‑term?
CHALMERS:
Our plan has got a number of parts. First of all, some responsible cost‑of‑living – that you have just referred to – cost‑of‑living relief in areas like childcare, like medicine prices, to try and take some of the sting out of this inflation challenge in a way that's responsible, but also serves some of our other economic objectives, including making it easier for people to come back to work and to earn more if that's what they want to do. So, responsible cost‑of‑living relief. The second part of it is to try to lift the speed limits on the economy and deal with some of these issues in our supply chains: so whether it's labour shortages and skills, whether it's cleaner and cheaper and more reliable energy, whether it's investing in a Future Made in Australia, these are important parts of dealing with the issues on the supply side of the economy, which is feeding this inflation. And then, lastly, it is trimming the rorts and waste which have been a key feature of the budget for much of the last decade so that we're making sure that taxpayer dollars are being invested in something that gives us an economic dividend and not just a political dividend. So those are the three parts of our economic plan. These components of our plan were important when we first announced them. They're especially important now, and so people can expect to see those election commitments implemented in the October Budget.
LANDERS:
Your mantra before the election was that everything was going up except your wages. Now that you've made it clear that wages can't keep up with the current inflation rate, you're saying, though, that wages growth is going to happen in this term of Parliament. So, what sort of growth are we talking about, and when will it happen?
CHALMERS:
First of all, I think people do understand that when we've had a wages problem in this economy for at least the last 9 years it takes longer than 9 weeks to turn that around. I think people do understand that. But equally, people know that with inflation heading north of 7 per cent, there is no credible forecast of wages that says that wages are going to keep up with 7 per cent‑plus inflation in the near term, so we're trying to be up‑front about that. There are two parts to this story: making sure we can get inflation moderating, which we've already talked about; and, secondly, getting wages growing again which is a primary goal —
LANDERS:
And just to my point, what sort of growth are you talking about and when?
CHALMERS:
Well, I'll go through some of this in the Ministerial Statement, Kim, as you'd expect. But what I am prepared to say on your show is in the term of this Parliament, we expect real wages growth, which is we will be forecasting wages to be growing faster than inflation during the course of this parliamentary term. But there's no use pretending that that will happen tomorrow. It will take some time because that inflation is incredibly high in the near term and we're trying to get wages growth again after a decade of wages stagnation, and that's what our economic plan is about, that's why we've got policies around childcare and skills and energy and all of these ways that we make the economy more productive and get that wages growth that has been missing.
LANDERS:
And, finally, if the Reserve Bank is going to have to keep raising interest rates to bring inflation down is unemployment, which is at 3.5 per cent, is that going to start going up?
CHALMERS:
Our expectation is that unemployment will tick‑up slightly as a consequence of those rising interest rates as well as the global slowdown.
LANDERS:
How much?
CHALMERS:
Again, I don't propose to read through all of the figures; I want to run the Parliament through that and [run] the Australian people through it in their Parliament, but what I'm prepared to say is that we'll see a modest tick‑up in our expectations for the unemployment rate, which is a consequence of rising interest rates and the global slowdown, which has implications for domestic growth in our own economy and therefore for unemployment.
LANDERS:
Treasurer, thank you very much for joining AM this morning.
CHALMERS:
Thanks for your time, Kim.
LANDERS:
The Federal Treasurer Jim Chalmers.