LAURA JAYES:
Jim Chalmers, good to see you. Where are we at, do you think, in this cost-of-living pain cycle? Are we about to go into the worst of it or are we coming out of the worst of it?
JIM CHALMERS:
Unfortunately, Laura, I think that inflation has got a little bit of a way to run yet, and the Reserve Bank Governor has said that people should expect further interest rate rises as well, and so I think to level with your viewers, it will still get more difficult before it gets better, but it will get better. I’m still confident. I’m still optimistic about the future of our economy and the future of our country, but we do have to navigate some pretty tricky terrain over the next six to 12 months.
JAYES:
The GDP figures yesterday show us that Australians are still spending. Did that surprise you and do we have a two‑speed economy type situation going on here?
CHALMERS:
We do have a lot of different things operating at crosscurrents. Consumer spending was really strong in that June quarter. That’s partly because a lot of people after that horror summer were getting back into the services economy, eating out more, participating in the economy differently, and so that’s a bigger reason why we had that rebound. But our exports are also performing really strongly because people want our resources rightly now and we’re getting good prices for them. So, exports and consumption are running our way in terms of contributing to growth but beyond that – and those numbers are a couple of months old now – we’ve got interest rate rises which will bite. We’ve got the global situation which has deteriorated the last couple of months, particularly the US, UK, China and, of course, Russia‑Ukraine. And we’ve got these issues in our supply chains, labour shortages, skill shortages and other issues which are pushing up inflation domestically too. So, I think to be upfront with people, we expect the relatively encouraging and solid numbers that we saw in June, that things have gotten more difficult since then. But again, a lot of the factors which are driving the economy on the upside and the downside are temporary factors. We expect inflation will start moderating next year, for example, but we’ve got to get through this tough patch first.
JAYES:
Why do you think inflation will moderate? Do you see the war in Ukraine ending? Is that the major factor?
CHALMERS:
We’re not expecting some kind of quick resolution to Russia‑Ukraine. In lots of ways that seems like a dug-in conflict now and that has obviously big implications for energy markets and food security around the world. But we don’t have a lot of say in that, we don’t have a lot of agency in that. What we do have the ability to do is to try and address these issues in our supply chains here in Australia. One of the reasons why Anthony Albanese and I convened that Jobs and Skills Summit is because we’ve got all these labour and skill shortages right around Australia and we need to get good well-trained enthusiastic workers into those jobs. And when we do that, that will hopefully take some of the sting out of inflation as well, but you can’t flick a switch and do that overnight.
JAYES:
No, so what levers are available to you in this Budget?
CHALMERS:
The Budget will be about a few things. It will, firstly, be about: how do we provide some cost-of-living relief in a responsible way that doesn’t add to the pressure on the Reserve Bank - that isn’t counterproductive. What we do try to do there is say where can we make it easier for people in their household budgets in a way that delivers an economic benefit as well. So, childcare is the most obvious example where you provide substantial cost-of-living relief, but it’s also good for the economy because it provides more workers into the economy, particularly newer parents and especially newer mums - so that will be a game changer for the economy when that happens.
JAYES:
Why not do it sooner then?
CHALMERS:
Because we’ve got to make sure that the system can absorb it and also because it costs a lot. The biggest on‑budget commitment that I will be making in October will be childcare investment so it costs quite a bit more to bring it forward. It’s only 6 months difference, but it costs quite a lot.
JAYES:
But practically it’s kind of weird to start it off halfway through the school year. I know it starts at the beginning of the financial year, but why not start it when, you know, the school year starts?
CHALMERS:
We’ve got to make sure that the system is ready for it, and also, we’ve got to be upfront. We’ve got a trillion dollars of debt in the budget. We found $5 billion for this game-changing investment but we’ve got to be really careful about how much we spend here. We’ve got to make room for it. We’ve got to get bang for buck. We’ve got to make sure the system is ready for it. So, part of the Budget is cost-of-living relief. We’re also investing in some of these issues in our supply chains - so energy, skills, the NBN, all of these important areas.
JAYES:
So, you’re not talking about immediate subsidy-type relief here because that would be inflationary - is that what you’re talking about?
CHALMERS:
Well, first of all, the Budget is not finished yet. We’re meeting around-the-clock and working around-the-clock. The Budget is about 6 or 7 weeks away. But we’ve made it pretty clear to people that our priority is to implement the cost-of-living relief that we’ve announced, that we took to the election, got a mandate for and that we’ve announced. That will be in areas like childcare, medicines, TAFE fees, the cost of electric vehicles. And also, we want to get wages moving in this economy again. I think probably the primary reason why people have felt like they’re going backwards for some time now is because their real wages are going backwards. Inflation is through the roof. Wages, which are starting to pick up a little bit in welcome ways, are still nowhere near inflation and so people are falling backwards. So that’s got cost of living implications too. And the third thing for the Budget is to crack down on some of these rorts and some of this waste that we’ve seen in the Budget. We found an $18 million grant that we won’t be proceeding with, for example, for this so-called leadership foundation. That’s a good start, but it’s not enough - the Budget will also have more of that.
JAYES:
Okay. So, I think people sitting at home are looking at, you know, company profit reporting season and seeing some of these commodity companies, but not just commodities, outside of that, reporting record profits – I mean history-making profits. Wages aren’t going up in some sectors. You’re talking about all these international factors that are pushing up inflation, supply chain issues, but people at home with a mortgage keep on being slammed by these half a per cent interest rate rises and then Australians are still spending. Can you understand why people – you know, it doesn’t seem logical that in 2022, there aren’t many levers to actually fix what is going on in the economy and essentially the people that can afford it the least are paying for it?
CHALMERS:
It’s right that there aren’t many levers in terms of the war in Ukraine or the Chinese economy, the American, the British economy. The Reserve Bank does its job independently. It tries to manage demand in the economy. That’s the important role of monetary policy, but, for us, there are levers we can pull. I think fee-free TAFE is an important lever in terms of filling skill shortages. I think a sensible migration program is part of the story that we got broad agreement for at the Jobs and Skills Summit. I think investing in the NBN, the digital economy, has the potential to turbocharge our economy without adding to these inflationary pressures. So, I do think there are things that we can do but we need to be realistic about that too. We’ve got inflationary pressures coming at us from around the world, but we’ve also got as the Reserve Bank Governor said on Tuesday some domestic sources of inflation as well. My job is to focus on areas where we can make a meaningful difference. Cost of living, investing in supply chains, making the Budget more responsible and more sustainable – these are where governments can make a difference in Australia and that’s where we’re focused.
JAYES:
Just before I let you go, Philip Lowe obviously has been the Governor of the RBA at a really tough time, but how important is it do you think that Australians have faith in him? Do you think they maintain that faith? Is he the right guy post-COVID?
CHALMERS:
I try not to personalise it. My job is to make sure that the Reserve Bank has got the right settings - I’m doing a review of the Reserve Bank to make sure that it’s got the best objectives, the best board composition, the best way of going about taking these really difficult decisions with big consequences for Australians right around the country. I try not to personalise it. I’ve never taken pot shots at the Governor. I don’t see my RBA review as some sort of effort, some sort of witch-hunt about personalities in the Reserve Bank. But Phil Lowe will be speaking later today, and he will be providing his thinking and the context around the decisions that he’s taken. That’s appropriate. My focus is on my job and what I can do.
JAYES:
Jim Chalmers, thanks for your time.
CHALMERS:
Thanks, Laura.