JIM CHALMERS:
The main story in these figures is consumption. Consumption went backwards and discretionary spending fell substantially. And to get your head around that, in through the year terms, we saw around the same growth in the year as we usually see in a single quarter when it comes to consumption.
LAURA TINGLE:
Households under extreme stress might not see why consumption is the main story right now about the economy. But for Treasurer Jim Chalmers, it is not just the story of where the economy has been in recent months, but where the economy is likely to go next.
Today’s National Accounts, as expected by markets, showed an economy that was continuing to slow in annual terms, and which barely has a pulse in quarterly terms. The numbers had been previewed as being a story about the impact of net overseas migration propping up the economy and the Treasurer has been under attack for talking about high interest rates having smashed the economy.
You can see how growth has gradually responded to 13 interest rate rises, and also how net overseas migration, which adds both demand to the economy and the supply of extra workers, has helped to prop things up, but is now slowing. But the standout in these latest numbers in the June quarter compared to earlier ones, is the absolutely clear and sustained impact that high interest rates are having on household spending consumption.
SAUL ESLAKE:
Well, they tell us that the economy has slowed to a crawl, as you would expect, given that monetary policy has been significantly tightened over the past 2 years. That’s what higher interest rates are supposed to do.
Now that’s happening most of all through pressure on households. The figures show that real household disposable income per capita has fallen by 9.8 per cent since it peaked in the September quarter of 2022. And as a result, despite running their savings down significantly, households have cut their real per capita consumption spending by almost 3 per cent.
CHALMERS:
Consumption went backwards and discretionary spending fell off really quite substantially. And when you combine that with what’s happening in household savings, you look at what’s happening in mortgage interest costs, dwelling investment, a whole range of indicators. What they show is the combination of higher interest rates, persistent but moderating inflation, plus all of this global economic uncertainty that we’re seeing, all of that’s combining to slow our economy in pretty considerable ways.
TINGLE:
Well, the question everyone wants to know is, how long is this going to keep going? Is there any light at the end of the tunnel?
CHALMERS:
I think that is the main question for people. In our expectations, in our Treasury forecasts, they expect economic growth to pick up a bit, but not a lot, over the course of the next year.
The figures we got today were for the end of the last financial year – in the financial year that we’re in now, we think growth will be a little bit faster, but not a lot faster.
TINGLE:
Today’s numbers are a report on the June quarter before the reworked tax cuts started on July 1. These will help boost the position of households, but other factors that have kept the economy propped up, like migration and government spending, are starting to taper off.
CHALMERS:
What today’s data shows is that we got the balance broadly right, and that’s a good hint for the future as well. What we try and do every time we put together a budget is to factor in the economic conditions. It’s what we did last May, and we’ll try and strike a really good balance next Budget as well.
TINGLE:
In other words, the Treasurer is leaving open the option of more spending between now and the federal election if growth is going to slow even further. The Treasurer’s comments this week about high interest rates smashing the economy suggests the government may step in if the Reserve Bank has hit the economy too hard. The Bank had been forecasting consumption would be twice as strong as today’s numbers.
CHALMERS:
I think it works well that the Reserve Bank does their job and I do my job. I’ve made some comments in the last few days which just reflect the reality we see in the numbers today, that higher interest rates are slowing our economy. That’s not an especially controversial point to make. Consumption did come in a bit weaker than they were anticipating.
TINGLE:
But it’s about the possibility that if they’ve overshot on their job on interest rates, that you may have to do more on your job on government spending.
CHALMERS:
A lot of people wanted us to cut much more harshly, much harder. They wanted a sort of a scorched earth austerity in the last Budget that would have been a disaster for our economy.
TINGLE:
Which brings us to the political contest. The clear divide opening up ahead of next year’s election is between a government arguing it may have to spend more to keep the economy and households afloat, and an Opposition arguing the path to economic strength is big spending cuts.
The Coalition has suggested it would cut at least $90 billion of government spending and blamed a claimed $315 billion of extra Labor spending for higher inflation and interest rates.
[Excerpt]
ANGUS TAYLOR:
But he has far more levers to get us back to a low inflation, strong economy than the Reserve Bank will ever have. They have one lever, which is interest rates.
There is a better alternative; going back to basics, making sure that the government lives within its means, that it contains its spending growth, that the government focuses on securing our energy supplies, that we make sure that our immigration rate is in line with our housing growth.
[End of excerpt]
TINGLE:
You indicated at your press conference that you would look at more government spending, particularly to help cost of living, but just generally to keep the economy afloat. At MYEFO and in the lead up to the Budget, does that suggest households will be seeing some form of relief before the next election?
CHALMERS:
Well, first of all, we’re rolling out a lot of cost‑of‑living relief right now. The tax cuts, the energy bill reliefs rolling out right now. The rent assistance comes in this month, the wage increases, cheaper medicines, a lot of that’s rolling out right now. Some of it is beginning to roll out in the course of the coming weeks.
When it comes to the future budget updates and the Budget itself, we’ve made it really clear that we’re prepared to do what the economic conditions warrant and what the budget can afford.
TINGLE:
Do we have the scope to cut $90 billion or $315 billion out of government spending?
CHALMERS:
Well, I think what these National Accounts show is that the slash and burn approach that the Liberals and Nationals are on about would be diabolical for the economy. They would send us into recession. That’s really clear from the numbers today.
And worse than that, they won’t come clean on where those $315 billion in cuts are going to come from. What does it mean for Medicare? What does it mean for pensions and payments? What does it mean for the broader national economy?
We’re in the third year now of a 3 year parliamentary term. We still have no credible or costed economic policies from our opponents.
TINGLE:
Then there’s another politically contentious issue, migration and its impact on the economy. Is migration holding up the economy a good thing or a bad thing?
CHALMERS:
Well, I think, again, when growth is this weak in the economy, when it’s this soft and subdued, anything that is making a positive contribution is welcome. You look around the world, two‑thirds of the OECD have had a negative quarter of growth. We haven’t had that. There’s a range of reasons for that.
Government spending is a key reason on this occasion and also exports, including services exports and some of the migration figures feed into that. And so it’s making a welcome contribution even as we manage it down to more normal levels.
TINGLE:
What about the numbers announced by Jason Clare on students? Does that materially change the net overseas migration numbers for the current financial year and next financial year?
CHALMERS:
It helps us manage the growth in net overseas migration, but we don’t expect there to be a big economic impact. For example, I’m a big supporter of the university sector and the education sector more broadly. It’s a top 5 earner for Australia and we don’t expect that to change.
TINGLE:
Treasurer, thanks for your time.
CHALMERS:
Thanks Laura.