15 December 2022

Interview with Patricia Karvelas, ABC Radio National

Note

Subjects: energy prices, Coalition stance against energy relief, reasonable pricing provision, US rate rise, stage 3 tax cuts

PATRICIA KARVELAS:

Federal Treasurer Jim Chalmers joins us now, Treasurer, welcome.

JIM CHALMERS:

Good morning, Patricia.

KARVELAS:

Will that be the consequence in 5 years?

CHALMERS:

No, I wouldn't have thought so, Patricia, this is about taking meaningful action urgently to try and take some of the sting out of these high energy prices, which risk sending too many of our manufacturers to the wall and put extra pressure on families and pensioners and small businesses. But what we'll put through the Parliament today, hopefully with the support of both houses, is a common sense approach to this problem brought about by a year of Russian aggression in Ukraine, and a decade of policy failures from the Coalition. And it will put this responsible action plan into place to cap gas prices temporarily, for the states have got a role to play here when it comes to coal, and we'll also be providing one and a half billion dollars in household assistance. Combined, this will make a meaningful impact on power prices next year.

KARVELAS:

Bills are still set to rise by 20 per cent next year, 23 per cent the following year, that's the forecast still. Isn't that still going to be unaffordable for millions of Australians?

CHALMERS:

Obviously, Australians are under pressure because we've got this inflation problem in our economy. And what we're doing today in the Parliament, is to try and take some of the edge off that. It's not possible to make all of that inflation problem go away overnight, but it's not a small impact when you consider next year, electricity prices are expected to go up by 36 per cent. And when our plan is implemented, it will be more like 23 per cent, so that's a meaningful change. We're realistic about it, we know that people are still under pressure, but we want your listeners to know that we will do what we can, even when it involves difficult decisions like this one, to take some of the edge off these price pressures that people are feeling. And similarly when it comes to our industries, we don't want to see our manufacturing base hollowed out in this country by high gas prices. And so we need to act and that's what we're doing.

KARVELAS:

You've done a deal with the Greens to support the electrification of homes - details will be in the May Budget - but what can you tell us about this electrification plan and how much it's going to cost?

CHALMERS:

We're very interested in working with households to help them electrify, to help them improve the energy performance of their homes, and to help them cut their energy bills. We've made that clear for some time. We welcome the interests of the crossbench in this objective, because Chris Bowen, Jenny McAllister and other colleagues - and certainly we've got an interest in it as well, and Treasury - we do want to help people make meaningful changes at the household level to get their bills down. That means electrification, it means more renewable energy, and so that if we can work out ways, whether it's the Clean Energy Finance Corporation or ARENA or other government institutions, if we can work out ways to help them do that, we should.

KARVELAS:

So how vague is this deal at this stage? You want an electrification? But do we know any of the parameters and the price?

CHALMERS:

I think the direction is clear, and we said we'll work with the crossbench parties, including the Greens, as we develop our policies and plans leading into next year. That's a very clear direction and in the usual way, if there are costs to the Commonwealth, we'll make them clear in budgets. But our commitment - not just to the crossbench, much more importantly to the Australian people - as we will always be looking for ways to get their power bills down by helping them at the household level. We've got an opportunity here to work with the Parliament and work with the community more broadly. It's a very, very clear direction and I look forward to advancing it with Chris Bowen and Jenny McAllister and others.

KARVELAS:

Okay, so it's just an idea at this stage, how involved will the Greens be in developing the policy?

CHALMERS:

We welcome input into our policy development. I think one of the things that we've shown, one of the defining characteristics of the Government that Anthony Albanese leads, is that we are prepared to be consultative and inclusive when it comes to our policy agenda. That's what the Jobs Summit was about, that's what a whole bunch of our policies have been about. We recognise that you get better outcomes when you work with people, and that's certainly going to be the case here. We've got a big challenge ahead of us, we've got high energy prices, we've got an energy transition that we need to manage in the interests of the Australian people and their industries. And so the more people that we can engage in that task, the better. And the direction is very clear.

KARVELAS:

Okay, so they've got a seat at the table in the design of this policy right through to the Budget?

CHALMERS:

We said we'll work with them, that's clear.

KARVELAS:

And we don't know how large the package is likely to be. So is that where the debate will be at between you and the Greens, as it's designed? I mean, it could be a very modest program or it could be quite large. Where do you lean?

CHALMERS:

I want to do what we can meaningfully do to help people on this front. If you take a step back for a moment, Patricia, we've got ambitious targets, when it comes to getting our emissions down. We've got a whole range of policies for cleaner, cheaper and more reliable, increasingly renewable energy. And we've got more work to do in some of these areas that we're talking about now. And in addition to that, we've got to take these urgent steps that we're taking today when it comes to the near term challenges, brought about by a war in Europe and a decade of policy incompetence. And so when you put all of that together, that is a big task, it's a big agenda. And we will work with anyone who shares our interests and objectives.

KARVELAS:

Now you've got this deal with the Greens which means of course, you'll get this passed. You’ve got the numbers with David Pocock, Jacqui Lambie's not standing in its way, it's going to happen. But the Coalition is the big question mark. We understand Peter Dutton will be speaking shortly. But why is it that Peter Dutton and the Opposition only got this legislation at quarter to nine last night? How can they possibly make a determination about what their view is if you're giving them legislation on something so big, so late?

CHALMERS:

They got draft legislation last week, Patricia, and they're hiding behind this process point because they know that they've spent weeks giving the metaphorical middle finger to manufacturers and families and small businesses doing it tough under high energy prices. They've been playing politics all along and that's what they're doing with this process now. They got a draft of the legislation last week. We said that we would take into consideration the consultation on that draft. We did that yesterday and when it was ready, after that consultation, we provided it to the Opposition in the usual way.

KARVELAS:

The Greens say they won't vote for the bill if there's compensation for gas and coal companies. Is there a provision to compensate coal producers if the cost of production is higher than the cap?

CHALMERS:

No, that's not what the Parliament's being asked to consider. The Parliament's being asked to consider 2 things. First of all, the arrangements for gas including the $12 temporary cap, and secondly, the one and a half billion dollars in assistance for households and small businesses working in conjunction with the states. Anybody who votes against this package in the Parliament is voting for higher energy prices and for no household assistance for families and small businesses and industries doing it tough. That is really clear.

KARVELAS:

Okay. But can you provide compensation? You clearly said it's not in the legislation, but can you step in and do that if it goes beyond that price?

CHALMERS:

Well, what we've said to the states, particularly Queensland and New South Wales, is that we are prepared to negotiate with them assistance if they need it in relation to these things, but our intention when it comes to bringing the Parliament back, and seeking to urgently legislate this part of the plan today, our intention is to do gas and household assistance today. The states have got an important role when it comes to coal and we've said that we're prepared to be reasonable and help them if that's necessary.

KARVELAS:

The aspect of this legislation the gas industry was most concerned about, particularly when I spoke yesterday to Meg O'Neill the head of Woodside, is about this reasonable pricing provision which goes way beyond 12 months. It becomes an essential part of a heads of agreement. Why are you keeping this locked in? Even energy experts like Tony Wood worry that this shouldn't be a permanent feature. They say it will distort the market.

CHALMERS:

Well, a couple of things about that Patricia - and I met with Meg as well, yesterday - I've got a lot of respect and regard for the industry and its leaders and I engage in a respectful way with them. I have been doing that for some time and I hope to continue to do that for some time to come. They have a position which is very clear, we have a different position, and we have a different responsibility. Our responsibility is to the broader Australian community, to industries and employers and to the national economic interest. And so inevitably, when differences arise between particular industries and the Government, we will engage with them in a respectful and meaningful way - we did that yesterday, we've been doing that for some time.

On the specifics of the reasonable pricing framework, what we need here is an ongoing arrangement to make sure that if there are dud deals in the market, there's a way to arbitrate them. And we have listened to the concerns that Meg and others have raised but we need, in addition to this temporary $12 price cap, we need a set of arrangements which recognise that the market isn't working. It's not working when manufacturers are at risk of hitting the fence, it's not working when we get these extraordinary prices and so we need to have a mechanism where both sides of the relationship can access arbitration, the reasonable pricing framework will do that. We still have a couple of months to consult on that - that doesn't need to be finalised until February.

KARVELAS:

Could you water it down? Could you change the language around reasonable price or water it down because obviously the industry is massively concerned about that? They seem to me less concerned about the one year imposition of caps, perhaps because you put the cap quite high, but then actually this ongoing threat of a reasonable price intervention.

CHALMERS:

We need the ongoing arrangements, that's clear. We intend to proceed with a reasonable pricing regime. We've deliberately got a couple of months of consultation and even around the conversation that we had with them yesterday, we're taking on board a couple of specific issues that they've raised with us because that consultation is meaningful. But we need an ongoing system. The market has not been working, we need to fix it. And reasonable pricing mechanism is one of the ways that we can do that.

KARVELAS:

I just want to turn to something overseas. In the US, inflation is still rising but it's lower than expected and a short time ago, the Fed increased rates by half a per cent, which is less than the recent rises. Do you believe the softer inflation trend is what we might see here in Australia?

CHALMERS:

Well, we'd like to, but I think we've expected for some time that the peak of US inflation would happen before the peak of Australian inflation and that's partly because of these energy prices that we've been talking about - one of the reasons why we're acting decisively today. But also, we've got still the impact on grocery prices, of the flooding that we had in some of our prime agricultural areas, that's still yet to flow through to our inflation figures. So I know a lot of analysts are watching the US very closely and are heartened by the fact that they may have seen their peak in inflation and we'd like to be in a similar situation as soon as possible but we've got a couple of factors that we still have to weigh up here in Australia.

KARVELAS:

Just quickly, some of the nation's most respected economists have called on your government to reconsider the size, the shape and the timing of the stage 3 tax cuts. I'm sure you saw those full page advertisements in the Sydney Morning Herald and the Age on Wednesday. Allan Fels, Miranda Stewart, Bruce Chapman, the architect of HECS. Are you persuaded by them?

CHALMERS:

We haven't changed our position, but some really great people on that list. Of course I saw it and of course I pay attention to it. But we haven't changed our position on those tax cuts.

KARVELAS:

Treasurer, thank you for joining us consistently throughout the year, my first year on breakfast. I hope you have a great Christmas and I'll talk to you in the new year.

CHALMERS:

I hope you and your family do too, PK. All the best.