Patricia Karvelas:
For more on where today’s data leaves the government in its approach to fighting inflation, I spoke to the Treasurer, Jim Chalmers, a short time ago.
Jim Chalmers, welcome to Afternoon Briefing.
Jim Chalmers:
Thanks very much, Patricia.
Karvelas:
Interest rates increased yesterday and more on the horizon, underlying inflation stagnant today. How much more can the Australian people absorb?
Chalmers:
Well, it is the case that underlying inflation was steady today at 3.6 per cent, and we know that headline annual inflation went up because of – overwhelmingly because of the global oil price playing out in bowsers around the country. But from month to month we actually saw both underlying and headline inflation at least halve when you compare July with August.
But overall, of course, we do have an inflation challenge in our economy, it is made much worse by developments in the Middle East, and we know that that’s putting additional pressure on people, as will the decision taken yesterday by the independent Reserve Bank.
And that’s why so it’s important that we continue to manage the budget in a responsible way, roll out that cost‑of‑living help, and also deal with some of those longer‑term challenges in our economy like productivity.
Karvelas:
Yeah. Well, productivity was identified yesterday by the Reserve Bank Governor as overwhelmingly an issue. In fact, she really rebuked the progress on productivity, she said she’s not the productivity tsar. But you kind of are. So what are you going to do to shift the dial beyond what you’ve already announced in the Budget, cause clearly, there isn’t any movement?
Chalmers:
Well, I don’t think anybody expected movement immediately in the productivity data from a Budget announced in May, where we’re implementing – working very hard to implement those major measures. But we take the productivity challenge much more seriously than our predecessors ever did.
We’ve got the biggest and broadest productivity package in the Budget that we’ve seen for some decades: faster approvals, cutting compliance costs, all of the different ways that we’re acting on this challenge, which has been a feature of our economy, not for the last couple of years, but for the last couple of decades. It will take some time to turn it around.
But we agree with the Governor’s diagnosis that until we get productivity up, then it will be harder to lift living standards and real wages, to lift the speed limit in our economy so that we can grow faster with low inflation. That’s our objective here, that’s why we’ve got the big productivity package in the Budget, and we’re working very hard to implement it.
Karvelas:
So is the message on that – I’m just reading between the lines – that we need to be patient on productivity, or do you need to do new things, Treasurer, to try and accelerate progress on productivity, given, as you say, living standards will not go up and we know that, unless you shift this?
Chalmers:
Well, the real wages story and the living standards story is dependent on us getting inflation down to more normal levels. Obviously, inflation is too high for the time being, we need to see it get back down to more normal levels, and that’s why we’re taking the steps that we are in the Budget, it’s why the Governor took the steps that the board took yesterday in coming to their decision independently.
But when it comes to productivity, of course we’re always in the market for sensible, responsible, additional things that we can do to boost productivity in our economy. As I said, it has been a challenge for too long, we are taking it seriously, even if our predecessors did not.
So we’re working very hard to implement, including some of those new initiatives in the Budget, which was only a few months ago, to make our economy more productive over time because that is the best way to lift living standards and lift real wages in the years ahead.
Karvelas:
Just in terms of how to tackle inflation and the government’s responsibility, the bit that’s your responsibility, if the Middle East war is out of your control, and I think most people accept that, don’t you need to take more drastic action to account for that on the domestic front?
Chalmers:
Well, we have to weigh up all of the considerations, including these pretty substantial global pressures and make sure that the budget is as responsible as it can be, and it is, to make sure that we’re rolling out cost‑of‑living relief in an affordable way and to make sure we’re dealing with these longer‑term challenges that you and I have been talking about today.
That’s the most responsible combination of steps, and that’s really the core of the budget: fuel security, cost of living, productivity, tax reform and budget repair were the essential elements of the Budget in May. We’re working very hard to bed all of that down because those are the most important things that we can be doing to deal with the combination of economic challenges that we have right now.
Now if you look right around the world, you know, the major advanced economies are seeing inflation come up, they’re seeing interest rates coming up or about to come up right around the world, and so we’re not immune from that, we understand that. That’s why our economic plan in the budget, that’s why the steps we’re taking to make the budget bottom line much stronger than what we inherited, why all of that’s so important, at the same time as what we’re seeing in our economy is public demand coming off quite substantially. In fact public final demand growth in the budget numbers that we released on Monday showed that it’s coming off quicker than expected.
And so, when it comes to the pressures in our economy, obviously our economic strategy is about dealing with those challenges in our economy, global and domestic.
Karvelas:
Yeah.
Chalmers:
But if you look at today’s inflation data, you can see the damage being done by this war on the other side of the world.
Karvelas:
Yeah. Michelle Bullock addressed this issue. She said in her press conference after the rate decision yesterday that high inflation had been driven by, and I quote, domestic capacity pressures. And of course, the Middle East was mentioned, there’s no doubting that, but it’s in addition to that.
In terms of what the Reserve Bank Board looks at, it is very much on this domestic front, and on that issue, the domestic capacity pressures are an issue. You’ve already mentioned the public part of that, you say it’s coming down. But do you accept that it needs to come down a whole lot faster if you’re going to tackle inflation? Which has been persistent, which is a society killer, and is absolutely, you know, demolishing, I think, the sort of sense of happiness around the community. You know that, don’t you need to act faster rather than this long period of waiting and waiting people have been doing?
Chalmers:
Look, I do accept that there is always more work to do to make the budget more responsible, to make sure that we’re limiting spending where we can and improving the bottom line where we can. In fact, if you look at the 4 and a half years of this government, in every budget and budget update we’ve found savings, $180 billion almost in all to improve the bottom line and make room for key investments in areas like bulk billing and Medicare or providing cost‑of‑living help or investing in public hospitals.
And so it will be – it has been a defining feature of this government, it will continue to be a defining feature of this government to –
Karvelas:
But don’t you have to put the foot –
Chalmers:
– manage the budget in a responsible way.
Karvelas:
– on the accelerator on that? I get all that. I know what you’ve done, but clearly we’re still stuck, we’re stuck in an inflation cycle where people can’t see – can’t see the end. So don’t you need to put your foot absolutely down on the accelerator to try and smash this thing now?
Chalmers:
Well, we need to balance that against all of the other considerations as well, making sure that we’re providing decent Medicare, because more bulk billing means less pressure on family budgets and pensioners.
So, there are a whole range of considerations and interactions that responsible governments like ours consider when we put budgets together, but overwhelmingly, the story of our time in office has been delivering a couple of surpluses, getting the deficits down, $200 billion less debt than the trajectory that we inherited, finding savings, banking upward revisions to revenue.
We’ve been managing the budget in a much more responsible way than our predecessors. I’ve acknowledged today and on other occasions, of course there’s always more work to do to make sure the budget is as responsible as it can be.
The other point you raised in your question, Patricia, was around the sources of inflation in our economy and Governor Bullock’s comments yesterday.
Governor Bullock’s comments yesterday were entirely consistent with what I said before and after the decision that they announced –
Karvelas:
But it’s about emphasis.
Chalmers:
– and that is that we do have an inflation – no, but we do have an inflation challenge in our economy. That inflation challenge is made worse by the war in the Middle East. Today’s inflation numbers make that abundantly and overwhelmingly clear. And what I said is consistent with the statement that the Reserve Bank Board put out announcing their decision consistent with what the Governor said in her press conference as well.
And a lot of the commentary in the last 24 hours or so has either deliberately or accidentally ignored the statement that was put out by the Reserve Bank Board, which made multiple references –
Karvelas:
It did.
Chalmers:
– to the pressure –
Karvelas:
I agree with you.
Chalmers:
– being put on inflation –
Karvelas:
But it’s about emphasis.
Chalmers:
– from the war in the Middle East.
Karvelas:
I’ve studied it, as you’d expect me to, to see is there a contradiction or not?
Chalmers:
And the statement emphasised – the statement –
Karvelas:
So it’s about the emphasis. Your emphasis is the Middle East; her emphasis is the domestic capacity and that’s where people have, I think drawn what they call a contradiction. I accept both things have been said. Do you accept her case though that our domestic inflation problem is of primary concern?
Chalmers:
Well, first of all, Patricia, I’m talking about the emphasis of the Reserve Bank statement, and they emphasised developments in the Middle East. Now, when it comes to the Governor’s comments and my comments yesterday, and today for that matter, I’ve made it really clear over time and including in the last 24 hours, I do accept and understand we have an inflationary challenge in our economy, it’s made worse by the war in the Middle East. That is entirely consistent with what the Governor said.
And you asked me about their emphasis, I’m referring to the emphasis in the Reserve Bank Board statement, which made multiple references to developments overseas. And I think any objective observer understands that in addition to our domestic inflationary pressures we do have some very substantial pressure being exerted by this war in the Middle East, which has been from an Australian cost‑of‑living point of view, absolutely disastrous for Australian families.
And the Governor has referenced it, I have referenced it as well, and we all understand that when it comes to the fight against inflation, we’ve got the same objective here, the Governor and I, to get inflation down within the target band. We’ve got different responsibilities; I accept mine and I’m sure the Governor accepts hers.
Karvelas:
The Prime Minister this morning said there would be cost‑of‑living measures in MYEFO, and of course the next Budget after. Can you just clarify for us, as much as you can, I understand you can’t make all the announcements, what that cost‑of‑living relief will be exactly given we do have an inflation problem? You can’t put money in people’s pockets. What are you looking to do?
Chalmers:
Well, I think the point that the Prime Minister would make, and the Prime Minister and I’ve made repeatedly, is from budget update to budget update we take into consideration all the pressures on people and all the pressures and challenges in our economy and opportunities in our economy and come up with the most responsible combination of policies that we can.
I don’t think anybody’s anticipating that the mid‑year update will be some kind of major mini budget, but it would be entirely consistent with the way that we’ve come at all of our budgets and budget updates to consider and weigh up the fiscal pressures, the pressures on the budget, with the pressures on people right around this country in the context of the inflation which is hanging around longer than anybody would like.
Karvelas:
So how about the fuel excise cut? Do you think that’s unwise to look at that again?
Chalmers:
Well, we’ve made it really clear that that’s not something that we’ve been considering. You know, I know that our political opponents at the same time as they’ve called on us to spend less have announced more than $110 billion in new commitments just since the election, unfunded commitments, which would mean bigger deficits and more debt, and by their own logic, more inflation and higher interest rates under the Coalition than under Labor.
We have to be responsible, and we will be responsible, and you can see in our budgets we’re rolling out permanent ongoing cost‑of‑living help in the form of the tax cuts, more bulk billing, boosting wages, making the housing market fairer for first‑home buyers.
These are all of the responsible things that we are doing, not just to acknowledge the pressures that people are under but to actually act on them, and to do that in a responsible way which recognises the pressures on the budget at the same time.
Karvelas:
I started the interview asking you how much more can Australians absorb. I don’t get a sense about how the government feels about that. Do you think they can absorb much more, because the Reserve Bank Governor says at an aggregate level, you know, at that level that she looks at, they’re not really doing it tough, even though people at a sort of more, you know, family level, household level are. What’s your view?
Chalmers:
I’m not sure that’s exactly as Governor Bullock described it, I mean –
Karvelas:
She talked about the aggregate level –
Chalmers:
– the government’s made it clear that we understand that –
Karvelas:
– not being painful.
Chalmers:
Well, we understand that a lot of Australians are under serious and in some cases sustained pressure when it comes to the cost of living, that’s why, as I said, we don’t just acknowledge that, we act on that. The tax cuts are an important part of our response to that, bulk billing, wages and the rest.
It is all about understanding that a lot of Australians are under serious pressure. The decision taken by the Reserve Bank yesterday makes that pressure worse and harder for a lot of people, millions of people with a mortgage. That’s why we accept our part, our responsibility for our part of the fight against inflation, responsibly managing the budget, rolling out cost‑of‑living relief where we can afford to do that, and also dealing with some of these longer‑term challenges in our economy that you and I have talked about today and on a number of other occasions.
Karvelas:
Just finally on AI, Donald Trump has announced overnight the companies leading artificial intelligence have agreed to police themselves. Is that what we want?
Chalmers:
Oh, we’ve made it really clear from the Prime Minister down that we are putting substantial effort into managing and minimising the substantial risks posed by AI, because only by doing that can we capture the economic upside.
And so we’re going about this a different way, the safety institute’s part of that, the national standards that we’ll legislate, part of that, the rapid review into the OpenAI incident. All of this is about recognising, just like we have when there’s been other big developments in our economy through our history, there is an Australian way to go about these things. And from the Prime Minister’s leadership, the role of really almost the whole Cabinet, we’re working very hard to make sure that we respond to the very serious risks posed, and there are a number of different ways that we’re going about that.
We see that as absolutely essential to respond to the concerns that people have, the risks posed by AI in a way that lets us capture the very substantial economic upside when we get it right.
Karvelas:
Isn’t it futile, though if the, you know, our greatest ally, such a superpower like the US, says police yourself? I mean we can’t have much influence then, can we?
Chalmers:
Oh, we have some leverage. When it comes to, for example, the building of data centres here in Australia, we’ve made it clear the minimum sorts of standards that we would expect, to make sure that all of this change in our economy, accelerating change from technology is in our national interests, that it works for people, not against people.
So I do understand and accept your broader point, Patricia, that we don’t have total control over every element of this, but we do have some leverage. And the Prime Minister made it clear in that good speech he gave at the University of Sydney, Ministers Ayres and Charlton and Rowland and Burke and others, Rishworth, have all made it clear, I’ve made it clear that we intend to minimise the risks to the extent that we can so that we can maximise the opportunity posed by technological change, making sure that we can adapt and adopt it in the interests of our people and our economy.
Karvelas:
Treasurer, many thanks for joining us.
Chalmers:
Thanks Patricia.