Patricia Karvelas:
Returning to the Reserve Bank’s decision to cut rates, I want to bring in the Treasurer, Jim Chalmers. Treasurer, welcome to the program.
Jim Chalmers:
Thanks, Patricia.
Karvelas:
Treasurer, this is the third rate cut this year. How meaningful is the relief this will provide to households that have been burdened with the cost of living?
Chalmers:
It’s a really welcome decision by the independent Reserve Bank. As you rightly point out, this is the third interest rate cut in the space of just 6 months. And what it means is if you owe $700,000, it’s about an extra $110 a month off your mortgage. $330 a month off your mortgage if you put the 3 interest rate cuts together, about $4,000 a year. And so we don’t pretend that one or even 3 interest rate cuts solves every challenge in the household budget or every challenge in the Australian economy. But it is certainly meaningful help and it’s welcome in that regard.
Karvelas:
Is this the decision the Reserve Bank should have made a month ago?
Chalmers:
Patricia, you and I have been hanging out for a long time doing interviews like this, and you know that I wouldn’t go anywhere near second‑guessing decisions taken independently by the Reserve Bank. Today’s decision is very welcome. It’s a decision that people expected. It’s the decision that people needed. It will put more money into the pockets of millions of Australians and that’s a very good thing.
Because we recognise we’ve made all this progress together as Australians. We’ve got inflation down, real wages growing again, interest rates coming down, got the debt down, unemployment is low by historical standards. But people are still under pressure, the global environment is still uncertain, growth in our economy is not what we need it to be and we’ve got these persistent structural issues in our economy as well.
What this rate cut tells us today is that we’ve got inflation down. We’ve made good progress there. It gives us confidence that we’re on the right track, but also the confidence now and the platform now to deal with the global uncertainty which surrounds us and the big economic challenges which confront us.
Karvelas:
Well, let’s go to the challenges because they are clearly articulated in the Reserve Bank’s statement. The statement on Monetary Policy forecasts showed downward revisions to household consumption, a big reduction in business investment, and also economic growth, productivity too. These metrics must worry you enormously.
Chalmers:
Overwhelmingly, we’ve been making good progress in our economy, but there are elements of the data which are concerning. We’ve said, I think I said a moment ago, I’ve certainly said earlier today that our economy is not growing as strongly as we would like it to. And one of the big persistent structural issues we’ve had in our economy for 2 decades now, is that it’s not productive enough.
And productivity matters because it’s the main driver of living standards, so that workers who work hard can get ahead and provide for their loved ones. And so, the Reserve Bank has changed their productivity assumption today. That’s attracting a lot of attention. The Reserve Bank Governor herself said the main news today is actually the rate cut –
Karvelas:
She said that –
Chalmers:
Not the productivity assumption, but –
Karvelas:
But I think the reason people are focusing on the productivity assumption is that it’s an enormous shift. It’s not something small, and I want to read from the RBA statement on productivity. The bank says that for some time, our forecasts have implicitly assumed that productivity growth was temporarily weak and would gradually return to and be sustained at higher historical rates. More often than not, this has not eventuated.
Treasurer, doesn’t that statement mean that low productivity growth, the bank has told us, is now baked into the system, that it’s persistent, that it’s not a temporary issue?
Chalmers:
I’ve made the point, including in this interview, Patricia, that our productivity challenge has been structural. It’s been a feature of our economy now for the last couple of decades. The Reserve Bank makes that point today. We’re not talking about a challenge which has emerged in the last couple of years, but over the last couple of decades. It’s also a challenge that is being felt in almost every comparable economy around the world.
And so, it’s a very serious challenge. We’ve made it a very high priority to address it. We know that you can’t turn around a 2‑decade problem in a couple of years, it takes time. But we’ve put it at the very centre of our economic strategy, turning around this poor productivity performance.
The weakest decade that we’ve had for productivity growth in the last 50 or 60 years was actually the Coalition decade just finished. So, we inherited a very substantial challenge. We’ve put it at the centre of our efforts. But we’re realistic about how long it will take to turn around because, as you rightly point out and the Reserve Bank has pointed out, it has been baked into our economy for too long.
Karvelas:
It’s been baked in, there’s no doubt about it. I’m just wondering if you see this assessment in the Reserve Bank’s statement and the Reserve Bank’s Governor’s comments when she was quizzed about this persistently, as you noticed too. Does this mean that this is kind of alarm bells, emergency level of intervention that your roundtable has to come up with next week? Given I think the Reserve Bank has made it crystal clear today that productivity is a bigger emergency than I think some Australians would have realised.
Chalmers:
I wouldn’t use exactly those words, but certainly it’s a priority. It’s the main focus of the Economic Reform Roundtable that I’m convening next week. Primarily focused on productivity, but also on economic resilience and budget sustainability. If you could fix one thing in our economy over the medium and long term, it would be this productivity challenge, which has been a feature for too long. And so I’ve said publicly on a number of occasions now, our economy is not productive enough. What the Reserve Bank said today is consistent with that.
There’s a difference between how the Reserve Bank does its productivity assumption and how the Treasury does. The Reserve Bank looks over the next couple of years, the Treasury looks over the next decade or so. But broadly, everyone’s on the same page. In all of the many conversations and consultations that I’ve had in the lead up to the roundtable, everybody understands we’ve got a productivity challenge. The best way to deal with that is together and over time, and that’s why it’s the main focus of next week.
Karvelas:
You make the point that Treasury and the RBA have a different way of estimating it, 10 years or over a few years. But is there anything meaningful in the difference in terms of the level of alarm that we should have in relation to productivity growth and what the economy needs to do, reforms that are needed to actually shift the dial on it?
Chalmers:
Again, I wouldn’t use the word that you just used, Patricia. But certainly it’s been obvious, I think, for some time that we don’t have the productivity growth that we need in order to make the economy grow strongly and sustainably over time. That’s why I’ve gone to great lengths, particularly since the election, but before that as well, to put productivity really at the centre of the government’s agenda.
I think the priority setting for the Economic Reform Roundtable next week reflects that as well. It’s not a surprise that we have a productivity challenge. It was one of the defining features of the last decade under our predecessors. It remains a challenge in our economy, and it remains the primary focus of our efforts from here.
Karvelas:
And so, returning to today’s interest rate cut, it was James Paterson, the Shadow Finance Minister, a little earlier, who said there have been 12 interest rate rises under your watch. Now only 3 cuts. That’s how he kind of quantified the material position that Australians are in. Does he have a point? I mean, 3, obviously that’s, that’s relief for many, but it’s, it’s a far cry from where people were at.
Chalmers:
First of all, they always ignore the fact that interest rates started going up on their watch before we were –
Karvelas:
– that would be the 13th. Fair enough.
Chalmers:
But I mean, they always conveniently forget to mention that, Patricia. But on the broader point, they didn’t want rates to be cut today. They’ve got no ideas, they’ve got no idea. And so they think that their best hope is for people to be under more pressure, not less pressure. And so, they say they welcome this decision today, but I see no evidence of that. They would have rather interest rates stayed at 3.85 per cent.
They actually said in the election campaign that if Labor won the election, interest rates would go up. They’ve gone down a couple of times since then, and I think that goes to their lack of credibility. And when you think about this negativity that we’ve seen from them today on what should be good news for millions of Australians with a mortgage, this negativity shows that they haven’t learned a thing from the last election or the last term of the parliament.
Karvelas:
And so, the Shadow Treasurer, Ted O’Brien, has claimed the interest rate cut demonstrates the Reserve Bank does not support Labor’s management of the economy. He described it as a unanimous vote of no confidence in the government. What’s your response to that?
Chalmers:
I didn’t think they could find someone with less credibility than Angus Taylor, but they’ve managed to do that as Shadow Treasurer in Ted O’Brien. I thought it was frankly an absurd comment that will do him no good and do his credibility no good. If he was a half‑decent Shadow Treasurer, he would have properly welcomed this, not just pretended to have welcomed it. And he would grasp the opportunity that I have provided him to play a constructive role in the way that Australia gets around and meets the moment when it comes to these big economic challenges.
I thought his press conference today was a disgrace, frankly. He should be properly welcoming interest rate relief for millions of Australians. He didn’t want to see rates cut today, and I think all of his words today were dripping with disappointment that rates were cut today for the third time this year under Labor.
Karvelas:
It seems that a lot of the banks are passing on the interest rate cut. The National Australia Bank is the final major bank to say it will reduce mortgage rates by 0.25 percentage points. Did you call the bosses of the big banks and have a chat with them?
Chalmers:
Not on this occasion, but I knew quite early that that was going to be the case, and so it wasn’t necessary for me to call them. They indicated to us in very good time, and I appreciate it. We want to see every one of these basis points in interest rate relief passed on to customers that desperately need and deserve it. Australians are still under pressure despite all the progress that we’ve made together, and we want to see them get the full benefit of this very welcome third interest rate cut in the space of the last 6 months.
Karvelas:
Treasurer, great to have you on the show. Thank you.
Chalmers:
Thanks, Patricia.