PATRICIA KARVELAS:
Jim Chalmers is the Treasurer and he joins me now. Treasurer, welcome back to Breakfast.
JIM CHALMERS:
Thanks Patricia.
KARVELAS:
In the central bank statement yesterday there was a clear shift in their words. Last month, they wrote they expected further increases ‑ those two words ‑ in rates. But this time the statement refers more generally to a tightening of monetary policy. What do you read into that?
CHALMERS:
Well, I think there was a softening in the language in the Reserve Bank statement. I try not to be the kind of main interpreter of the Governor's words ‑ he's capable via the Board and via yesterday's statement of communicating the intentions of the Reserve Bank. Yesterday's decision will really tighten the screws on household budgets, I think that's very clear. A lot of people are already doing it very tough and it will make life a bit harder and so people do pay a lot of attention to the words in these statements for understandable reasons. I'm not going to make predictions about what might happen in the future when it comes to interest rates but I know that these interest rate rises which began before the election and continued after are putting a lot of pressure on people.
KARVELAS:
This is the ninth raise on your watch. People are doing it tough. And I have a few texts saying well, we're tired of hearing from the Treasurer we know you're doing it tough. We want action. What is the government prepared to do to help families?
CHALMERS:
Well, we're acting on three fronts. The three main parts of our economic plan are all about trying to get on top of this inflation which is pushing up interest rates. The Reserve Bank takes its decisions independently and we've got a different job to do and our job is about providing cost of living relief where we can, where we can do that responsibly and affordably and methodically without adding to inflation. It's also about repairing our broken supply chains. A big part of the story in inflation, in addition to what's coming at us from around the world, is what's happening in our supply chains. And the National Reconstruction Fund before the Parliament is a big part of that story. And thirdly, it's showing restraint in the Budget. We are trying to be really responsible in the Budget, only investing money where we think there will be a decent economic dividend and we get genuine value for money. And that combination of relief, repair and restraint are the three best things that a government can do in this circumstance. And that's what we are doing.
KARVELAS:
Do you think the RBA's approach though has been too aggressive, too blunt? Are you concerned about the situation families find themselves in and because of that blunt, aggressive approach?
CHALMERS:
Obviously I'm concerned about the position that Australians find themselves, particularly Australians with a mortgage. I think it's very clear as I said at the outset that these rate rises do tighten the screws on household budgets. We hear from people right around the country who are doing it especially tough as interest rates rise. I think that's self‑evident. When it comes to the decisions taken by the Reserve Bank as I've said to you probably most times we've spoken in the last nine months or so, I'm not going to take shots at them and I'm not going to second guess them or make predictions about them. I've got my own job to do in those three main areas and that's what I'm focused on.
KARVELAS:
The RBA Governor Philip Lowe will meet representatives of Suicide Prevention Australia, that's the peak body that's raised the alarm about a surge in people reporting elevated distress over cost‑of‑living pressures. This is not some sort of academic or just let's have a discussion on radio conversation. If people are saying that they are thinking of taking their own lives, this is really serious. Is it acceptable, that we're in a situation where we're seeing those distress calls raised to these lines? Surely, as a government, you're completely alarmed about where this is going?
CHALMERS:
Obviously, yes, when people are under extreme financial pressure, that has implications for their wellbeing more broadly. I think that is understood. And I'm sure that the Governor in accepting that meeting understands that too. What we want to do as a government is make life a little bit easier for people where we can, whether it's with energy bills, whether it's with cheaper early childhood education, cheaper medicines, trying to get wages moving again, financial security is a big part of what we're focused on, particularly when these cost‑of‑living pressures are so acute.
KARVELAS:
What has this approach that the RBA has taken shown us? You're waiting for a review into the central bank, does this change in tack by the bank influence the outcome of that?
CHALMERS:
Well, no the Reserve Bank review is about the structures and objectives and processes for the making of monetary policy, the decisions about interest rates and financial stability and price stability more broadly in our economy. It's never been about one interest rate decision or one set of interest rate decisions, never been about one person or not. It's been about making sure we've got the right kind of institution into the future. I've always tried to avoid making it about this recent tightening cycle in interest rates. It's about a broader, more substantial look at –
KARVELAS:
Sure but the ACTU says the RBA model is broken. Is the entire model broken? This blunt instrument they have and they say it's their only instrument, is the model itself broken?
CHALMERS:
Well, let's see what the Reserve Bank review says. There are elements of it which are important including the independence of the Reserve Bank, we shouldn't mess with that. But the review team is looking at things like how do they weigh up their objectives around fighting inflation, full employment, financial stability, what's the relative weight that they place on each of those objectives? And that's a big part, I think, of what the ACTU is talking about ‑ how do we balance wages growth, employment growth with fighting inflation and some of those other objectives? I'm confident that the review team has been looking at that and consulting widely on that. And I think it'll be part of their report.
KARVELAS:
The RBA is obviously doing what it can do. The Opposition and others say now it's your turn, your Budget is looming. Do you need to cut spending in the Budget and do more heavy lifting to lower inflation?
CHALMERS:
We need to show restraint like we did in October. In October we got an upward revision to revenue because we got good commodity prices and low unemployment. And what we did in October is we banked 99 per cent of that over the two years where inflation was most acute and we will bank most of any revenue upgrade that we get in May as well. So restraint's important. But also, in addition to the magnitude of the spending which does matter in times like these, also the quality of the spending matters. And so making investments in areas like cheaper early childhood education, or taking some of the edge off energy bills, some of those investments actually help address the inflation problem rather than exacerbate it. So it depends what kind of investment you're making in the Budget, not just the magnitude of money that you are investing.
KARVELAS:
Okay, but do you need to look even further at pulling back spending in the Budget? Is that what you're currently trying to do?
CHALMERS:
We will do that in every budget, we will look for areas where we can trim spending –
KARVELAS:
But we've just had nine interest rate rises on your watch as a government. So obviously inflation, the inflation dragon, we've heard all the sort of elaborate language of what it is, it needs to be tamed. Does that mean you need further cuts in your Budget to take money out of the economy?
CHALMERS:
That's what I was telling you, Patricia, that in every Budget, we look for opportunities to trim spending more substantially. And we found more than $20 billion in savings in October, we are looking to trim spending in May as well. That's an important part of spending restraint, which is an important part of our three part strategy to deal with this inflation in our economy.
KARVELAS:
If we look overseas, the US Federal Reserve Chair Jerome Powell just told the US Senate Committee the central bank might have to increase rates at a higher level than expected due to strong economic data in the US. If the Feds keeping increasing rates, will Australia be forced to do the same given that's often how it works?
CHALMERS:
One of the things that people who watch interest rates in the US and in Australia do watch closely is the differential between interest rates there and here. But they also look more broadly at the differential in what's called the trade weighted index of the various countries and what their monetary policy position is. That does have an impact, for example, on our dollar and a couple of other key parts of our economy. So people do watch that closely, it's not quite an automatic relationship but they watch it closely. Because whether it's the Americans or the other big economies that matter most to us, what happens overseas is not completely irrelevant to what happens here.
KARVELAS:
China, meanwhile, has just set out a lower than expected GDP growth target as it comes out of those pandemic lockdowns. If their economy is weak, how does that affect us?
CHALMERS:
Obviously, it has big implications for us. We saw with the massive pressure on supply chains in that COVID wave over Christmas, that was a very troubling development for us given our reliance in lots of ways on supply chains that have Chinese involvement. And when the Chinese economy is growing very strongly, that's obviously very good for a lot of our commodity exporters in particular, but more broadly too, so that's another thing we watch very closely. Last year, I think, people were even more pessimistic about China. There was a kind of a burst of optimism at the start of this year, which I broadly share about China, but those numbers that came out the other day have obviously been a focus for a lot of people too.
KARVELAS:
You've called inflation the dragon that must be slain. Now you're avoiding support for cash handouts to some of the most vulnerable, to stop inflation getting worse. I think most people understand the thinking behind that. But stage three tax cuts are still on the table and due to begin next year. I just want some clarity from you, do you think they're inflationary?
CHALMERS:
It depends on the broader economic circumstances at the time. And in the middle of next year, we expect inflation to have moderated relatively substantially compared to the peak over last Christmas.
KARVELAS:
But it won't yet be in the target range, will it?
CHALMERS:
Not in our expectation, not in the current forecasts, but those forecasts will evolve as we learn more about the economy, when you get closer to that period. But it depends more broadly what's happening in the Budget, and as you rightly point out, those tax cuts are still more than a year away.
KARVELAS:
I do point it out because they are, but that's also close, and unless there's a miracle, I can't see inflation being slain. That dragon is going to be sort of walking around breathing fire like dragons do. So can you really justify people getting all of that extra cash in their pockets?
CHALMERS:
As you know, Patricia, we haven't changed our view on it –
KARVELAS:
But are you worried about the inflationary pressure?
CHALMERS:
Let me explain why I think that's important. We think inflation has peaked. There's encouraging signs that it has, it remains to be seen, but we think it has over Christmas. Inflation will moderate over the course of the next 12 to 18 months, we would like it to moderate quicker, as quickly as possible. That's the thing that's putting pressure on households and pushing up interest rates. We will update, we will revise our forecasts or Treasury will for inflation in the May Budget as well. It has been stubborn and has been higher than we'd like for longer than we'd like, we expect that to continue. When it comes to decisions around future budgets, we haven't changed our view on those tax cuts, we'll make decisions as we go, but we're focused on this Budget this May.
KARVELAS:
I know, but if you get advice saying these tax cuts are inflationary, does that put onus on you to act, to change course?
CHALMERS:
It depends on what else is happening in the budget and what else is happening in the economy. Let me explain –
KARVELAS:
But if you're told, is the onus on you as the Treasurer to say, well, I can't be pumping more money into the economy?
CHALMERS:
The point that I'm trying to make is that at some future point, the government's focus and I think the country's focus, will shift from getting on top of inflation to try and grow out of what will be probably a substantially slower economy. And the point that I'm trying to make is that the decisions that we are focused on are the decisions in this May Budget ‑ trying to provide some cost‑of‑living relief, trying to fix our supply chains, trying to show restraint. The tax cuts that you refer to are a couple of budgets away.
KARVELAS:
They're only next year.
CHALMERS:
We don't know what the conditions will be at that time. At some future point, the country's focus will shift from inflation to growth and we will weigh up all of those things at the time.
KARVELAS:
Are you embracing a socialist agenda? Peter Dutton says you are.
CHALMERS:
He's getting more and more ridiculous every day. We finally found someone who's more negative than Tony Abbott, more divisive than Scott Morrison and more ridiculous with every passing day. He is the poster child for the sorts of politics that Australians rejected in May and he seems to have learned nothing from that. These ridiculous scare campaigns and this kind of hyperventilating hyperbole every day, I think, just reminds people that he's learned nothing from the last wasted decade of needless conflict.
KARVELAS:
Treasurer, thanks for your time.
CHALMERS:
Thanks Patricia.