PATRICIA KARVELAS:
Jim Chalmers is the Federal Treasurer and he's on a tour of regional Queensland and he joins me from Bundaberg this morning. Treasurer, welcome back to the program.
JIM CHALMERS:
Thanks very much, Patricia.
KARVELAS:
Former treasurer Peter Costello has backed former RBA governor Ian Macfarlane's criticism on changes to the RBA structure. He says it won't deliver better outcomes, but it will diminish accountability. Is that the risk here?
CHALMERS:
Obviously not and I'm not going to reflect on Peter Costello personally or his motivations here. I've got a good, respectful working relationship with him. I talk to him from time to time, including as it turns out in the last few days. His intervention here is quite bizarre and quite wrong because the makeup of the decision‑making board after the changes that are implemented is the same composition as before the changes are implemented. Indeed, the same structure of the Reserve Bank Board that he presided over when he was in my job as treasurer. So what we're seeing here is unfortunate. It is bizarre and wrong to suggest that somehow there's some kind of radical change being proposed here. There are six external members right now on the decision‑making board, there'll be six external members afterwards. That won't change even as we move to implement the recommendations of the review.
KARVELAS:
You say you talk to him from time to time and in the last few days – why did you talk to him in the last few days?
CHALMERS:
He's the chair of the Government's Future Fund. So from time to time, whether it's Katy Gallagher or myself, I think people would expect us to engage with him from time to time on Future Fund matters. Occasionally on other matters as well, that's pretty routine.
KARVELAS:
Okay, on that issue, Peter Costello's second term as chair of the Future Fund will end this year. Is he staying on?
CHALMERS:
It comes up next year but we're obviously engaged with him and more broadly as well. There are actually a couple of opportunities at the Future Fund when it comes to board appointments and the like to refresh the Future Fund. Obviously I'm not going to go into Peter's role there at the Future Fund. We'll make an announcement about that in due course, probably not before long, and that announcement will come from both of us when it's ready. So I'm not going to speculate about that or pre‑empt that.
KARVELAS:
Have you talked to him about it?
CHALMERS:
Obviously, we engage on matters about the Future Fund board.
KARVELAS:
Has he asked for another term?
CHALMERS:
I'm not going to get into that Patricia. There'll be an appropriate time to talk about that publicly, but for the time being, I think it's important to recognise that there is more than that opportunity to refresh the Future Fund board. It's an incredibly important institution, one that we value. I pay tribute to Peter Costello for setting it up as treasurer. It does help us meet some of the Commonwealth's liabilities. It has been performing relatively well over time. That's a good thing. We appreciate that. We're grateful for that. There's a couple of board appointments that we need to make – one very soon, and one before the end of the year, and that will give us the opportunity to make sure we've got the right combination of skills on the fund's board.
KARVELAS:
Okay, the RBA will have a governance board and a monetary policy board. Back to Peter Costello's critique that you've obviously pushed back on – does one take precedence over the other? What happens if their decisions conflict?
CHALMERS:
The decisions on interest rates are taken by the monetary policy board in a very similar way that the existing board takes those decisions. And I think one of the other kinds of incorrect things that has been said or implied, whether it's Mr Macfarlane or Mr Costello, is that somehow the current RBA board is an advisory committee whereas the new monetary policy board will be a decision‑making group. Former governor Phillip Lowe has himself said, and anyone who thinks about the Reserve Bank knows that the current board makes the decision about monetary policy, the future monetary policy board will take decisions as well. And what we've tried to do with the review, is to strengthen the way that the board comes to these decisions, make it accountable, make sure there's the right combination of expertise, the right kind of support to external board members – but they'll still be six, there were six before and there'll be six after that will take decisions about interest rates.
KARVELAS:
But what happens if their decisions conflict?
CHALMERS:
Obviously the legislation will detail the relationship between the two boards. The governance board is to run the bank, the monetary policy board is to take decisions about interest rates. This is not uncommon around the world. There are other central banks around the world that do it this way.
KARVELAS:
Because Peter Costello says this is untested.
CHALMERS:
He's wrong about that too. Unfortunately, he's wrong about that as well. Other countries have two boards. There's actually the payment system board as well, and the legislation will make very clear how the two boards interact, or three boards interact, and that's appropriate, and it's not unprecedented.
KARVELAS:
I want to move to inflation. What does this latest rise mean? Why have we seen an uptick in the essentials like housing and petrol?
CHALMERS:
First of all, I think it's important to remember, and I said this last week before yesterday's numbers came out, that the monthly gauge is volatile. It can bounce around, one or two factors can have a really big impact in the monthly numbers, and if you strip away the volatile items, it's a slightly more encouraging picture. But the big driver in the numbers that came out yesterday is obviously petrol, and that won't be news to any of your listeners who are in the car right now. People have seen at the bowser that petrol prices have come up, that's largely a consequence of a global shortfall. The oil producers have cut back and when they do that, there are issues with supply and that pushes the price up, and the war in Ukraine is not helping.
KARVELAS:
Might we need an intervention like we've had in the past, that's expired, again?
CHALMERS:
It's not something that we're currently contemplating and one of the reasons for that is we've got a much better way of providing cost‑of‑living help for people. And we are literally right now rolling out billions of dollars in cost‑of‑living support and we're doing that in a way that takes some of the edge off inflation rather than adding to it. If you look at those inflation numbers that we've seen in recent times, for example electricity prices went up 4.7 per cent, but without what we're doing with our energy price relief plan, they would have gone up almost 20 per cent. And so that's a good example of where we're providing this help. It's our number one priority to help people deal with these cost‑of‑living pressures. And that's costing billions of dollars, but it's money well spent. And it's being delivered in a way that takes some of the edge off inflation without adding to it.
KARVELAS:
Might it put pressure, this inflation rate, on the Reserve Bank to increase interest rates next week?
CHALMERS:
Obviously I'm not going to pre‑empt the way that they come at this but historically what the Reserve Bank tries to do is to understand the overall direction of travel. Quarterly inflation peaked before the election last year, the March quarter, in annual terms around Christmas time. And so the direction of travel has been really clear – inflation is moderating overall. We'll get these bumpy and lumpy figures, month to month from time to time, but it's moderating overall. The direction of travel is pretty clear. We want it to moderate faster, we understand that people are under serious pressure right now in their household budgets, and that's why we're providing this relief. But overall, I think the Reserve Bank would look at the fact that inflation has come off substantially since its peak last year and if you look at some of the issues like consumption and household saving, and some of this other data that they monitor closely and I monitor closely, you can see that these interest rate rises that are already in the system are biting pretty hard.
KARVELAS:
If you're just tuning in, you're listening to RN breakfast and our guest is the Treasurer Jim Chalmers. Jim Chalmers, you're about to update the Reserve Bank statement of expectations. Are you going to put a specific target in there for unemployment?
CHALMERS:
What we've said about unemployment and we've welcomed the Reserve Bank support for this, the Governor of the Reserve Bank and I work closely together on issues around full employment. We've had a number of discussions about the White Paper on Jobs and Opportunities that I released earlier in the week in Adelaide and then I've been talking about right throughout regional Queensland. And we see the technical assumption that the Reserve Bank uses – the non‑accelerating inflation rate of unemployment – we see that as distinct but complementary to what we are proposing here. There's the necessary important measure that the Reserve Bank uses, but distinct from that is our broader objective to try to make sure that everyone who wants a job can find one without looking for too long. And in that respect, what we're trying to do is to drive unemployment down over time. The Statement on the Conduct of Monetary Policy will come around the same time or just after the legislation for the Reserve Bank review goes out and that legislation will make it clear how we clarify that –
KARVELAS:
Because it's open to you to put a specific target in there, Treasurer, to make the RBA really accountable? I mean, they're accountable on inflation.
CHALMERS:
We've made our objective clear. We've said we're not proposing to change, for example, the target rate of inflation. We understand that they have a view about where full employment sits right now, as does the Commonwealth Treasury. The Treasury says about four and a quarter, the Reserve Banks is around that, maybe slightly higher. They've made that clear, we understand that. But what I'm trying to convey to your listeners, Patricia, is there are two different things here. There's the near‑term, technical term that you and I have discussed on a few occasions on your show, and then there's the Government's broader objective, and the White Paper is really about that broader objective. And so what we'll see captured in the legislation, and in the way that the Government interacts with the Reserve Bank is to understand that there are two distinct but complementary things at play here: the short‑term and the longer‑term, broader objective. We don't intend to put a number on that broader, longer‑term objective because what we want to do is we want to drive full employment down over time, we want to get better at getting unemployment lower without putting pressure on inflation, and that's what so much of the Employment White Paper is all about.
KARVELAS:
Just very briefly, Barbara Pocock says there needs to be a proper regulatory structure to keep firms like PwC in check because the current system is not transparent or accountable. Will you do that?
CHALMERS:
What we're doing with PwC – and obviously, this reflects the substantial anger that I share with the broader Australian community about what's going on here – but there are two large blocks of work, in addition to the AFP referral, in addition to Katy Gallagher's good work on procurement. There's really two pieces of work in my patch. The first bit is the near‑term stuff about penalties and regulators and the tax office – and that's out for consultation right now, that legislation. We've moved very quickly on that. And then there's a medium‑term piece of work, which I think is what Barbara is talking about, which is how do we get the broader regulatory settings right. This industry plays a big role. We want to make sure that it's well‑regulated so the kind of very disappointing developments we're reading about in the papers each day when it comes to PwC, we need to deal with that so that doesn't happen again.
KARVELAS:
Treasurer, thanks for joining us.