PATRICIA KARVELAS:
The International Monetary Fund is warning that stronger than expected economic growth in the United States could mean interest rates stay higher for longer while Australia will see its lowest growth since the 1990s. The IMF released its latest forecast on global growth overnight suggesting that the focus is beginning to shift from fighting inflation back to boosting economic growth. But they’ve warned that an oil shock brought on by potential war in the Middle East could see inflation spike again and force central banks to lift rates.
The Federal Treasurer is Jim Chalmers, of course. He’s on his way to Washington for meetings with G20 ministers, and he joins us on the show before he goes. Treasurer, welcome.
JIM CHALMERS:
Thanks for having me back, Patricia.
KARVELAS:
The US is experiencing stronger than expected economic growth, including much higher‑than‑expected retail sales figures. Is the inflation dragon so persistent and strong that it’s just not being slayed?
CHALMERS:
I think certainly in the US where the economy has been outperforming for a long time now, outperforming people’s expectations, we saw inflation actually go up in the most recent data in the US. And that’s why the chairman of the Federal Reserve is talking about rates potentially being a bit higher for a bit longer in the US. We also saw overnight headline inflation went up in Canada. And so that is a reminder I think that we’ve got this tricky balance of risks in the global economy right now and, indeed, in our own economy. Inflation is still hanging around, but we’ve got growth slowing as well.
And I thought that was a pretty neat summary of the IMF report you gave in your introduction, Patricia. The way that I would describe it to your listeners is we’ve got inflation lingering in parts of the world. We’ve got growth slowing in China and elsewhere. We’ve got tensions rising in the Middle East and a war in Europe. We’ve got supply chains which are straining, and we’ve got a global economy which is fragmenting and transforming.
And so all of these factors are really important to us as we finalise the government’s third Budget. These global conditions are going to be a really big influence on our Budget. So the trip to DC, which will be a pretty quick visit – we’ll try and make the most of it – but it’s a good opportunity to take the temperature of the global economy because in the Budget what you’ll see is a real premium on responsibility in these conditions but also a real emphasis on economic security, and that will be the focus while I’m in DC.
KARVELAS:
You talk about Canada, you talk about the United States. I mean, we can’t live obviously on a planet on our own. That’s not how it works. So should we expect that interest rates will stay high for longer in Australia too?
CHALMERS:
I think you know what I’ll say about making predictions about future movements in interest rates –
KARVELAS:
Well, you don’t make those decisions, but given the economic conditions we’re seeing, what should households – people who hold these mortgages – expect?
CHALMERS:
We’ve certainly seen inflation come off pretty substantially in Australia. That won’t necessarily continue to come off in a perfectly straight line, but inflation is a fraction of what it was a couple of years ago when we came to office. That’s a good thing. We’ve got unemployment which actually went down in the most recent data. It might tick up a little bit on Thursday when we get the new numbers on the jobs market. We’ve got real wages growing. And so we’ve got a whole bunch of things going for us in Australia, but enough to concern us as well about the global conditions, about the way that people are still under considerable cost‑of‑living pressure and we’ve seen slowing growth in our own economy as well.
And so all of this global uncertainty which I’ve described to you is a big influence really – quite a big influence – on the Budget as we put the finishing touches on it. There’s mixed signals in our own economy. A lot going for us but a lot coming at us. And so what we’ll try and do in the Budget, there’ll be a premium on responsibility, there’ll be an emphasis on security, but we’ll also try and do what we did in the first 2, which is to really closely align our economic strategy, our economic plan and our Budget with the global and domestic economic conditions we confront, and that’s why it’s so important that we do these I think something like 19 meetings in less than 2 days in DC to really take the temperature of the global economy so that we can make sure the Budget is perfectly aligned with the conditions.
KARVELAS:
There’s global uncertainty over the situation in the Middle East. The IMF says a crisis could see prices and interest rates rise. How worried are you?
CHALMERS:
I’m certainly getting warnings from the Treasury economists and others about the potential impact of this really serious geopolitical uncertainty. A big conflict in Europe, Western Europe, combined with what we’re seeing in the Middle East – obviously that makes investors and other actors in the global economy a bit jumpy. And we expect a bit of volatility, whether it’s oil prices, stock markets, even things like the price of gold. And so we are receiving warnings about that. I am focused on that and concerned about that, but not just that. The slowing in China has been a big feature of our discussions as we put the Budget together. The fact that we’ve got to strike this balance between continuing to fight inflation in our own economy at the same time as we build the foundations for future growth, these are the sorts of influences that are on our mind, not just in DC but over the next few weeks as we finish the Budget.
KARVELAS:
You mentioned China. China’s property market is still a key concern. What’s the ongoing risk?
CHALMERS:
The property sector in China has been a really significant factor in the slowing of the Chinese economy. And obviously given the structure of our economy and our trading relationships with China, we’re not immune from the way that the Chinese economy has slowed considerably. Property is a big part of that, but not the only part of that. We’ve seen manufacturing a bit weaker. We've seen other indicators a bit weaker out of China, that most recent data on Tuesday notwithstanding.
And so for us that has implications in our budget for our forecasts for Chinese growth. At the moment we might be forecasting 3 consecutive years with the Chinese growth with a '4' in front of it. That would be incredibly slow by historical standards – probably the slowest 3‑year period since China began reaping the rewards of its opening up. We see that flow through to a lower iron ore price and commodity prices. And so all of these things that we’re talking about this morning, they are really front and centre as the Cabinet and the Expenditure Review Committee go through all of the decisions that make up our third Budget. These global conditions are really front of mind as we go about that work.
KARVELAS:
Treasurer, a couple of other issues: the Prime Minister, of course, last week talked about your Made in Australia policy and potential legislation. It really was talked about in quite a heavy‑handed government interventionist way. You’ve written a piece today for The Australian newspaper. You’ve written that governments would only pay for a sliver of the $225 billion in new investment needed to focus on these kind of key areas. It seems like you and the PM aren’t singing from the same song sheet in terms of the way this looks. I mean, you’re really talking down the government’s intervention role.
CHALMERS:
No, I don’t agree with that, Patricia, respectfully. I mean, in that piece that I wrote today and comments I’ve been making in recent times I’m saying that the public investment will be substantial and it will be really important. And I share completely the Prime Minister’s vision for a Future Made in Australia. I’m an enthusiastic part of the policy work that’s going on as we finalise the Budget elements of the vision that he set out in Brisbane last week.
The point that I’m making is that we want to incentivise more private investment, not just replace it. And a big part of the funding and financing task for the net zero transformation and for a Future Made in Australia, a lot of the heavy lifting will be done by the private sector. And I wanted people to understand that. Even with big investments in the Budget – and that’s what you will see – this will be a sliver of what we need to see to transform our economy, to make ourselves an indispensable part of the new global economy as it transforms to net zero.
KARVELAS:
I don’t mean to interrupt, but a sliver is the language, right? And we don’t know the sort of sum of the billions. Can you tell us what that actually will look like and when you use a word like “sliver” what you actually mean?
CHALMERS:
Let me put it this way – and I put it in that piece that you referred to that I published this morning in The Australian – we expect or analysts expect that the net zero transformation as part of a Future Made in Australia will cost hundreds of billions of dollars in this country. Now, obviously the Commonwealth budget is not in a position to provide those kinds of sums, but what we are in a position to provide is big, significant investments, and you’ll see that in the Budget. I’m enthusiastic about that but that will inevitably be only a part and potentially a small part of the total funding and financing that we need to see to make our economy more modern and maximise the opportunities that are before us.
KARVELAS:
Independent economist Saul Eslake says that the government is likely to waste taxpayers’ money propping up uncompetitive businesses. You’re obviously quite worried about that, too, aren’t you? I mean, there is incredible risk there.
CHALMERS:
We want to get value for money. And there have been a number of economists, many of them I listen to very closely and respect, who have made the point that we need value for money. I share that view. Obviously we do. We want to make sure –
KARVELAS:
Including the Productivity Commission that your former boss Wayne Swan slapped down the new commissioner that you appointed. Was that right that he did that?
CHALMERS:
I think he was making the point that we can’t ignore global developments. And I choose my own words –
KARVELAS:
Because his words weren’t very strategic, were they? They weren’t very polite?
CHALMERS:
I have my own words about that and my own perspective – and that is that we can’t ignore developments in the global economy. And when it comes to the points that Danielle Wood made, I thought they were important points as well – that we need value for money. We need robust frameworks. We need exit strategies and off ramps for this support when it’s no longer getting value for money. All of those sorts of things are really important parts of our considerations. They’re important points. I think they are self‑evident points from both of them, and they already factor into our thinking.
KARVELAS:
Okay. Have you spoken to the Productivity Commission head since all of this brouhaha, as I like to call it, and talked about how you can construct this legislation to ensure those off ramps, value for money is all embedded in this plan?
CHALMERS:
Not yet, but I talk to her pretty regularly about these issues. I haven’t spoken to her since Thursday or Friday I think when the comments were made. But I speak with Danielle Wood about these issues all of the time. One of the reasons why I’m so proud of the appointment that we made to head up the Productivity Commission is because I think we need a generational change in our thinking about these issues because there’s been a generational change in the opportunities before us.
And so what I didn’t want to see is just a rerun of all of the tired old arguments of the past; we need to recognise the world is changing. We want a bigger slice of the action for our workers and businesses and investors. And so we need to change our approach as well. We need to look forward, not back. And I think the Productivity Commission under Danielle Wood has an important role to play in that.
KARVELAS:
Okay. Outgoing Woolworths boss Brad Banducci was threatened with 6 months in jail for contempt of the Senate after he refused to – I think it was essentially to directly respond to questions about a profit metric. Was that threat appropriate?
CHALMERS:
First of all, I think he’s providing that information on notice, which sometimes happens in those committees. Secondly, the Senate hasn’t jailed anyone before, and I don’t think they’re about to start now.
KARVELAS:
So is it just theatre then?
CHALMERS:
I think we saw some confected outrage from Senator McKim and the Greens in particular. There is a real issue here about people’s concerns about the prices they pay at the checkout. We share those concerns. The difference between the way that the Greens go about this and the way that the Labor government goes about this is he does what he does for the cameras and we do what we do for the consumers. And that’s why we’re looking at making the grocery code mandatory so we can get a fair go for farmers and families. It’s why we’ve empowered the ACCC and Choice representing consumers. And it's why we're reforming our competition settings in our economy.
We think the best way to get at these real issues, which are genuinely felt as people are under pressure around the country, is to do it in a methodical and a considered way and to get real change and take real action. And I think that’s a contrast with the kind of confected outrage we saw from Senator McKim.
KARVELAS:
Richard Marles is delivering a pretty significant Press Club address today. What could the navy’s nuclear submarines and new frigates – basically all of those new announcements – what could they do to the integrated investment program in terms of how much you’re going to have to spend? Can you give us a sense of whether the updated figures will go beyond 350 billion?
CHALMERS:
We’ve made it clear that there are big, significant investments that we need to make in our national security. Richard Marles will be speaking about this at the Press Club today, and I’ll be speaking about it on Budget night as well. And the emphasis here needs to be on getting value for money for these huge sums of money that we’re investing in our security.
And one of the things that we noticed when we came to office is that Richard’s predecessors in this portfolio were very good at writing press releases and making these big announcements but not very good at provisioning them in the Budget –
KARVELAS:
Sure, but I’m asking about you about the amount you want to spend ultimately. Will we find out?
CHALMERS:
Of course you’ll find out in the Budget and of course Richard will talk about that today at the Press Club. The point I’m making is that part of getting value for money is making sure we clean up the pipeline so that we are delivering on our objectives.
I’ve seen up close the diligence and the intelligence and the professionalism that Richard and his department and the military bring to this task, trying to get value for money so that these big investments that we’re making, important investments that I support, that they are designed and sequenced in such a way that we get value for money and we get the kind of outcomes that we need. Because for too long the announcements have been there but not the provisioning in the Budget. We need to change that. That involves some difficult decisions, and I really want to pay tribute to Richard for his role in all of that.
KARVELAS:
Treasurer, good luck on your trip. Thank you.
CHALMERS:
Appreciate it, Patricia. All the best.