PATRICIA KARVELAS:
The Reserve Bank of Australia has kept interest rates on hold at 4.35 per cent and they’ll remain there until at least the board’s next meeting in late September. Now, the decision comes amid a dramatic spike in volatility in financial and stock markets in recent days. So, what does it mean for Australia? Federal Treasurer Jim Chalmers joined me a short time ago. Jim Chalmers, welcome back to the program.
JIM CHALMERS:
Thanks very much, Patricia.
KARVELAS:
Reserve Bank Governor Michele Bullock has revealed the prospect of interest rate cuts are off the table until next year. Isn’t that a huge blow?
CHALMERS:
I don’t think it’s unusual for central banks to express a view about ongoing vigilance. It’s a pretty regular feature of their statements. I try not to second guess the language that the Governor used or the forward guidance or the signalling that she engages in. It’s up to them. I think the main conclusion to draw from yesterday’s decision, first of all, it’s a welcome outcome. I think people are doing it tough enough as it is. The last thing they need is more cost‑of‑living pressure. But also, I think it’s a decision which recognises we have made progress on underlying inflation. There is global economic uncertainty, and the economic conditions are soft, and that’s why we saw the decision that we saw yesterday.
KARVELAS:
But the RBA has increased its underlying inflation forecasts and said your energy rebates would not lead to a faster reduction in interest rates, right? Doesn’t that show that the strategy of using energy rebates to essentially artificially push down inflation has had limited success in achieving that aim of lower interest rates by the end of the year.
CHALMERS:
Not at all. I mean, first of all, there’s nothing artificial about helping people with their cost‑of‑living pressures. That’s the first point. What the ABS has shown in recent inflation data is that the way that we’re delivering our cost‑of‑living help is pushing downward pressure on inflation, and that is our objective. Now, the way that the Reserve Bank forecasts and accounts for our cost‑of‑living help is the same way that the Treasury accounts for that. And the point that’s been lost since yesterday’s decision and the new forecast from the Reserve Bank is that the Reserve Bank’s near‑term inflation forecasts are better, not worse. And that’s because of the design of our cost‑of‑living policies. In addition to our cost‑of‑living policies, the Governor has previously said our surpluses are helping as well. And all of that means that inflation would be higher without our efforts in the Budget.
KARVELAS:
Ok, but independent economist Chris Richardson said that governments were pretending they have solved the inflation problem with their subsidies. I mean, as you say, the Reserve Bank is focusing on underlying inflation and that’s actually forecast to be slightly worse than it was 3 months ago.
CHALMERS:
Well, a couple of things about that. I mean, first of all, underlying inflation, the most recent data got better, not worse. Underlying inflation actually went down –
KARVELAS:
But the 3‑month end forecast.
CHALMERS:
And secondly, the point that Chris is making is not the argument that I have been making. You know, I have acknowledged on your program frequently, including last week, that even though we’ve made substantial progress on inflation, both headline inflation and underlying inflation, we know that it is more sticky and more stubborn than we want it to be. And that’s the other point that was made in the Reserve bank statement yesterday. When we came to office, inflation had a 6 in front of it. It’s now got a 3 in front of it. We’ve made a lot of progress, but we know that inflation is still too persistent in our economy. That’s why our cost‑of‑living help is so important. It’s why our responsible economic management is so important as well.
KARVELAS:
Treasurer, I want to read from the statement, and in the statement, they say relative to 3 months ago, GDP growth has been revised up in the year to mid 2025. And the stronger outlook for public demand reflects ongoing spending and recent announcements by federal and state and territory governments. That’s crystal clear in the language that spending is fuelling the persistence of inflation. So, Commonwealth spending, including by your government, is fuelling inflation.
CHALMERS:
I don’t accept that. I don’t agree with that. I don’t think that’s what the statement says in essence. What the forecasts says is that our cost living policies are helping to push inflation down in the near term, not up. But the other point that I would make, Patricia, is that budget spending is not the primary determinant of prices in the economy, but we can be helpful, and we are being helpful, with the design of our cost‑of‑living policies which help us get back to targets sooner. The other point that is crystal clear in the statement and which the government, and which I agree with, is that inflation has come off a lot. It’s sticky and more stubborn than we want it to be. But I think it’s hard to sustain an argument that the economy is running too hot or that people have too much spare cash, given all of the data and all of the feedback that we get, which shows that’s not the case.
KARVELAS:
But it does talk about a stronger outlook for public demand and that it reflects ongoing spending and recent announcements by governments. I mean, that is in the statement, isn’t it?
CHALMERS:
Well, one of the reasons why they’ve changed their thinking about demand and also their thinking about growth in the economy more broadly is because they apply, as does the Treasury when it does its forecasts, they apply the market assumption for future movements in interest rates. And the market is assuming a number of interest rate cuts over the next year or so, and the bank factors that into their forecast. It’s a mechanical part of their assumptions. The Treasury does it too, in a way, factor in what the market’s expecting when it comes to rate cuts, and that has implications for their growth forecasts and our growth forecasts.
KARVELAS:
If you’re just tuning in, you’re listening to ABC RN Breakfast and my guest is the Treasurer, Jim Chalmers. Treasurer, independent Allegra Spender says the RBA statement again highlights the trade‑off between housing and infrastructure. It’s predicted that CPI rents inflation is likely to remain high for some time. And we talked, we’ve talked many times about the problem with housing, particularly rents. She’s calling very specifically on state and federal governments to slow non‑essential projects and allow capacity to flow back to housing. This is a big problem in terms of housing approvals, that the money is being sucked up, the workers are being sucked up in the infrastructure builds, are you looking at options to allow non‑essential projects to be put on pause or shelved to allow flow back to housing?
CHALMERS:
Well, I think you and I discussed this last week as well when I acknowledged that the housing construction pipeline is not what we need it to be. That’s why we’re making these tens of billions of dollars of investment in more homes for Australians, trying to build 1.2 million homes over the next 5 years. We all need to play our part in that. The Commonwealth has shown a willingness and a commitment to do that. So, the pipeline is not what we need it to be. The 2 numbers in the inflation figures which are relevant here, and I’m doing this from memory, so forgive me if they’re not kind of exactly right to the decimal point, but the construction part of the CPI was about 5.1 per cent in the most recent data. That is too high, and it’s been high for a while now, and that’s obviously a big challenge, given that’s a big component of the CPI. The second number which really matters is that rent is running at 7.3 per cent. So, the things that we need to do there and the things we are doing is rent would have been 9.1 per cent where it wasn’t for our Commonwealth Rent Assistance. So, we’re taking some of the edge off there but the major part of this task is to build more homes. Now, we’ve already made some difficult decisions to manage the infrastructure pipeline. We’ve done that in previous budgets to make sure that the commitments that we’ve made on infrastructure can actually be built –
KARVELAS:
Is there more you can do to slow non‑essential projects and allow capacity?
CHALMERS:
The more that we can do is to make sure that we are training more workers to build the homes and infrastructure that we need in communities. I understand where Allegra is coming from. There are skill shortages in the infrastructure part of the industry and in the housing part of the industry. Fee‑Free TAFE is a big part of the story here that we’re rolling out. You can’t create new construction workers overnight, but we’re making the investments because the most important thing that we can do, in addition to manage the infrastructure pipeline intelligently, the most important thing we can do to address the issue which Allegra has raised is to train more workers. And that is a huge part of our focus.
KARVELAS:
But that has a lag effect, as you know, I’m talking about something immediate. Is there more you can do, just simple question, more you can do in relation to infrastructure and are you looking at it?
CHALMERS:
We are always looking at the infrastructure pipeline to make sure that we can build what we’re committed to. From budget to budget, often you’ll find that there are tweaks made to the infrastructure pipeline. We’ve done that before. Every government does that. But our major focus here is on building the infrastructure and the housing, not the infrastructure or the housing. And what we need to do there is to keep investing in skills, because that’s the biggest part of this challenge.
KARVELAS:
Treasurer, the markets have been volatile. Earlier this week, more than $100 billion was wiped off the Australian stock market. Are we on the brink of a recession? How do you read what’s happening?
CHALMERS:
Well, first of all, there is a difference between what we see on stock markets and what we see in the real economy. But the 2 things are related, and what we’ve seen in the last few days is that the markets around the world going haywire in response to some much weaker jobs numbers out of the US, but also rising interest rates in Japan, and a couple of other issues around tech stocks. And so, the 2 things are related, but not exactly the same thing. We’re not anticipating our economy will go backwards. It’s not the expectation of the Treasury or the Reserve Bank. And a big part of our efforts here, whether you’re the government or the bank, is to make sure we get on top of inflation, without smashing the economy, without sending it backwards. It’s not our anticipation that we will see a recession here, but there is a lot of global economic uncertainty and that’s why it’s so important that we’ve taken the right decisions in our budgets for the right reasons. It’s clearer now than ever, given the global economic uncertainty that we’ve anticipated through the course of this year, that we need to get the balance right, fight inflation primarily, but also be cognisant of the global economic uncertainty, not just in the stock market, but in the Middle East, in Ukraine, closer to home as well. All of these issues are playing out in our economy.
KARVELAS:
Do you think the Queensland Labor government’s election commitment to open state‑owned fuel stations at a cost of 36 million is a good idea?
CHALMERS:
Well, I commend the Queensland Government because they have been prepared to think outside the square when it comes to dealing with cost‑of‑living pressures. I’m a Queenslander and that is a terrific government because it recognises that people are under pressure. Whether it’s the 50 cent public transport fares –
KARVELAS:
But do you support the state owning fuel stations?
CHALMERS:
I’ve said that I support their efforts. It’s not something that we’re contemplating at the national level, but I welcome the Queensland government’s efforts to take the pressure off people.
KARVELAS:
Treasurer, thanks for joining us.
CHALMERS:
Thanks very much, Patricia.
KARVELAS:
That’s the Federal Treasurer, Jim Chalmers.