ROSS GREENWOOD:
Treasurer always good to catch up. Can I just start with a very basic thing? A person in a job is better than a person not in a job - for the person, for the economy, for businesses as well. Is that a basic premise we can agree on?
JIM CHALMERS:
Absolutely. Without question and one of the reasons why I welcome and embrace this big national debate that we're having right now about full employment is because we need to have the ability to agree to find common ground on what our objective is here and our objective here is a good, secure, well‑paid job for everyone who wants one - it's good for the person, as you say, good for communities and good for the economy.
GREENWOOD:
Okay, because right now, the budget is in surplus, you've earmarked that will be well in excess of $20 billion when we get it to June 30. So the reality is, that's because 14 million people are employed and paying taxes.
CHALMERS:
The number one reason why we've been able to bank a big upward revision in revenue is because people are working more than was anticipated and earning more than was anticipated and both of those things are good things. Something like four out of every 10 dollars in the improvement in revenue in the budget is from a much stronger labour market. To give you a sense of a comparison, that's about twice as much as the welcome increase we get from commodity prices being a bit stronger, so the number one reason why the budget is a bit stronger is people are working more and earning more. What matters then is what governments do with that, how we approach that and we've taken the most responsible, methodical approach to those upward revisions to revenue. Because we've got this inflation challenge, the decision that we took was to bank as much as we could to the bottom line when inflation was most acute.
GREENWOOD:
Okay, so let's get to the pointy headed part of this interview, the non‑accelerating inflation rate of unemployment which is the notion of full employment. The idea is… this is very difficult to work out… the incoming Reserve Bank Governor says she thinks it's four and a half per cent, the ACTU say it's got a three in front of it, it's hard to work out. What is the rate of full unemployment do you think or full employment?
CHALMERS:
The definition of the NAIRU is what drives the forecasting - whether it's the Reserve Bank's forecasting or the Treasury forecasting. The Treasury uses about four and a quarter per cent now because you need a technical definition to drive the forecast and so they use four and a quarter. For as long as you and I have been watching this, you know that economists disagree from time to time - it used to be closer to five per cent. Now, people think it's closer to four and a quarter per cent but there's disagreement about that. What we need to be able to do is to recognise that that narrow technical definition that feeds a forecast is different to our objective - our goal is to try and grow the economy without putting extra pressure on inflation, to make the labour market as strong as it can be so that people can find good, secure, well‑paid jobs. They're related, but they are two different things.
GREENWOOD:
Okay. But while you've got an unemployment rate at three and a half per cent, technically, according to that definition, it creates inflation. And so therefore, if we are to get to the non‑accelerating point of inflationary forces from the employment market, it's got to get back to four and a quarter, four and a half per cent, which means people are out of work, which we both agreed is not a good thing.
CHALMERS:
Yes, but one of the very interesting, fascinating features of the labour market the last decade or so is the low unemployment rate has been in some ways, maybe not completely, but largely decoupled from wages outcomes. There have been times in the last decade where the unemployment rate has been quite low and times where it's been lower than what we have understood to be full employment or the narrow definition of full employment and we still haven't for most of the last 10 years had decent wages growth and we're getting that now - we're seeing the beginnings of that wages growth partly as a consequence of our approach to the minimum wage and some of these other important initiatives in the care economy, but we shouldn't just assume necessarily that the old mechanical connection between low unemployment and wages growth feeding [inflation] - that hasn't really been the case for all of the last 10 years, so we need to be careful about that. The way I come at this, and again, I welcome and I embrace this national conversation - I think it's one of the most important things that people like yourself and the community beyond can be engaged on - I'll be releasing an Employment White Paper in the next couple of months and the first thing that it engages in is how do we find some common ground, how do we understand full employment - the objective part of it but also obviously to interact with this debate about the technical part of it as well. Our goal as a government, really our reason for being as the Labor Party is to create as many opportunities as we can for more people in more parts of the country - employment is obviously a central way that we do that and so engaging with full employment is the first priority of the White Paper.
GREENWOOD:
Okay, so do you believe that you could maintain an [unemployment] rate with a three in front of it and not create the inflation that would drive interest rates even higher from here?
CHALMERS:
I think the point I'm making is it's not the only determinant of that inflation and if you think about the inflation challenge that we've had, really, since the quarterly peak at the beginning of last year, the highest quarterly inflation, as you would know was March 2022 - before the election - but we've had a challenge for much of the year or so since then - that obviously hasn't been driven by wages growth or by the unemployment rate being low. The Albanese government's actually overseen the creation of more jobs in its first year than any new government on record but what's been driving our inflation challenge hasn't been that, it's been the supply chain issues coming out of Ukraine, it's been some of the supply chain issues closer to home post‑pandemic and so we need to recognise that inflation has a number of sources.
GREENWOOD:
Increasingly, it's also the services economy. It's other areas that are non‑goods related, that are starting to now have an impact on inflation, even though as you say, it is coming down. It's whether it drifts to the Reserve Bank's target band of two to three per cent quickly.
CHALMERS:
Yes, the composition of our inflation challenge is changing, I think that's self‑evident but remember, in that services component is things like rent - rent is one of the inflationary pressures which is most acute right now, that's why we're putting so much effort into building more supply, that's why we've got the biggest increase in rent assistance in 30 years, because as the composition of our inflation challenge changes, we need to be attentive to that and in that services number which was higher than the goods part of the latest inflation data. Rent I think is a big driver of that and that's why it's a big focus of ours.
GREENWOOD:
So does this even come then to the whole migration review that the government's done about the number of migrants coming into Australia to take pressure off the labour force but then there's a question about where do those people live, what pressure does that place upon rents in the future, so there's also the push and pull that comes from simply trying to migrate your way out of the current labour shortages?
CHALMERS:
There's so much that's important in that question. The Employment White Paper will interact very closely with the migration review that my colleague Clare O'Neil is completing because they are obviously closely related. The White Paper will be about full employment, it will be about productivity, labour and skill shortages, barriers to employment, and it will be about secure jobs and decent pay and so those are largely the issues in the Employment White Paper – the migration review is key to at least one of those but really right across the board.
GREENWOOD:
Okay, so are you satisfied? Do you believe that having a higher migration rate which we are going to have in the near term is actually going to help or detract from that inflationary pressure we're currently seeing?
CHALMERS:
Well I think obviously, throughout our history, migration has been a force for good in our communities and in our economy, but it needs to be well managed and we need to understand and recognise, as you have in your question, that we need to make sure that the infrastructure including housing keeps up. Really importantly, and sometimes this point is missed, the recovery in migration that we're expecting right now - which is substantial, don't want to pretend otherwise - that's not a government lever or a government target or policy, it's a demand driven thing and it reflects the fact that so few people came here during COVID for all of the obvious reasons but even with this big recovery in migration, we still haven't recovered the ground that we lost during those couple of years where the migration tap was effectively turned off, so that's an important, very, very important point. The second thing is one of the strengths in our economy right now is the services sector, and particularly, services exports so education and tourism - these are really important parts of it and the two biggest drivers of migration recovering is actually the students number one, number two is the tourist visas, number three - because it's a net figure, net overseas migration - is actually fewer Australians leaving to work overseas and so that's what's driving the number temporarily and it's largely a recovery from what we saw during COVID.
GREENWOOD:
Okay, so then go to Michele Bullock and her role as the new Reserve Bank Governor. I know you won't talk about future interest rate settings but it's really about this dual mandate, which is already there but then it's going to be equal weighting between controlling inflation and trying to create full employment, whatever that might be, as we've agreed, yeah, so does that change the very nature of the way interest rates are set? Aren't there times as we just discovered that one will affect the other? Let's say for example, if you don't have full employment, that that's going to affect inflation or vice versa?
CHALMERS:
What the RBA Review does - and I've had obviously a number of conversations with the current Governor and the future Governor about the Reserve Bank Review - and what it tries to do is to clarify a situation that already exists. Unfortunately, in this building in the Parliament, people will want to pretend that we're trying to do something radical, with the full employment part of the Reserve Bank's tasks, with its objectives but what we're really trying to do is to recognise that full employment has been a feature of their decision making for some time, and we want to make that clear and so the recommendation the Reserve Bank Review, and I agree with the recommendations in principle, is to clarify that price stability is part of their job, but so is full employment - I don't think that's especially controversial. The current Reserve Bank Governor has said publicly before that he doesn't necessarily see those things always in conflict, price stability, macroeconomic stability judged through a prism of full employment, I think there's a good balance there and that's not an especially new thing that we're asking the bank to do.
GREENWOOD:
Okay, but the challenge the current Reserve Bank Governor has thrown down to you is in regards to productivity and in particular labour productivity because he has said that that is one thing that could be holding back the prospect of not having to raise rates, all the inflationary pressures that are out there. The question is, and Innes Willox picked it up this week and said he believes that some of the industrial relations changes that Labor is bringing in now are contrary to try and improve productivity in this country. What's your own view on that?
CHALMERS:
Well, first of all on Phil Lowe, I was sitting a metre or two away from Phil when he made a welcome contribution I think on productivity which is we've got a productivity challenge in our economy and it's been building for a long time and it will take us a little while to turn around - there's not a switch that you can flick to make our productivity challenge disappear, it's a global challenge but Australia is going through it as well. The worst 10 years for productivity in the last 60 years were the 10 years to 2020.
GREENWOOD:
Does it make it simple, as simple as making it easier for bosses to hire and or fire, for example, to actually upsize or downscale their workforce according to the work that's in front of them? That's one part of it, it's making it easier for a person to get to work or to get home again. I mean, it's all these little things, but they all add up to their productivity which have an impact on wages which do have an impact potentially on inflation and interest rates.
CHALMERS:
Productivity is the most important source of better living standards and we want better living standards for our people. We’ll release an Intergenerational Report this year as well and that will have a big emphasis on productivity because that's the best way to drive higher living standards over time as everybody knows. What I'm trying to resist, as Treasurer - and I think I'm trying to come at this a little bit differently to perhaps my recent predecessors - is I am worried that the productivity conversation is excessively narrowed to industrial relations. I think if we want a new generation of prosperity which is built on a more productive economy, then we need to broaden our view - as you did in your second question about this - it needs to be about energy transformation, needs to be about human capital skills and needs to be about our nation's ability to adapt and adopt technology which will be a primary driver of our economy in the years ahead. I want to have a broader conversation about productivity, and much more modern approach to it - that's what drives my intention to reform and refocus and renew the Productivity Commission so that we can get out of what I think is an unnecessarily narrow conversation about industrial relations. I think there are other sources of productivity growth in our economy that we need to tap.
GREENWOOD:
Okay. But that being said, it goes also to the heart of tax reform. But we know that tax reform has been politically difficult for governments in the past. Is this something that in future terms that you would hope that this government, this administration would tackle? There are things such as say, for example, raising consumption tax, bringing down company taxes to competitive rates, bring down the top rate of tax to give more incentive to people to work, which is what we started this conversation about?
CHALMERS:
A lot of people make welcome suggestions about tax reform. I genuinely welcome it, whether it's Innes Willox or others talking about tax reform. It's central, obviously, to the way that I think about my role. Quite frequently people will say we need to repair the tax base in this country so that we can fund the NDIS and aged care and all of these sorts of things - and then all of the proposals are tax cuts. It’s easy to propose tax cuts, what is harder is to propose a way that we have a more robust and resilient revenue base so that we can fund the things that we truly value in our society. What I've tried to do In the short time that I've been the treasurer is to work out where can we make a meaningful difference to the tax base, and three areas stand out. The taxing of offshore LNG - the PRRT changes will deliver billions of dollars to the budget; our multinational tax changes as part of this big global effort is part of the story; the changes to superannuation tax is part of this story. We need to make the tax system as sustainable as it can be at the same time as we look for opportunities to reform the system more broadly.
GREENWOOD:
Jim Chalmers, always good to catch up with you, many thanks for your time.
CHALMERS:
Thanks very much, Ross.