JIM CHALMERS:
Inflation has come off really quite substantially since those peaks in 2022. When we came to office, it was 6.1 per cent, the most recent quarterly data 3.6 per cent, and the peak was in the high 7s. And so we need to remember that inflation has come off really considerably in our economy. What we’ve seen around the world is that inflation doesn’t moderate in a straight line, it zigs and zags a bit and often at around the level we’re at now. We’ve seen in other countries it plateaus a bit before it starts to go down again – we saw that in the US, and we’ve seen it in other countries too. So, I’m confident that in the inflation number that we expect to see on Wednesday, we expect inflation to have been persistent in our economy in the June quarter but we are still confident that inflation will continue to moderate after that, partly because of the design of our cost‑of‑living policies but also because the shape of our inflation challenge has been really similar to around the world.
If anything, our core inflation has dropped quicker than elsewhere but the shape is broadly the same, we’ve heard the Reserve Bank Governor and the Deputy Governor both make that point. So we expect the number on Wednesday to show that inflation was persistent in our economy, that’s not a good thing, of course, but overall, we have made really quite considerable progress and we expect that progress to continue into the future.
ROSS GREENWOOD:
You watch the markets pretty closely, though. You’re aware that unlike most other major developed OECD countries right now which are expecting interest rate cuts and some of them have already seen them, that in Australia, the markets right now are expecting the chances of an interest rate rise. So that’s a different scenario than what’s playing out in other parts of the world.
CHALMERS:
Well, I think the major difference between us and other countries, Ross, that you would understand, is inflation peaked lower and later in Australia than it peaked in other countries and other countries that we compare ourselves with have usually got much higher interest rates than we have as a starting point. So I think those are 2 important points to remember. Obviously, I’m not going to engage in a running commentary about decisions taken independently by the Reserve Bank but when it comes to our inflation challenge, the shape is broadly similar to what we’ve seen in other countries. The difference is our inflation peaked lower than it did in those countries and it peaked later than it did in those countries and so some of them are a little bit further along when it comes to moderation of inflation in their own economy.
GREENWOOD:
But you would be aware, because the government shares the aspiration of the Reserve Bank, that it would allow the inflation rate to remain above that target band in order to try and preserve as many jobs as is possible. The real problem, as you saw in the latest employment numbers is that there’s still a lot of jobs being created in this country, which is, you know, to be honest, a very good thing for our economy and a very good thing for those families, because without those jobs there would be significant amounts of hurt. The real problem is it’s not actually bringing down the inflation rate fast enough.
CHALMERS:
A couple of things about your question. First of all, you’re right to acknowledge that the labour market’s been really resilient. Well over 900,000 jobs created in our first term is more than any other first term government on record and that has been a source of strength but we have seen some softening in the labour market. You would have followed job ads and some of the other indicators around hours and the like in the economy and so we’ve seen a weakening in the jobs market. We’ve seen the unemployment rate go from the middle threes to the low fours, but we have been creating a lot of jobs in the economy. That’s a good thing, not a bad thing.
I think you’re also right to identify in your question, Ross, if I may say so, that as the Reserve Bank Governor has said and the Deputy Governor has said as well, there will be an important number on Wednesday but the Reserve Bank board when it takes its decisions independently, it weighs up a whole bunch of factors in our economy and I think sometimes the commentary too easily forgets that at the start of this year and the March quarter National Accounts, we saw the economy was very soft. We saw discretionary spending had more or less disappeared in our economy, we saw savings rates had come off quite substantially, and so no doubt the Reserve Bank board when it take its decision independently, it weighs up all of these things, the inflation numbers, the state of the jobs market and the like.
I think there’s another important point here which is a bit like the point I just made about discretionary spending in our economy being almost non‑existent and that is when you think about the inflationary pressures in our economy, we expect the big drivers on Wednesday to be things like insurance and rent and petrol, and of course, petrol is impacted by the global oil price, and all this uncertainty we’re seeing in the Middle East, none of those factors are about government spending. And from time to time, you’ll read commentary that pretends wrongly that government spending is the primary determinant of prices in our economy – of course, that’s ridiculous. Even if you think about the last year that we’ve just finished, the Budget year, an extra I think $12 billion of spending in the context of a $2.6 trillion economy, so budgets aren’t the primary determinant of inflation or prices in our economy, but they can help. That’s why we are doing our bit in the fight against inflation. We’ve delivered those 2 pretty substantial surpluses which the Governor has said is helping in the fight against inflation and we’ve also designed our cost‑of‑living help in the most responsible way that we can, and this is how we help rather than harm the fight against inflation.
GREENWOOD:
All right, but you’d be aware, as I’m aware, that it’s not just the federal government that has cost‑of‑living measures or indeed extra spending, in particular wages of public servants and others that are above inflation, significantly above inflation. Now, the fact of the matter is that it’s government in general across Australia that is adding to spending. And you take Chris Richardson as one economist who certainly has pointed this out and says, of course that’s inflationary. Of course that is adding to that inflationary pressure. It’s not taking away inflationary pressure. That puts more pressure on the Reserve Bank to react. And that’s the reason why I would suggest to you that perhaps if there is future interest rate increases, that government does play a part in that.
CHALMERS:
Well, I’m not sure I agree with you there, Ross. As I just said, government spending is a tiny, tiny sliver of our economy. In the Commonwealth sense, $12 billion out of a $2.6 trillion economy last year. The states cumulatively wouldn’t be much different to that. I welcome the assistance they’re providing for the people that we jointly represent. People are doing it tough and we can’t forget that but what we’ve been able to do at a Commonwealth level is to make sure that that cost‑of‑living help, whether it’s a tax cut for every taxpayer, energy bill relief for every household, cheaper medicines, rent assistance, all of these things are helping rather than harming the fight against inflation because we’re doing it in the most responsible way we can at the same time as we deliver these 2 quite substantial surpluses – we’ve turned 2 big Liberal deficits into 2 big Labor surpluses. The Reserve Bank Governor has made it clear that surpluses are helping and that’s because we’re managing the economy in the most responsible way and what we’re doing here is we’re fighting inflation, we’re repairing the Budget, but we’re doing it in a way that doesn’t smash the economy and we’re doing it in a way that recognises the legitimate pressures that people are under.
GREENWOOD:
But also, the Budget itself actually forecasts 10 consecutive budget deficits, which increases the debts for Australians into the future. So, does that mean that things, measures such as the Future Made in Australia, which is $22.7 billion over the next 10 years, is that genuinely affordable for Australia in a time when it’s going to go into significant debts over that next decade?
CHALMERS:
Well, a couple of things about that, and I’m pleased you asked. First of all, we can’t afford not to invest in our future industrial base because so much of our prosperity will come from that intersection of industry, energy, skills, resources and our attractiveness as an investment destination. That $22.7 billion is over 10 years, as you rightly pointed out. It’s all about leveraging more private investment in our economy so that we can create prosperity into the future but even of that $22.7 billion over 10 years, only about $3.8 billion is over the next 4 years of the Budget and most of it is these production tax credits which don’t begin until 2027, so I think it is, to be fair, a real stretch to pretend that the Future Made in Australia agenda is putting upward pressure on inflation when it’s a 10 year plan and where the bulk of it begins in 2027. And also that kind of analysis, I think, or that kind of presumption ignores the fact that this is all about attracting more investment in the jobs and industries and skills that we all need into the future, so that we can deliver another generation of prosperity in our economy and in our society.
GREENWOOD:
And some of those critical minerals that you would otherwise be supporting, of course, they’re in big trouble price‑wise at the moment. Mines are being closed, BHP has closed its nickel operations in the Western Australia and there’s pressure on other lithium operations right now. The question is whether this is money being put in by government, effectively propping up businesses that would otherwise not do so well in the open market.
CHALMERS:
I don’t see it that way, Ross, respectfully. First of all, of course, there’s been some volatility in markets like nickel and in other markets. The global conditions have been uncertain and in some cases problematic but our overall prospects in critical minerals are incredibly strong. Critical minerals are the opportunity of the century for Australia. There will be bumps along the way, there will be volatility and of course, it’s disappointing when you see some of the sites like those which you just referenced being paused, like we saw when it came to Nickel West. Of course, that’s disappointing. But the overall outlook for Australia in critical minerals is really quite strong. There’s a lot of interest and a lot of investment and that is a really good thing and when it comes to our investment, what we are proposing to invest in these critical opportunities for Australia’s future are only a sliver of the private sector investment that we expect to see and that we need to see in order to make the most of this immense opportunity. The Future Made in Australia is not some kind of free for all of public funding. It is responsible, it is robust, and it recognises that with some public investment, we can leverage the private investment that we’re going to need to create the industries and jobs and communities and prosperity that we all want to see as Australians.
GREENWOOD:
Jim Chalmers, always great to chat to you and many thanks for your time today.
CHALMERS:
Appreciate it, Ross. All the best.