Sally Sara:
The federal Treasurer Jim Chalmers is my guest this morning. Treasurer, welcome back to Breakfast.
Jim Chalmers:
Thanks for having me back, Sally.
Sara:
Will this rate cut be enough to get the government, get Labor across the line in the upcoming election in your view?
Chalmers:
I’ll leave the political analysis and commentary to others. I’m focussed on the economics of the decision yesterday. And that rate relief that was announced yesterday is very welcome news for millions of Australians and it’s a reflection of the progress that we have made together when it comes to inflation.
Sara:
You rang the heads of the major banks yesterday to ensure that they are passing on the cuts. What’s your message to landlords?
Chalmers:
You’re right that the first 4 calls I made after the rates decision was announced was to speak to the CEOs of the major banks. I was very pleased to hear them say that they intended to pass on the benefits of this rate cut in full.
When interest rates are cut, that has a broader impact than just people with a mortgage. It has a broader impact in our economy, and it changes housing costs as well. So we want to make sure that landlords take this into consideration as well. Renters are doing it tough as well, that’s why we’re providing 2 rounds of rent assistance help and all the other cost‑of‑living help that we are providing. Because we know as tough as it’s been for mortgage holders who get some relief yesterday, it’s also been tough for renters, and they are a big part of our thinking when it comes to our cost‑of‑living help.
Sara:
Of course all this doesn’t mean that prices are going down across the board. The cost‑of‑living crisis continues. When can Australian households expect living standards to recover when some forecasts are saying that may not be until 2030 or 2031?
Chalmers:
There’s a lot in your question, Sally. The first point is that inflation has come down very considerably and now in a sustained way. It was higher than 6 per cent and rising when we came to office, it’s now got a 2 in front of it, it’s in the lower half of the Reserve Bank’s target band, that’s why we got a rate cut yesterday.
Secondly, the Reserve Bank said in its own statement yesterday that the progress on inflation has been really substantial, actually better and faster than was anticipated, and it gives them increasing confidence about inflation in our economy.
Your question about living standards is a really important one. When we came to office living standards were falling much faster. Now they are turning around and partly because of government policy. The intersection of the tax cuts, the fact that we’ve got wages moving again, not accidentally but deliberately, combined with inflation coming down means living standards are turning around, and we’ll get a bit of a sense of that later today.
Today, we’ll get some new wages data in our economy, and what that will show is that real wages are growing in an annual sense for the fifth quarter in a row. They were falling when we came to office. And that’s a big part of the story when it comes to restoring living standards, which have taken a hit during this inflation challenge.
Sara:
But it is being seen as one of the weakest periods for real growth in incomes since the 1960s. While wages might be moving forward, income for families, the disposable income is still not where you want it to be?
Chalmers:
It’s recovering, and again that’s deliberate not accidental. It’s a combination of lower inflation, wages are rising, unemployment low, and now an interest rate cut as well. All 4 of those things are good things when it comes to the restoration of living standards, which were falling very substantially when we came to office, and we’ve spent the best part of 3 years turning that around. The wages number is really important in that regard. We want Australians to be earning more and keeping more of what they earn. We have got real wages growing again. We have given tax cuts to every Australian taxpayer because we recognise that people have been doing it tough. It’s why this rate relief yesterday was the rate relief that Australians need and deserve, because it has been a difficult period, the government has been working to turn that around and we’re seeing the beginnings of some of that progress.
Sara:
How do these latest numbers and the interest rate announcement yesterday, how does it affect your thinking on whether to extend the electricity bill rebate or for any other cost‑of‑living relief?
Chalmers:
It’s a factor to the extent that when – from budget to budget to we weigh up the economic conditions, we weigh up the pressures that people are confronting, and we work out what are the budget constraints. And where we can provide cost‑of‑living help in a really responsible way and a meaningful way as well, then we consider that from budget to budget. We’ll do that again.
And if people are looking for hints about what the fourth Budget will contain, the hints are in the first 3. We were able to get the budget in better nick, deliver 2 surpluses at the same time as we provided substantial and meaningful and responsible cost‑of‑living help, and if we can do that again, of course we’ll consider it.
Sara:
What’s your reaction to the RBA Governor sign posting for Australians not to expect any more interest rate cuts any time soon? Is this as good as it gets for households before the federal election?
Chalmers:
It’s not unusual for central bank governors to choose their words carefully and to be very cautious about the outlook, and I don’t make predictions about future movements in interest rates.
I think the Reserve Bank Governor made a couple of really important points yesterday. She said that she was optimistic about the future of the economy but alive to the risks, particularly the international risks. I think that’s a very important point at a time of escalating trade tensions.
But she also said that we have made really significant progress in this fight against inflation, that that progress has been faster than expected and it’s given them more confidence that we’re getting on top of this inflation challenge in our economy.
Now all of those views are views that I share, but you won’t hear me getting into making predictions about future movements in rates. Nor am I especially surprised that the Governor was cautious when talking about the outlook.
Sara:
The Reserve Bank ideally wants to go back to a neutral setting. What’s the threshold in your mind, what rate do you consider neutral?
Chalmers:
There’s a range of views about that in the economics community. The Reserve Bank Governor said yesterday that she still considers these rates at 4.1 per cent as restrictive, and that’s the way that the Governor has made their view known, that neutral rates are a bit lower than where they are now.
I don’t really want to weigh into that. That’s a very technical economic conversation amongst the economists. From my point of view, focussing on the economics of yesterday’s decision is all about recognising that Australians are doing it tough, those cost‑of‑living pressures won’t disappear overnight, but this rate cut will help people managing pressures on the household budgets.
Sara:
Just finally, given the tobacco wars in Victoria, police now say that a woman who died in a house fire was an innocent member of the public who was caught up in this. What needs to be done to ensure that tobacco tax doesn’t exacerbate further the black market?
Chalmers:
We’re working very closely with the relevant authorities. We recognise that this is a very substantial challenge and our compliance efforts have stepped up. Obviously there’s a policing element to it as well. But there’s a very concerning development around this part of organised crime and we’re doing the best that we can to crackdown on it.
Sara:
Jim Chalmers, thank you very much.
Chalmers:
Thanks very much, Sally, have a good day.