FERGUSON:
Treasurer Jim Chalmers is in Washington DC meeting with his G20 counterparts as well as the IMF and the World Bank. There's been somewhat good news from the International Monetary Fund, which found Australia's budget balance the second strongest among G20 nations. The Treasurer joins me now from Capitol Hill. Treasurer, welcome to 730.
CHALMERS:
Thanks very much, Sarah.
FERGUSON:
And I should say thank you for talking to us so early in the morning. Now, given the recent, much hotter than expected inflation figures in the US and inevitable postponement of interest rate cuts, should we be worried that the world's central bankers don't fully understand this inflation crisis?
CHALMERS:
I'm not sure that it's a matter of not understanding it, Sarah. Certainly, it's a central feature of the discussions here in in Washington DC. And you're right that we're here at the start of a very long day of engagement, about 17 hours of engagement today, to try and take the temperature of the global economy as we put the finishing touches on our budget. The central bank governors are here as well. They're very focused on the inflation challenge. We're focused on a combination of challenges from the global economy, which will weigh heavily on our budget. Inflation is lingering here in the US, growth is slowing in China, tensions are rising in the Middle East, and more broadly, we've got supply chains which are straining and a global economy which is fragmenting and transforming on the path to net zero. And so all of these things will weigh heavily on our budget, on our economy, and so they feature heavily in our discussions here but also as we put the finishing touches on the Budget at home.
FERGUSON:
Let me just ask you a question about home first, looking at the unemployment figures, can we even contemplate interest rate cuts here when the labour market is still so strong?
CHALMERS:
It's quite remarkable that we still have unemployment with a `3' in front of it in Australia, that's one of our strengths. But we did see some jobs lost in our economy, we have seen that hours worked coming off a fair bit in our own economy as well in recent months. This is largely as expected. We've expected a bit of a softening in our labour market for a little while now. That's what happens when you've had all of these interest rate rises in the system combined with all of the global economic uncertainty that I just described.
So our economy has been slowing. Our labour market has been softening but the fact that we have a `3' in front our unemployment rate, really is something that we're very pleased about, because it means that we confront this global economic uncertainty from a position of relative economic strength. Whether it's the labour market, whether it's the fact that our responsible economic management has seen us go from the 14th strongest budget in the G20 to the second strongest budget in the G20. All of these things we've got going for us as we confront this uncertainty.
FERGUSON:
Now just talking about that, before we come to the international situation, would you be prepared to sacrifice the potential for a budget surplus to give more cost‑of‑living relief to families?
CHALMERS:
Our budget surplus in the year that we're in now is still a high priority for us because it's one of the ways that we put downward pressure on inflation. And it's inflation which is putting all this cost of living pressure on families and pensioners right around Australia. So in the near term, I think it is still important that we go for that surplus, we're not there yet. The degree of difficulty has come up a bit in recent weeks and months but that's still our objective.
But we are able to do that in addition to providing substantial cost of living relief, whether it's a tax cut for every taxpayer from the first of July, we're also contemplating other cost of living relief in the Budget. And what that demonstrates – and it's consistent with what we saw in the first couple of budgets as well – it's not a choice between being responsible with the budget or easing cost of living pressures in our communities, we've found a way to do both. That's because we've made the right decisions, we've aligned them with our economic conditions – domestic and global – in the first two budgets, and that's what you'll see in the third budget next month as well.
FERGUSON:
But to be clear, that additional cost of living help to families is not going to come at the expense of achieving a surplus?
CHALMERS:
Our objective is to deliver both responsible economic management, ideally a second surplus, but we're not there yet. In addition to substantial cost of living relief in the form of a tax cut for every taxpayer and if there are additional steps that we can take, there's still some decisions to be taken in the context of this budget in May, if there's more that we can do and we can do that in a meaningful and affordable and responsible way, that's the sort of thing that we're considering right now as we put the finishing touches on the Budget.
FERGUSON:
Now going into the international situation, the prospect of escalation between Iran and Israel must be in every conversation that you're having. I think David Cameron said today he expects Israel to act. What is the message from you and the assembled global financial leaders to Israel?
CHALMERS:
We don't want to see a broader war in the Middle East, we've seen enough bloodshed in that part of the world. The human consequences of a broader regional war would be catastrophic. It would also be devastating for the global economy. We've already seen some volatility in stock markets, and in the oil price as well. The best way to understand the impact of conflict in the Middle East on economies right around the world is that a barrel of oil is currently costing about $87. On the weekend, it went to $92 when these tensions were at their highest. So you can see how uncertainty, tensions rising in the Middle East, obviously, first and foremost, that is a human concern about bloodshed in the region but it's also an economic concern as well. A broader regional war in the Middle East would be devastating for the global economy and we wouldn't be immune from that in Australia.
FERGUSON:
I want to talk about your industrial policy briefly because obviously you're there or most of the other major economies have already launched big industrial policies. There is criticism of that policy. The IMF is issuing its own warnings. Here in Australia the inaugural Productivity Commission Chairman Gary Banks said it's essentially a fool's errand, particularly he said when competitive fundamentals are lacking. The question is, to the IMF and to Gary Banks, how do you avoid making the mistakes of the past?
CHALMERS:
First of all, you correctly identified the situation in your question when you said that the whole world is moving in this direction, and we can't be left behind. I try to listen respectfully, whether it's Gary Banks or other contributors to this really important national debate about the future of our economy. But the contributions have to be contemporary and they have to be relevant to the circumstances that we confront right now. We can't just resurrect the kind of tired old talking points from the 1990s, when the world is changing, and that pace is accelerating. So for us in Australia, we need to get a big slice of the action for our workers and our businesses and our investors when it comes to the global net zero transformation. The opportunity for Australia lies at the intersection of our industry and our energy and our resources base and our skills and human capital base and our investment strategy. And that opportunity allows us to align our objectives when it comes to economic security and national security at the same time and become an indispensable part of the global net zero economy. That's what we're trying to achieve here. And in order to do that, we need to face forward not back. We take seriously the contributions that people like Gary Banks and others have made but we need to recognise the world is changing and our outlook, our strategy needs to change as well.
FERGUSON:
Treasurer, we wish you good luck on an extremely long and busy day, but we're glad to start it with you. Thank you so much.
CHALMERS:
I really appreciate it. Sarah. Thank you.