Sarah Ferguson:
The Treasurer, Jim Chalmers, joins me now from Canberra. Treasurer, welcome.
Jim Chalmers:
Thanks, Sarah.
Ferguson:
You were so confident in your ability to manage the economy in a way to keep interest rates down. What went wrong?
Chalmers:
Well, what we’ve seen in recent inflation data is that it’s come in not that much higher than we were expecting, but higher than we would like. We’ve been upfront about that. We know that people are under pressure and this interest rate decision today will put people under more pressure. We acknowledge that, too.
But more than acknowledge that, we’re acting on it. We’re rolling out cost‑of‑living help. We’re cutting income taxes 2 more times this year and next year. And we’re managing the budget in a much more responsible way, in a way that is unrecognisable to our predecessors who left us higher and rising inflation, an absolute mess in the budget. We’ve spent 3 and a half years making some progress, but there’s more work to do.
Ferguson:
There were plenty of words in that sentence, Jim Chalmers, but I didn’t hear an answer to the question about what went wrong. You were confident previously in your ability to manage the economy, that it was thanks to you that interest rates were down, thanks to your management of the economy. What went wrong? Why are we where we are today?
Chalmers:
Well, as I said in my first answer, Sarah, what we’ve seen in the last couple of inflation data releases is it’s come in higher than we would like. That’s been the shift in the Reserve Bank’s thinking, obviously, judging by their statements today when they said that they’ve been surprised on the upside by private demand in our economy. That has changed their forecast and it’s changed their thinking about the economy. So, that’s the thing that has changed.
But I also want to say, Sarah, that when you talk about our economy more broadly we’re still talking about inflation much lower than it was in 2022, still higher than we would like. We’ve got very low unemployment, we’ve got strongly recovering business investment, we’ve got near record high participation. We’ve got solid growth in our economy. As the Reserve Bank Governor said today, we’ve actually got a lot going for us. At the same time, we do have to pay more attention to this inflation challenge.
The Reserve Bank has made this decision today. We understand that it will make things harder for people. We understand that the government has more work to do as well in helping to address this inflation challenge.
Ferguson:
But are you claiming that there is nothing you could have done on the spending side to help this fight against inflation to not arrive at the point that we’ve arrived at today?
Chalmers:
The point that I’m making is the same point or a similar point that Governor Bullock was making today and that is that private demand has recovered much more quickly. That’s the reason for this upward pressure on the outlook. If you look at the story of the economy over the last year or so, it’s actually a story of public demand and public spending retreating and private demand taking its place and growing faster than anticipated. Certainly, in the most recent national accounts data, we saw a huge recovery in business investment. We’ve seen a recovery in consumption and in other areas as well.
So, I acknowledge that we’ve got a very substantial inflation challenge in our economy. I’ve been up front about that. The Budget is not the primary determinant of prices in our economy, but governments can and should play a helpful role, and that’s our focus.
Ferguson:
Now, you are insisting, as you did in parliament today, on this being about private demand but aren’t you contributing to that private demand through the billions of dollars in cost‑of‑living relief, tax relief, debt relief? Isn’t that money flowing into our pockets and out again, contributing to that private demand?
Chalmers:
Well, first of all, I’ve heard you describe it in a similar way that Jacob Greber did a moment ago as if this is my opinion. I’m referring to the media release put out by the independent Reserve Bank, I’m referring to the Statement on Monetary Policy, and I’m referring to some of the comments that Governor Bullock made about private demand in our economy. It shouldn’t be especially contentious for me to repeat that view.
Now, when it comes to the budget position, we’re talking about a government which has very substantially repaired the budget, including in the most recent mid‑year budget update where we found $20 billion in savings. We improved the budget bottom line in every year. We got the debt down in every year of the forward estimates as well. It was actually the most responsible mid‑year budget update on record. And it’s part of us finding $114 billion in savings, delivering 2 surpluses, getting the other deficits down, getting the Liberal debt down by $176 billion, helping to engineer the biggest nominal improvement in the budget in 3 years in the history of the Commonwealth, something like $233 billion in total.
We have made a heap of progress on the budget. We’ve got real spending growth down. We’ve got spending as a share of the economy down as well. Ted O’Brien lied to your viewers a moment ago when he said that we were the highest‑spending government. The highest‑spending government was the Morrison government, just like the highest‑taxing government during was the Howard government –
Ferguson:
During COVID.
Chalmers:
He didn’t say that. He didn’t say that, Sarah, and he deliberately left that out. But the reason that that’s relevant is because when we came to office and we had inflation above 6 per cent and galloping, and we had all these deficits, and we had the trillion dollars in Liberal debt, spending almost a third of the economy and real spending growth much quicker than what it is now. We’ve made a lot of progress getting on top of that, but we know that there’s more work to do and that’ll be a big focus of the Budget in May.
Ferguson:
Now, you are quoting the Reserve Bank Governor, but you’ve actually spent the day quoting the Reserve Bank Governor on private demand. So, you want people’s focus – that’s your political answer today – you want people to focus on what she said.
Chalmers:
It’s an economic answer, Sarah, it’s not a political answer. It’s an economic answer. It reflects the reality of the last year of our economy. Public demand in retreat, private demand taking its place. A point made, a factual point made, by the Reserve Bank Governor today.
Ferguson:
Yes, but my question previously was whether or not you acknowledge that the amount of money that you have pumped into the economy via cost‑of‑living relief, debt relief, tax relief, has contributed to that private demand and the state that it’s in, which has led to the decision made by the Reserve Bank today.
Chalmers:
Yes, and my answer to that, Sarah, was to point out all of the ways that we’re improving the budget. Yes, we’re rolling out cost‑of‑living relief, but we’re doing that at a time when we’re delivering a couple of surpluses and smaller deficits and getting the debt down. In that mid‑year budget update released not even 2 months ago, $20 billion in savings. Ted O’Brien couldn’t nominate one saving. We found more savings in that one mid‑year budget update than our predecessors managed in their last 7 updates.
We’re managing the budget responsibly. We’re managing the economy responsibly. Of course, we’re very focused on this inflation challenge, just as we’re focused on turning around a couple of decades of poor productivity performance and making our economy more resilient in the face of all of this global economic uncertainty. Those are our 3 priorities and you’ll see them reflected in the Budget in May.
Ferguson:
What hope can you offer those people whose mortgages are going up as their wages fail to keep price with inflation?
Chalmers:
Well, first of all, we’ve had 2 years of real wages growth. Real wages were plummeting when we came to office, we’ve turned that around. But obviously when you’ve got inflation higher than you like, that has implications for real wages. We’re up front about that as well, but 2 years of relatively strong real wages growth.
I’d say to people who are thinking about the next year or 2, they will get a tax cut from this Labor government that our political opponents didn’t want them to get. We know that those top‑up tax cuts are all about helping people with the cost of living so that they can, when they earn more, they can keep more of what they earn. Our record on wages, the gender pay gap and the like, has been much, much stronger than the record of the government that we replaced. And that’s because we know that decent wages are part of the solution to the cost‑of‑living pressures, not part of the problem.
Ferguson:
Just briefly, are you worried that this return of inflation will scare voters to the fringes?
Chalmers:
I’m not seeing things through a political lens, Sarah. I’ve got a big economic job to do. I take responsibility for all aspects –
Ferguson:
It’s more a societal question, Treasurer, if I may, it’s not so much a purely political question, it’s really a societal question.
Chalmers:
Well, I think if you want to go to that, Sarah, my view is that the kind of division and divisiveness which is peddled by the 3 parties of the political right in Australia is anathema to economic progress. I think it makes it harder to deal with these big economic challenges when you’ve got 3 political parties in this kind of unedifying auction to be the most divisive force in our politics.
And that’s why we take seriously our responsibilities as a party which works through these issues and a government who works through these issues in a considered, methodical way. We know that there are big challenges in our economy. We also know we’ve got big opportunities and big advantages as a country and we intend to maximise those advantages, deal with the challenges together, and to do that in a calm and considered way.
Ferguson:
Treasurer, thank you very much indeed for joining us.
Chalmers:
Thanks, Sarah.