Sarah Ferguson:
The Reserve Bank of Australia is meeting today and tomorrow to decide whether or not to raise interest rates again. The general view is it will happen. Treasurer Jim Chalmers has defended the government’s record on inflation and today revealed a budget deficit $6 billion lower than the May forecast. I spoke with him from Canberra.
Treasurer welcome to 7.30.
Jim Chalmers:
Thanks very much Sarah.
Ferguson:
You’ve announced improvements in the budget bottom line for this year, but at the same time, Treasury forecasts that interest payments on government debt will soon overtake Medicare spending. Does that change the way you think about your responsibility for running persistent deficits?
Chalmers:
Well, first of all, we did deliver a couple of surpluses. But you’re right to point out that the deficit this year has come in a bit smaller than was forecast only a few months ago. So, the deficit for the year just finished is $6 billion better. Debt came in $10.6 billion lower as well. But we do acknowledge that there is more work to do, particularly in the context of those higher borrowing costs that you mentioned in your question. If you look right around the world, what we’re seeing is an increase in borrowing costs. The bond yields are going up because of an expectation right around the world of higher inflation and higher interest rates. So, of course, when we update the budget towards the end of the year, in the mid‑year budget update, of course, we will take all of that into consideration.
Ferguson:
Now, a rate hike is widely expected tomorrow to attempt to deal with persistent inflation in the economy. It could take rates to their highest level since 2011. How do you continue to defend your economic record as Treasurer if that is the outcome?
Chalmers:
Well, first of all, I’m not going to make a prediction about the decision that the Reserve Bank Board will reach independently and announce tomorrow. When you look right across our economy, we’ve got some things that are going for us, and we’ve got our fair share of challenges as well. We do have extremely low debt compared with other countries. We do have economic growth which is as strong as any major advanced economy. In fact, the equal fastest when you compare us to the major advanced economies. And we’ve got other advantages as well. But we also do have this inflation challenge, made much worse by the war in the Middle East. We do have a productivity challenge.
And that’s why the economic plan in the Budget is so important, whether it’s fuel security, helping with the cost of living, budget repair, and we saw more progress made today. All of that recognises that we do have a lot coming at us from around the world, but we’ve got a lot going for us as well, and we’ve got a lot of work to do to make sure that in these difficult global circumstances that Australia continues to outperform the world.
Ferguson:
Just before we come to productivity, because that is a complicated question, I just want to talk to you about the Reserve Bank Governor. Obviously, the Reserve Bank is meeting right now to contemplate what they do tomorrow. She made it clear that she thinks unemployment may need to reach 5 per cent to tame inflation. Is the Reserve Bank Governor’s calculation accurate?
Chalmers:
Well, I think you would understand why I wouldn’t, you know, be parsing the Reserve Bank Governor’s words –
Ferguson:
I’m not asking you to parse her words exactly. I’m asking if you agree with her calculation that unemployment may need to reach 5 per cent to tame inflation here.
Chalmers:
I think we’ve seen in the past that we can get inflation down while maintaining very low unemployment. And what we’ve seen under the life of this government is actually the lowest average unemployment of any government in the last 50 years. That’s another thing that we’ve got going for us, even as it has ticked up a bit in recent data, including last Thursday, we saw a tick up to 4.6 per cent. But what we’ve seen in the last couple of years is we can have extremely low unemployment even as inflation moderates, the Reserve Bank –
Ferguson:
Yes, so you say that. And if I may, you have made that case before. But I guess what I’m trying to get at is the Reserve Bank Governor seems to be making clearly making a different case. She says unemployment may need to reach 5 per cent. Is she wrong in thinking that?
Chalmers:
I think that remains to be seen. And the reason why I keep going back to recent history is because the Reserve Bank and the government have got the same objectives here when it comes to maintaining low unemployment, full employment and when it comes to seeing inflation moderate in our economy. We’ve got the same objectives here, but we’ve got different responsibilities.
Right now, we’ve got a big inflation challenge in our economy. It’s made much worse by decisions taken on the other side of the world. From an economic point of view, this war in Iran has been an absolute disaster for Australian families because they have been asked to pay a hefty price for it. So, in that context, our job is to continue to manage the budget and the economy in a responsible way, to provide help with the cost of living in an affordable way, and also to deal with some of these longer‑term challenges around productivity. The Reserve Bank –
Ferguson:
I’ll just note, I’ll just note at the end of that that you do seem to be at odds with her, but I, I want to move on to productivity and AI. Because you are banking –
Chalmers:
That’s your opinion Sarah. But I think it’s important –
Ferguson:
That’s my analysis of what you’re saying. You’re. You are disagreeing with her diagnosis.
Chalmers:
No, I’m saying the Reserve Bank and the government have the same objectives, full employment and lower inflation, we’ve got different responsibilities –
Ferguson:
Different diagnoses about how to get there.
Chalmers:
Well, I’m pointing to recent history which shows that we can have low unemployment and we can have moderating inflation. That, from our point of view, is the most important objective. It’s the objective that the Reserve Bank and the government share. And I would prefer it. Bluntly, I would prefer it if people didn’t look for differences between the Reserve Bank Governor and the government. We both want unemployment to be low; we both want inflation to be lower. We’ve got different responsibilities. I accept my responsibility for managing the budget, managing the economy, dealing with some of the longer‑term issues as well.
Ferguson:
All right, now, you are banking on AI to lift Australia’s productivity to make more room in the economy. What happens to your productivity agenda if AI development has to slow down to be safe for humanity?
Chalmers:
Well, first of all, obviously, we support efforts to make AI safer, to make sure that artificial intelligence works for people and not against them. We do believe, we are confident, we can maximise the economic upside at the same time as we spend a hell of a lot of time minimising and managing the serious risks. And you and I have had a couple of good conversations about that in the past. Artificial intelligence is a part of the productivity story going forward, but it’s not the whole story. It’s very, very important, the way that we adapt and adopt technology to help our economy grow more quickly, subject to managing all of those substantial risks.
But if you look at our longer‑term productivity projections in the intergenerational report, about one‑sixth of that projection, that 1.2 per cent projection that the Treasury makes in the Intergenerational Report, is from the additional benefit of AI. So, an important contribution, but not by any stretch the only contribution to lifting what has been a couple of decades now of poor productivity growth in our economy.
Ferguson:
Now, we know there have been multiple safety incidents this year with the leading AI companies, including new revelations at the weekend. But isn’t saying, as the government has, that the breach of Australia’s Medicare data site should be referred to the AFP, that it could be a crime? Isn’t that overegging the seriousness of that event?
Chalmers:
I don’t believe so. I think legal considerations are part of the sorts of things that we are grappling with. Obviously, when you’ve got a technology which is so impactful and where that impact is extremely accelerating in our economy and in our society, when something like this happens, a serious event like this happens – even though it wasn’t, as I understand it, personal data, even though it was data that might otherwise be in the public domain, in any case – these are still serious developments.
And so, I think the rapid review that was announced by the government to get to some of these issues, including some of the complex interactions with the legal system, I think that’s a good way of going about it. It shows that we are taking it seriously, we will learn from what happened in this instance, we will learn from the rapid review, and that will help us consider any necessary next steps.
Ferguson:
On top of a potential AI slowdown, on top of oil prices, the government is also trying to bring down immigration numbers. Can the economy actually sustain a drop in those numbers by the number that you have planned?
Chalmers:
It can. And we’re talking about getting migration back down to more normal levels. We’ve already made very substantial progress in that regard. We’ve gotten net overseas migration down almost 50 per cent from that big post‑COVID surge that we inherited when we came to office. We’re managing it down to more normal levels, but we’re doing that in a way that recognises once again the economic upside of migration.
It is really important to parts of our workforce, construction, the care economy, making sure that we’re striking the right balance in other sectors as well. And really, as the last one standing in the sensible centre of Australian politics. We’re really the only ones who are taking seriously immigration policy in a considered and methodical way. Trying to strike all of the right balances as we manage the numbers down to numbers that we would consider more normal.
Ferguson:
Treasurer, thank you very much indeed for joining.
Chalmers:
Thank you, Sarah.