SARAH FERGUSON:
Treasurer, welcome to 7.30.
JIM CHALMERS:
Thanks, Sarah.
FERGUSON:
Now this report today was released with headlines like broad revamp, the biggest RBA shake‑up in decades, but the bank's Governor Phil Lowe says we're really talking about improvements at the margins. And he couldn't imagine that this new board would have made different decisions to the ones that his board made. Is he right that these reforms won't change much in the outcomes?
CHALMERS:
I think it's a substantial renovation of the Reserve Bank, which hasn't been reviewed in this way for some decades. And it's an important opportunity to recognise that no institution should be beyond the kind of thinking and consideration that is central to this Reserve Bank Review that I've released today. And what it's all about is learning from the past, learning from best practice around the world to strengthen the Reserve Bank into the future and the outcome of that will be a Reserve Bank, which is more transparent, more accountable, more effective, and relies on more expertise.
FERGUSON:
But is it a big reform or changes at the margins?
CHALMERS:
I think when it comes to independence, it will strengthen the independence of the Reserve Bank. I think when it comes to the inflation targeting regime, it leaves the fundamentals of that in place. But beyond that, I think there are some really important changes recommended here. That's why the government has signed up in principle to implementing all 51 of those changes and I'm very grateful to the Reserve Bank Governor and indeed to the Opposition for signing up similarly.
FERGUSON:
Now the biggest change recommended by the Review is the creation of a new board to set interest rates. What's wrong with the way the current Reserve Bank Board has exercised its power to set interest rates?
CHALMERS:
Well, first of all, I'm not going to take shots at the existing board or former boards, or indeed the Governor himself. I cherish the independence of the Reserve Bank and that's why I'm strengthening it with this Review and these recommendations and the government's response to it today. But I think clearly, there's an opportunity here with two boards to have one focused on the specifics of interest rate decisions as a lot of other reserve banks and central banks around the world do and another focused on governance. And what that will allow us to do is to have governance specialists and leaders from different parts of the economic community in the governance board, and a more specialist board full of specific expertise in the monetary policy board.
FERGUSON:
Is that going to lead to different outcomes? I guess that's the fundamental question.
CHALMERS:
It's impossible to test that because we're talking about decisions in the past versus decisions into the future. But I do believe, genuinely, that this gives the Reserve Bank into the future, the absolute best chance of getting these quite difficult on‑balance calls right to have a board dedicated to monetary policy decisions, and another one to run the bank itself. I think that is a good combination. And again, it picks up best practice from around the world.
FERGUSON:
Let's just go to something else that the Governor said today. He said that the Review's criticisms of the board, and they are quite significant criticisms, they do not resonate with his experience. He rejected the critique that the board was unwilling to push back on his views or are not sufficiently involved in decisions. Are the reviewers, right? Notwithstanding, you don't want to act out a full blown critique here, but were the reviewers right, when they identified weaknesses in the way the board functioned?
CHALMERS:
Well, first of all, I don't think it's especially surprising that Governor Phil Lowe has a different view about the performance of his board and indeed, his own performance. And as you rightly identify, I'm not going to get into that argument. But I think the reviewers have struck a really important balance here. Yes, they've done some analysis of recent decisions. But they've ensured that this isn't primarily about one decision or a set of decisions, or even the forward guidance, which was especially controversial. What this is about is about the future of the Reserve Bank, the best policies and processes and objectives and people to make these key decisions which impact on so many Australians into the future. And I recognise and I wanted to acknowledge that Phil Lowe has engaged in this review in the right spirit. And it's not easy for a leader of an organisation, which has been in our history, really quite well regarded and really quite successful, it's not easy to engage in a review of this type. And he has done that, I think in a spirit of goodwill and we've seen that reflected in his comments today.
FERGUSON:
You're talking about rewriting what's called the statement of monetary policy, essentially the agreement between the government and the bank about its goals. It currently sets a target of keeping inflation between a band between two and three per cent on average over time ‑ how will it change?
CHALMERS:
How will the statement change?
FERGUSON:
I beg your pardon, yes.
CHALMERS:
I think there's an important opportunity here. The foundations as you rightly identify ‑ that two to three per cent inflation target ‑ and obviously independence is something that we're bolstering rather than diminishing, but the Statement on the Conduct of Monetary Policy is a really important agreement. It's a foundational agreement. It hasn't been updated since 2016. I was going to update it last year but I thought it would be more prudent to wait until the outcomes of this review, because it does give us the opportunity to build a lot of what we are proposing here and agreeing to here into the Statement on the Conduct of Monetary Policy.
FERGUSON:
Now, you say you don't want to spend too long on the issue of the forward guidance ‑ that is that interest rates were going to stay low through to 2024 ‑ but I did want to ask you, how much of the problem with the current board goes to how they communicated to the public, including that decision?
CHALMERS:
Well, I think one of the important reasons why I'm such a big supporter of an independent Reserve Bank is because when they take these difficult decisions independently, they can also explain and in some cases, frankly, defend the decisions or the commentary, the comments that they put in the public domain. And so what the Review panel are trying to do and something I endorse and support in my response today is to say, why don't we put a structure around that accountability and a structure around those communications, and so there is a press conference after an interest rate decision, so that the board members do have to sign their name to the outcomes of the decision, and so that they have to provide some public commentary as well. And I think that is a good way to make sure not just that the Reserve Bank Governor is accountable for his decisions, but the board more broadly as well.
FERGUSON:
Now, there is so much discussion around interest rate settings. You know, were they too low for too long before the pandemic and then were they too slow to respond after COVID? It comes back to my fundamental question, there was criticism of the board, will this new board actually produce different outcomes that will make a difference to the lives of Australians?
CHALMERS:
Again, it remains to be seen. And I think my job is to make sure that we appoint the sort of people to the governance board and to the monetary policy board, who have the best possible combination of experience and expertise, to get these decisions right into the future, but also to build for the Reserve Bank Governor, the perfect institution, when it comes to the analysis that underpins those decisions as well. The fact that there are 51 recommendations in this review, I think, shows that there is a lot of work to be done. And I acknowledge that Phil Lowe said today that they do need to change the way that they go about things. Future decisions are a matter for the board as our past decisions. My job is to give them the best possible institution to go about their important work, and that's what today is about.
FERGUSON:
But I suppose it's important that Phil Lowe rejects the criticism of the board. If that critique is ill founded then the solutions are not likely to be the right ones, are they?
CHALMERS:
Again, I'm not especially surprised that Phil being the person that he is, is defending his colleagues on the board. I think it would be surprising –
FERGUSON:
But is he wrong? It's loyal yes, but is he wrong in his judgment?
CHALMERS:
Again, I'm not going to get into that but what I will say is I think that the analysis of the Review panel is well founded, and they relied on more than 1,500 people providing input. They worked on this for months. People engaged with it right around the country, and right around the world. I think they've struck the right balance here between analysing the past, and much more importantly, strengthening the Reserve Bank for the future.
FERGUSON:
I just wanted to ask you one question about the JobSeeker allowance. There were conflicting reports yesterday about whether or not you are considering a raise of the Jobseeker allowance. Are you considering it?
CHALMERS:
Well, there are 37 recommendations in the report that we released this week.
FERGUSON:
But that one was the most urgent.
CHALMERS:
It was one of 37. We're working our way methodically through those recommendations and we will come to a concluded view on it. I think people understand that we cannot implement all 37 of them at once. And so our job is to provide cost‑of‑living relief, especially to people doing it tough, the most vulnerable in our society, whether it's household bill assistance, cheaper medicines, or in other ways. The Budget will be a responsible budget which weighs up all of these priorities.
FERGUSON:
I'm not sure Treasurer whether that was a yes or no to whether you are considering that important boost to the JobSeeker allowance.
CHALMERS:
We'll make that clear in time. But the point that I'm making is we will work through the recommendations in a methodical way. It's no use pretending that we can implement all of these in one budget. I don't think the Review panel even expects that. So we'll work through in a methodical way we'll help people where we can. We'll try and do that in a responsible way that doesn't blow the budget.
FERGUSON:
Do you agree with David Pocock that the poorest need a better weekly allowance to have a chance of cracking the jobs market?
CHALMERS:
A couple of things about that. Certainly when it comes to government assistance and government payments like the household assistance for energy bills, we want to prioritise the most vulnerable people in our society. We've made that clear. But there are different views about how you provide that support. There are different views about how long it takes and how you stage it. And I think it's a good thing, frankly, whether it's David Pocock or the panel or others that people have views about this, our job is to recognise that good people make suggestions to us in good faith. We can't do everything at once and so we work out what we prioritise, and that's what we're doing right now in the lead up to the Budget on 9 May.
FERGUSON:
Treasurer. Thank you very much indeed for joining us.