Sylvia Jeffreys:
Australians are preparing for the cash rate to rise again as the Reserve Bank meets today.
Tom Steinfort:
Yeah. Another hike would see interest rates hit a 15 year high of 4.6 per cent. And to discuss now, we’re joined by our Treasurer, Jim Chalmers, live in Logan, Queensland. Good to see you, Treasurer. Earlier this morning we spoke to a business owner on the program, Jennifer Mann. Here’s what she had to say.
[Excerpt]
Steinfort:
Your response to hearing from that this morning?
Jim Chalmers:
Well, good morning, Tom and Sylvia. Look, we understand that small businesses and Australians more broadly are under pressure and obviously if interest rates go up later today, as most economists expect that they will. That will add to the pressure that people feel and so, when it comes to Jennifer’s contribution a moment ago, the government is doing 3 things. First of all, we’re managing the budget in a responsible way. We’ve got spending as a share of the economy down considerably in the four‑and‑a‑bit years we’ve come to office. Nominal spending came down a bit more in the Final Budget Outcome yesterday. That’s the first point.
Second point is we’re providing cost‑of‑living relief where we can do that in a responsible, considered methodical, ongoing and permanent way. It’s why we’re cutting income taxes, boosting bulk billing, boosting wages, making the housing market fairer for first‑home buyers. And the third thing is that we are taking seriously some of these big challenges in our economy, the longer‑term challenges like productivity, to make sure that we can deal with that over time as well.
So, we do have an inflation challenge in our economy. I think that’s self‑evident. It is made much worse by developments in the Middle East, this prolonged war, which is pushing up global oil prices and flowing through to all of our economies, pushing up inflation and interest rates right around the world. And so we will continue to manage the budget in the most responsible way we can, provide that cost‑of‑living relief where we can, and also deal with some of these longer term pressures as well.
Jeffreys:
You continue to insist that the war in the Middle East is to blame for increasing inflation. Of course, it has contributed, but government spending is the highest it’s been in 40 years, outside the pandemic. Do you accept any responsibility for rising inflation?
Chalmers:
I accept responsibility for my part in the fight against inflation. You mentioned spending as a share of the economy. It was up over 31 per cent when we came to office, we got it down much closer to 25. Right now, it’s in the high 26s. It’ll get to the low 26s by the end of the budget period. So, we’ve been able to get spending as a share of the economy down. If you look at demand in our economy over the last 12 months, for every $5 of demand in our economy, $4 has been private and $1 has been public. And so, we’re very focused, obviously, on getting that real spending growth down less than half what it was under our predecessors, because we know that there’s always work to do to make our budgets as responsible as they can be.
It is just a fact, it’s not an opinion, it’s just a fact that we have an inflation challenge in our economy. It is made much worse by developments in the Middle East. We’ll see that in the inflation numbers which come out tomorrow morning, which show that a big driver of the inflation that we are currently experiencing is because of that prolonged war, which is pushing up inflation and pushing up interest rates right around the world. And I know that doesn’t make it any easier for people bracing for an interest rate hike this afternoon from the independent Reserve Bank. I know that doesn’t take the sting out of it, but it is a fact. We’re seeing inflation up around the world. We’re seeing interest rates heading up around the world, and that is largely because of developments in the Middle East.
Steinfort:
Well, maybe so, but I mean, every country around the world, as you said, is dealing with these problems in the Middle East. But when we look at interest rates around the world, Australia this afternoon will most likely have the second‑highest cash rate of anywhere in the developed world. A lot of these advanced countries have interest rates half of what we are looking at in Australia. So, why are they able to deal with this Middle East challenge that you’ve highlighted so much better than we can?
Chalmers:
Well, I’m not sure that that’s the case, that last part of your question, Tom, but I think broadly the most important thing to do is to make the full comparison. And one of the reasons why that is the case is because a lot of those countries have got slower economic growth than we do. They’ve got slower employment growth than we do. A lot of them have got higher unemployment than we do, and so, you have to make the whole comparison.
Yes, we have our fair share of challenges in Australia, but we’ve got a lot going for us as well, even as the global environment is so volatile and uncertain and pushing up inflation in our economy. We do have a lot of things going for us as well. Now, we’re very focused on these challenges. Obviously, inflation primarily, productivity as well, the global environment. Everybody is dealing with this in one way or another, but Australia comes to this global uncertainty better placed, better prepared, and I think with a better plan than what we’re seeing in some of those other countries that you mentioned.
Jeffreys:
If we just go back to government spending again, you say your predecessors were spending more. That was largely during the pandemic when they were having to keep Australians afloat without any work on the horizon. Your government spending at almost 27 per cent of GDP is the highest it’s been in 40 years. Do you understand that Australian households are frustrated by that. They are scrimping, they are saving, they are picking up extra hours at work. Australians are doing their job. Treasurer, when are you going to do yours and reduce government spending?
Chalmers:
Well, we have been reducing government spending as a share of the economy. I think we’ve covered that already and we do understand that Australians are under very substantial pressure, and if interest rates go up, then that will add to the pressure that millions of Australians are feeling. We don’t just acknowledge that. We’re responding to that, managing the budget responsibly, providing cost‑of‑living help, dealing with these longer‑term economic challenges.
Now, on your point, Sylvia, about Australians are calling for much less spending. Even in the segment that you played a moment ago, some people are calling for more spending, more support. Some people are calling for less. But if you look at some of the points that economists have been making over the last couple of days, the same economists who are saying now that government spending is the primary driver of prices in our economy – they weren’t saying that when inflation was coming down, and interest rates were coming down last year. The truth is, the reality is, that there are a lot of factors playing out in our economy. If you look at those last 12 months or so, 4 in every 5 dollars of demand in our economy is coming from private demand, not public demand. If you look at the numbers that we released yesterday, public final demand growth was actually lower than anticipated. It’s the lowest it’s been for more than a decade now and so we need some perspective here.
Yes, we have our own inflation challenges. Yes, we have our own challenges in the budget that the government’s very focused on. There’s always more work to do when it comes to budget repair. But also, it’s worth remembering that what we’re seeing in our economy is a feature of developed economies right around the world where inflation is going up, interest rates are on the way up in other countries as well. And we come to this with better advantages than a lot of those other countries and one of them is, is the fact that we’ve got public debt a sliver of what those other economies have. If you think about our trillion dollars of debt in the budget, almost two‑thirds of that was racked up by the Coalition in their 9 years in office. They doubled the debt even before COVID, and so we are dealing with that debt. We’ve got it down considerably from the trajectory that we inherited. But obviously there’s always more work to do.
Steinfort:
All right, before we let you go, Treasurer, we need to ask you about the Newspoll analysis this week that shows that Paul – Pauline Hanson is now the preferred Prime Minister in Queensland. I mean, is it safe to say now that clearly your home state is not loving what your government’s doing? In fact, quite the opposite?
Chalmers:
Well, the election’s still a long way away and we don’t take the outcome of that election for granted, whether it’s here in Queensland or in any other part of the country –
Steinfort:
– But your reaction to this latest analysis?
Chalmers:
Well, when Australians are under pressure, you see that play out in opinion poll. And the difference between us and One Nation is One Nation wants to prey on and pick at the pressures that people feel. Whereas this government spends its time addressing them with cost‑of‑living help. And one thing’s really clear, and that is any combination or coalition of One Nation, Liberals and Nationals, after the next election would make people worse off rather than better off because of their attacks on wages, their attacks on superannuation and the like.
So, we are responding to the very real pressures that people are under. We’re doing that with cost‑of‑living help and responsible economic management. Our political opponents, they desperately want interest rates to go up today. They desperately want the Australian economy to falter because they see a political advantage in that, and when people are under pressure, you see that play out in the polls, and that’s what we’re seeing right now.
Jeffreys:
Right. A very big day ahead for you, Treasurer, with the RBA decision coming this afternoon. We appreciate your time this morning. Thanks for joining us.