TOM CONNELL:
Joining me live now is Treasurer Jim Chalmers, who has been good enough to stick around after holding that news conference. Thanks very much for your time, Treasurer. Some interesting numbers out of this ‑ we have seen a subdued overall result, and that's despite the fact the household savings are coming down, and yet wages are finally getting moving as well. Those sort of factors, do you think we're seeing signs that the rate hike cycle might be near an end?
JIM CHALMERS:
Good afternoon Tom and thanks for the opportunity. I think these numbers today were pretty robust given the circumstances that we find ourselves in, particularly when you consider the conditions in the global economy. But these are backward looking numbers; they obviously capture some of that global uncertainty, but not all of the global uncertainty that we expect to see in the coming months. And so there are some pleasing aspects to it, as you mentioned, and as Trudy mentioned a moment ago in her summary. It is welcome news to see wages beginning to grow again after a decade of wage stagnation, that is a good outcome, and there are other factors as well.
Now, when it comes to the Reserve Bank, obviously I don't give them free advice. They take their decisions to change interest rates independent of the government, and they've got a bit of an opportunity now in the two months between yesterday's meeting and the meeting in February, to weigh up all of these sorts of economic developments.
We are seeing the beginnings of some softening when it comes to the factors that the Reserve Bank pays the most attention to ‑ but as I said a moment ago and in that clip, and I think as others have commented on since the National Accounts have come out ‑ what we really need to be focused on is the fact that the global economy is a difficult place right now, and we haven't seen the full impact of interest rate rises at home play out either, and that's why we're pretty cautious about these results.
CONNELL:
You've also said today, inflation is still the biggest priority, the biggest issue. So given that, what is your message to consumers and what they should be doing this Christmas period?
CHALMERS:
I'm not going to give free advice to your viewers, Tom, about how they spend their hard‑earned money. I guess our message to people out there is that we understand you are under pressure. You've got all of these pressures from the global economy, like a war in Europe, difficulties in China, and some of the other global uncertainties playing out around the kitchen table. We understand that; we get that.
That's why the Budget was all about providing some responsible cost‑of‑living relief in a way that doesn't add to inflation, so making medicines cheaper, early childhood education, trying to get wages moving again, and we've seen some of the heartening consequences of that in the numbers today.
But we know that people are doing it tough. We know that when interest rates go up it has an immediate impact on household budgets, but the impact on the economy takes a little bit longer to play out. That's why we're being so responsible when it comes to managing the budget, that's why we're trying to make our economy more resilient to these international shocks, and it's why we're working around the clock right now to see if we can take some of the sting out of these high energy prices which are a big problem, a big part, a big component of our inflation challenge.
CONNELL:
Let's go to them then, because all the talk is going to be a temporary solution announced on electricity and gas. Is it going to cost the Commonwealth Government several billion dollars to make that happen?
CHALMERS:
It remains to be seen, Tom. We're in discussions with not just the state governments but with the regulators and the various industries impacted by these high energy costs. We've got a real concern here as to the Australian people more broadly, and big parts of our industrial base, that high energy prices put a lot of pressure on households, and when it comes to gas, high gas prices risk hollowing out big parts of our industrial base, particularly our manufacturing sector.
And so we've said now for a few weeks that we will work with all of the interested parties including the states to see if we can come up with something which is meaningful, but responsible and temporary as well. Our emphasis there is trying to do something with regulation, but as we come to the table with the state governments in particular, we're prepared to be reasonable to try and get a landing point between now and Christmas.
CONNELL:
So on who pays for it though, because a cap means an artificial cap, so not the market price, I suppose, I think a lot of taxpayers would sort of wonder why government should be on the hook, or the Commonwealth Government. We’re looking at record debt when resources companies are making record profits.
CHALMERS:
I think taxpayers are energy users as well, Tom, and I think everybody's got an interest in trying to get to a decent landing point here. Some of those forecasts for energy price rises because of the war in Ukraine that were contained in my October Budget were confronting, and I think we've all got an interest, if we can, to see if we can ease some of that pressure ‑ being realistic about it. And that requires, I think, a regulatory outcome. That's our highest priority. But in the course of landing that, I've said we've been prepared to be reasonable about any other moving parts here. The reason why we haven't put out any figures is because these conversations are ongoing. I'm working with the regulators, as is Chris Bowen –
CONNELL:
No, no, I get that in terms of the figure –
CHALMERS:
The Prime Minister's working with his counterparts, and we're hoping to get to a decent outcome which reflects the pressures on the budget, which you rightly identify, but also the pressures on industry and household budgets when it comes to these high prices.
CONNELL:
On industry though, I mean we're talking about industry making record profits. When you say you'll be reasonable, is it reasonable that they should be at least chipping in as to the overall cost?
CHALMERS:
Our preference is to try and do this work without resorting to some kind of windfall tax. We've made that pretty clear for some time. I've said that our emphasis, our priority is on regulation rather than using the tax system. We've also said that we'd rather not interfere with international contracts if we can avoid that. So those are some of the guardrails that we've made public in the course of a lot of work that's gone on over the course of the last few weeks. If there's a regulatory outcome here that requires us to be reasonable in other ways, then we're prepared to explore it.
CONNELL:
Okay, and what about longer term then? The PRRT, the Treasury, briefed the incoming Government on what was going on under the old government, partly on this thing called the gas transfer price ‑ I'm not going to delve right into it on the count of not wanting to lose too many viewers, it's complicated ‑ are changes in that mechanism though on the table? Are you looking at it?
CHALMERS:
Two things about that. First of all, the budget is already benefitting from higher commodity prices; that's just a fact. When commodity prices go up it is helpful to the budget but harmful in some ways to the economy via energy prices in particular, so that's the first thing. The second thing is I have already made it clear that the process that was begun by Scott Morrison and Josh Frydenberg in earlier parliamentary terms, which got paused because of COVID, is being re‑started by the Treasury.
Obviously, if they come to me with a piece of advice which is compelling, then I will respond to it. But I think it's thoroughly uncontroversial given that my predecessors set up a process that wasn't finished yet, that at some point that process will conclude. At some point I'll receive some kind of advice from the Treasury about the future of the PRRT, and if it's compelling, I'll act on it.
CONNELL:
Okay. Another rate rise yesterday, of course. We've got a record pace in terms of the increase of these rate rises. How worried are you about a recession as a result?
CHALMERS:
We're not anticipating, or the Treasury is not anticipating, in their forecasts a recession here in Australia. We're anticipating that some of the big economies in the global economy will go backwards, obviously the UK, Europe and potentially others. But here in Australia we've got a bit more going for us ‑ we've got that low unemployment, good prices, we're getting the beginnings of wages growth, and I'm relatively optimistic and confident about the future of our economy. But we've got to navigate these really difficult global conditions first, and that's what we're seeing right now, and that's our emphasis right now.
But what the Treasury does expect is a pretty substantial slowing in the Australian economy next year as a consequence of higher interest rates, that you rightly identify, feeding through to consumption and therefore to growth, but also because the global economy is going to get much softer as well, and we're not immune from that.
CONNELL:
So just on RBA rate hikes though, because there's a cohort that took out loans as they hit rock bottom. It's hard to put an exact figure on it, but basic maths suggests it's about a million people that took out loans, very low rates, and thought they'd be there for quite a while. What's Treasury telling you about their potential default rates, and indeed overall default rates that we're likely to see in the next year?
CHALMERS:
Clearly the people who are under most pressure in the system are the people who took out home loans when rates were incredibly low by historical standards. Now, in order to qualify for a loan, APRA insists on a buffer, so that if interest rates go up substantially as they have, that the assessment is that people can still service those mortgages. But that doesn't mean that people who took out mortgages when rates were incredibly low aren't under extreme pressure now; they are. And the other cohort –
CONNELL:
And we've gone beyond that buffer.
CHALMERS:
–that we're very focused on –
CONNELL:
Is there a number?
CHALMERS:
Well, it's been 3 per cent.
CONNELL:
Because we’ve gone beyond that buffer, is there a number?
CHALMERS:
We're around that buffer right now. I think the buffer is supposed to be 3 per cent, and we've seen 3 per cent in rate rises, so we are around there, and banks are concerned by APRA, or required by APRA to be pretty conservative and cautious when they approve loans. But the other cohort, I think, that we're very focused on, certainly I'm very focused on, is people coming off fixed rate mortgages, and that will happen over the course of the next year or so. We're expecting people to come off a fixed rate on to a higher variable rate, and so obviously that will put pressure on people too.
CONNELL:
Okay, all right. We're going to leave it there. Jim Chalmers, Treasurer, thanks for your time today.