JIM CHALMERS, TREASURER:
I've asked Murray along to give a bit of an update on the flooding in New South Wales, and then I'm happy to talk about interest rates and inflation and then to take your questions. Over to you, Murray.
MURRAY WATT, MINISTER FOR EMERGENCY MANAGEMENT:
Thanks, Jim. I know I've spoken to some of you already about this today, but we did think it was worth giving a short update on the New South Wales floods. It's still a very serious situation. I've obviously been there on the ground the last couple of days and came back to brief Cabinet today. I've also briefed the Prime Minister and I know that he's done media on this himself today to make sure that he's well informed and I've obviously stayed in regular contact with him while he's been overseas. And at all stages, he's made clear to me that he wants to make sure that his government is providing every possible support to the New South Wales Government and the New South Wales people, which is what we've been doing. I'm pleased that he's also going to be traveling to the flood zones tomorrow with the New South Wales Premier as another sign of how engaged he is on this issue. But as I say, the situation we're not through it yet. In most areas are the floodwaters look like they have peaked, but that's obviously dependent on any future rain that may happen. Being there this morning in Windsor in the Hawkesbury area, there is quite a lot of flooding, many roads still cut off, many homes underwater. And again, depending on the rain that we see, we may still be seeing some of those floodwaters rise. And of course, the more rain we get, the slower it is for the waters to subside.
There's also more rain expected in coming days in the Hunter region and there is the risk of some flooding in the Hunter. And later in the week, we are expecting some rain in the Northern Rivers region, which obviously all of you are aware has had a lot of rain this year. We're hoping that that rain in the Northern Rivers won't be so substantial, that it adds to the grief that people have experienced, but it's worth knowing that there is some more rain coming in that region. I want to again commend the New South Wales Government for the incredibly cooperative way they have gone about this disaster. We have made a point of being engaged on a regular basis to ensure that we all know what each other is doing and what resources are needed. And that's why you were able to see the early deployment of ADF personnel and resources, helicopters before the floods hit. And that meant that we really were well positioned to help people when the moment came. In total, the Federal Government has now activated 250 ADF personnel who have already been out there helping with evacuations, sand bagging, and will no doubt get involved in the clean-up effort as well. And of course, as I say we've activated two helicopters as well.
In terms of disaster payments, you might have seen that late last night we reached agreement with the New South Wales Government to activate a whole range of disaster-related payments under the disaster recovery funding arrangements. And that included everything from support for individuals and families to low interest loans for farmers, for small businesses, support for councils. And no doubt there will be a request for further assistance down the track as well which we will of course give consideration to. So I guess in summary, the message is that hopefully the worst has passed but no one knows that for sure. So it is important that people stay listening to warnings. If you're subject to an evacuation order, obviously get out and don't do anything silly about driving through floodwaters. I saw some cars, half deep in floodwaters this morning myself, and we don't want to see more of that happen. Thanks Jim.
CHALMERS:
Thanks very much Murray, for working more or less around the clock with the State Government and with others to make sure that the Federal Government is there for people when they need us the most. Working with colleagues including Anthony of course and Richard and myself, to make sure that we're doing all that we can as people right around New South Wales face this devastating weather which is doing so much damage to communities.
Our message to people in the flood‑affected areas is we will be there for you and we will provide the support that you need to get through these difficult times. What we know about Australians is in the most difficult circumstances, we see the very best of Australia - people helping each other out, being there for each other, making sure that neighbours are looking out for neighbours and looking after them as well. And we're seeing that now, right around New South Wales.
We are focused obviously, on the human costs, the emotional costs of what we're seeing in these flood‑affected areas. But the economic and Budget costs will be really substantial as well. We've seen the National Farmers' Federation talk about the impact on food prices that we expect to see given we are talking about some really important food producing parts of Australia. And we know the combination of necessary support for these communities will add up as well. And I will do my best working with Murray to keep Australians across the economic and Budget consequences of what we're seeing right now, even as we focus most importantly on the human and emotional costs in these flood‑affected communities. For many of them, this is not the first time that they've been impacted in recent months and so our thoughts are with them.
There's no shortage of challenges right now in the Australian economy when you combine natural disasters, global uncertainty, this spike in inflation, and what that has meant for rising interest rates as well. And as you all know, today, the independent Reserve Bank, increased interest rates again by half a per cent to 1.35 per cent. We understand that this is really challenging news for Australians who are already doing it tough. Mortgage repayments will now eat up an even bigger part of household budgets which are already stretched because of the skyrocketing costs of essentials. Just because this was expected today doesn't mean it will be any easier for people to cop. We do know, we do understand, we do appreciate that the skyrocketing cost of essentials like groceries and petrol and electricity and other essentials as well is putting extreme pressure on household budgets. And this interest rate rise today will add to the pain that people are feeling. Australians with an average mortgage will have to find about $90 a month at the same time as they contend with those costs of essentials rising. For someone with a $500,000 mortgage, it's more like $137 a month. So these are not small figures. These are not small amounts of money that people have to find in their monthly household budgets.
Now, we've been upfront throughout - before the election, during the election, after the election. We've been upfront about the tricky combination of economic circumstances that we are contending with. It is a fact not an opinion, that government changed hands at a time of high and rising inflation, rising interest rates, falling real wages, natural disasters to contend with as well. And our ability to respond to a lot of these challenges is constrained by the fact that there is a trillion dollars of debt in the Budget and we need to take that challenge seriously as well.
A number of our challenges in the economy will get harder before they get easier, but they will get easier. And one of the points that the Reserve Bank Governor made in his statement at 2:30 today was that inflation will get worse before it gets better, but he expects inflation to moderate throughout the course of 2023. And that is our current expectation as well and I'll talk about that in some detail when I update the Parliament with a Ministerial Statement on the economy towards the end of this month. Inflation will get worse before it gets better, but it will get better. And that's something that I would encourage people to remember as they deal with this cost‑of‑living crisis that they are currently dealing with.
I am confident, supremely confident in the future of our country, the future of its economy. But we have to navigate some really tricky conditions in the near term. Whether this inflation challenge lasts 6 months or 12 months, whether interest rates go up by a certain amount or not, the Reserve Bank Governor has flagged more interest rate rises this year. I am confident that a better future and better days lie ahead. But first we need to show that characteristic Australian resilience to get through skyrocketing cost‑of‑living and rising interest rates and natural disasters and this tricky combination of economic circumstances that we have to navigate together. There is no reason why we can't emerge stronger from the difficulties that we currently confront. But it will require us to work together, to come together to deal with issues in our labour market around labour and skills shortages which will be a key part of the Jobs Summit - to come together to make it easier for new parents to return to work with our childcare reforms, to come together to make energy prices cheaper over time with our policies for cleaner and cheaper energy, to come together to build that future made in Australia so that we can have more resilient supply chains, the absence of which is part of what we’re dealing with now. The truth of the matter is that this wasted decade of missed opportunities in our economy has left Australians more vulnerable than they should be. And the task that we embrace enthusiastically in the Budget and beyond is to make our Budget and our economy more resilient, as resilient as the Australian people have proven themselves over and over again to be. Happy to take your questions. Gerard. We’ll go Gerard, then Greg, then Steph.
JOURNALIST:
On these floods, are you concerned that they will add further pressure to inflation in the short-term? And what does that mean for both fiscal and monetary responses?
CHALMERS:
Our expectation is that these floods will make the costs of some essentials, some fruit and vegetables even more expensive at a time when the prices for those essentials are already skyrocketing. And the National Farmers' Federation and others have made it very clear, given how important these regions which are going underwater as we speak, how important they are to our supermarket shelves, to people being able to feed their families, there will be pressure on those supply chains. And so that will make vegetables and fruit more expensive at a time when they're already expensive enough.
JOURNALIST:
Treasurer, is the Government considering lifting the permanent migration cap and what other options are being looked at to quickly get new skilled workers into Australia?
CHALMERS:
Well as Brendan O'Connor and others have made clear - I think I've certainly said in this room before or in or in other press conferences - we think that the labour shortages and skills shortages in our economy, in different parts of our economy, impacting on different parts of Australia in different ways, we need to come at those challenges in a number of ways simultaneously. One of the reasons why we want to bring people together at the jobs summit, which I hope to say more about before too long, is we want to bring people together to recognise and understand and to come up with a plan for how we approach this challenge from a number of different angles. Migration is part of the story when we think about these labour and skills shortages. Training is a big part of the story, childcare reform so we can get more people back to work if they want to work more or work more hours. We're happy to look at proposals around older workers as well to see if we can get more participation there. But the labour shortages and skills shortages in our economy are so acute and having such consequences for our supply chains that we are prepared to look right across the board at solutions and migration is part of that.
JOURNALIST:
Including lifting the cap? Is that something that the government will consider?
CHALMERS:
Brendan has made clear, Clare O'Neil as the relevant Minister has made clear that we are working our way through the various options. But in addition to training and childcare and other options, obviously migration has got a role to play.
JOURNALIST:
Just a question for Minister Watt. You've spoken about the disaster assistance. What about the disaster recovery payment, that $1,000 payment? Will that be offered and to who?
WATT:
That's something that we are giving consideration to. I'm still waiting on advice about that from my agencies. As I say, we have already announced a wide range of support for people but I think it's fair to assume that there will be more coming.
JOURNALIST:
Yeah, that payment is straight into people's pockets. I know that the Labor Party was very, you know, critical of the former government when that didn't get rolled out quickly enough. So can you make a promise to people in those flood‑affected areas that they could get that $1,000 payment this week?
WATT:
I can't commit to anything specific like that but what I can tell you is that from the weekend, I began talking with our authorities about what we could do to make sure that any disaster support we approved got out the door quickly. So just as we were taking action early in the peace to get the resources on the ground to help people, we were also behind‑the‑scenes having those discussions to making sure we could do a much quicker job of getting payments to people.
CHALMERS:
We'll go John, then Rachel, then Pat.
JOURNALIST:
Thanks Treasurer, and a slightly wonky question, but as the Treasurer, how conscious are you of being upfront with people that yes, inflation is going to get high but also not fueling inflation expectations that the RBA is also trying to keep a lid on too?
CHALMERS:
Well, when you got a serious challenge like our inflation challenge, I figure the best place to start is to be upfront about it. Not to be unrealistic about it in either direction, but to give Australians the best assessment that I can of the size and the shape of this problem that we're all confronting.
Australians don't need to be told that there's an inflation problem in our economy. They feel it in every aisle of every supermarket. They feel it in every pay cheque as they try and make ends meet and we understand that. Australians are under extreme pressure from the skyrocketing cost of essentials combined now with rising interest rates as well, we understand that. My job is to explain to people how I think that will unfold based on the best available information provided to me by the Treasury and by the Reserve Bank.
When I stand up in the parliament in the first week that it's back, I intend to paint a full picture of the economy as we currently see it and the Budget as we currently see it. And the key part of that will be being as upfront as I can about the nature of the challenge. But part of that in terms of our expectations, is making it clear as well, that although this inflation challenge will get worse before it gets better, although interest rates are expected to rise further, I do genuinely believe that there is a stronger economy and a better future on the other side so long as we do the work to make the Budget and the economy as resilient as the Australian people.
What I don't want to see - to be really frank about it - is to see the temporary parts of this inflation challenge wash through and we wake up on the other side and we've got all of the structural bits unattended to. I mean, that is in lots of ways the story of the last wasted decade of missed opportunities in the economy. And that's why we are so focused on labour shortages - Greg's question - why we're so focused on training and human capital because when, at some point in the future, the war in Ukraine is over, at some point in the future hopefully we can get a little bit clear of some of these natural disasters, I don't want to go back to just all of the weakness that we've had before in the economy. I want to do better than that. I think we can be more ambitious than that. Rachel.
JOURNALIST:
Thanks. I've got a question for both of you if that's all right. Minister Watt, can you explain to us why a national emergency hasn't been declared over this flooding situation? And to the Treasurer, some economists are tipping an even chance of a mild recession in the next 18 months. Can you tell us what advice you've been given on the likelihood of that happening?
CHALMERS:
Murray can take both of those questions.
(LAUGHTER)
WATT:
Gee thanks, Treasurer. In terms of the national emergency declaration, this is again something that I have asked for advice on a regular basis. The advice to me as recently as last night was that we hadn't reached the threshold required to trigger a national emergency declaration. As I said, the New South Wales Government has essentially declared a disaster from a statewide perspective and that's what has now triggered those payments both federally and from the state. But under the legislation to declare a national emergency, you need to reach a certain threshold, which is essentially that the damage has reached a nationally significant level, or that Commonwealth interests are significantly affected. The advice to me is that while this is a severe disaster, it hasn't reached that level of national significance. But people should feel confident that we will still provide all of the usual support that would come after a significant disaster like this.
JOURNALIST:
And what agency gives that sort of advice?
WATT:
It actually ends up coming through the Australian Government Crisis Coordination Committee, I think is the correct name. I've had the privilege of sitting in on a couple of their meetings over the last couple of days. That brings together pretty much every federal agency that has any connection to a natural disaster. It's led by Emergency Management Australia, which sits within the Home Affairs Department, but every agency from infrastructure to telecommunications is represented there and their advice has unanimously been at this point that we haven't reached the threshold for a national emergency declaration.
CHALMERS:
To the other part of your question - neither the Treasury nor the Reserve Bank is forecasting a recession in Australia. The way I look at it, is that our economy is growing but so are our challenges. And as I said in response to some of the other questions, I am confident in the long-term prospects for the Australian economy so long as we do our best to manage together this difficult combination of circumstances that we're dealing with now. Clearly, there are some things within our control and there are some things outside of our control. Outside of our control, a lot of people are expressing concerns about the American economy. A lot of people are expressing concerns about China and COVID zero. And clearly, Russia/Ukraine is having an impact on our economy as well. For me, I focus on what we can legitimately influence. Things like the labour shortages that we've been talking about. Things like responsible, enduring cost‑of‑living relief, in childcare and medicines. Things like taking a dollar which might have been wasted by the National Party for much of a decade before us and directing it towards a more productive use of taxpayer money. These are the sorts of things that we can focus on and that we can have an influence on. The forecast and again, I'll update our forecasts and our expectations for economic growth when I stand up in the Parliament in a few weeks' time. That circumstance that you described is not our expectation. Our economy is growing. And our challenges are growing too but I'm confident that we can deal with them. We'll go Pat then Ron. We might finish up after Ron.
JOURNALIST:
I’ll have a couple of questions if that’s OK. One of them was - you talked about the extreme pressure on households and all the various factors here. You also talked about how important it was to be upfront with the Australian people. Isn't it also, you'd also need to be upfront with Australians that there is no support, direct support coming from the government to ease these cost‑of‑living pressures? You campaigned on it, but you can't really provide direct cost‑of‑living support to households this year can you for the reasons you've already said - big budget deficits, big debt and also just adding to the inflation as well. So don't you need to be upfront and say this? And the second question is, you talked about quite substantial economic and Budget costs from the floods, can you maybe elaborate on that?
CHALMERS:
Thanks, Pat. On your first question, I don't accept that because we were very constructive in the last government's last Budget in supporting some of the cost‑of‑living relief that they put in the Budget. We made it clear then that when that runs out towards the end of 2022, a lot of our plans including on medicines, including on childcare, they kick in in 2023. That seemed to us to be a responsible way of going about it. Near-term cost‑of‑living relief. And then from next year, enduring cost‑of‑living relief in really crucial, sensitive parts of household budgets like medicines and like childcare. So I think we have been upfront with people about that. And clearly, when it comes to our capacity to weigh in and do more, we have to balance that consideration against, as you imply, the inflation risk in the economy but also the fact we haven't inherited a Budget in perfect nick. We've inherited a budget with a trillion dollars in debt, and the cost of servicing that debt is going up because interest rates are rising. And there are a whole bunch of pressures on the Budget, which we need to account for in October. We've already had to do a deal with the states about hospital funding in the context of COVID. There are other spending pressures, which our predecessors didn't account for that we will have to. So we have been upfront about that.
In terms of the costs of the natural disasters that we're seeing now, they will be substantial. It's too early to tell with the situation at its most dire in these communities, we'll know more when the floodwaters start to recede. I will try and keep people updated on our expectations of that. There will clearly be an economic cost. They will clearly be an impact on inflation, particularly given the nature of a lot of these local economies. And there'll be an impact on the Budget as well, in at least two ways - the support that we will provide to these communities will be costly. And because the impact on the economy will be costly, that will flow through to the Budget as well. When I know more about that, I'll keep you updated. We'll go to Ron and then I see Katherine's got her hand up and I better finish on Katharine because she was kind to me in a podcast on the weekend.
JOURNALIST:
Treasurer, just two quick ones if I may. The first one is – have you spoken to bank chiefs at all about your expectations? Obviously we focus very much on interest rate rises increasing borrowing costs, but the other effect is whether it should go through to savings accounts. And just secondly, expanding on Greg's question, we're obviously competing significantly in the international market for skills, as many other countries are facing a similar crisis. What are the options that you're looking at that help us compete internationally, not just sort of increasing the capital, so making sure that we are an alternative to the US or the UK or other countries that are facing these acute shortages?
CHALMERS:
First of all, I haven't had that conversation since 2:30 with the bank CEOs, but I've had that conversation in the past. We do want to see these interest rate hikes passed on to savers because the only silver lining in all of this is for people who rely on their savings. We want to see that passed on when it comes to day-to-day savings accounts and also term deposits. Frequently there's been an increase on the term deposit front but not always on the day-to-day savings accounts. We do want to see that passed on. When it comes to the options before us on migration, different parts of the labour market have different versions of this. At the high wage professional end, there is a global scramble for talent. The global labour market's reshuffling itself people are working out where they want to work how they want to work and Australia is competitive on that front. Obviously we need to, within reason, be accommodating to that and attract some of the best people here. The middle rung of the labour market in the kind of middle wage part of it, we want to make sure that migration is not seen as a substitute for training people. That's the defining challenge in that part of the labour market. And at the lower paid end of the labour market and including in areas on farms and things which Murray obviously gets himself across, we want to make sure that people aren't exploited. We want to make sure that people are being treated decently. So depending on where you are in the labour market, there's a different set of options. We genuinely want to bring people together around these challenges. That's why we're having the Jobs Summit. I hope to say more about that with Anthony before long but part of the reason we want to do that is because COVID should be an opportunity for us to have a big think about the ideal optimal labour market that we want in this country. The contribution of training and migration and childcare and all the other things that we've talked about, this is our big chance to get it right. And the best way to get it right is to include and involve a lot of voices in the conversation and that's what we intend to do. Katherine.
JOURNALIST:
Is there a case, you mentioned in answering Pat's question before about cost‑of‑living relief, is there a case to bring forward your longer-term initiatives like childcare reform for example? It's not sequenced to begin until next year, but given conditions, given that we’re in a rising rates cycle, given inflation could be seven per cent, is there a case to bring it forward?
CHALMERS:
We've got work to do on implementing our election commitment on childcare. It’s now less than 12 months away so it’s not a long time into the future. And we’ve got to weigh up all of these considerations against the Budget challenges that we’ve inherited as well. I think people should expect that important childcare reform, which will provide cost‑of‑living relief for families at the same time as it improves our labour market by making it easier on newer parents to work more or to come back to work if they want to. It’s an important reform. It’s slated to come in on the 1st of July. We’re not currently proposing to change that. We’ll always do what’s best for the economy and for the Budget and for working families in particular. But we've got to balance that against the really quite substantial cost that would be associated with bringing it forward. Thanks very much everyone.