JIM CHALMERS:
Ordinarily, you'd hear from the Employment Minister after these jobs numbers, I'm really grateful to Tony Burke for the opportunity to run you through them today so that I can cover off some other issues as well. We've got a lot coming at us in the Australian economy, we've got a lot going for us as well ‑ we're getting good prices for our exports, we're seeing the welcome beginnings of some wages growth and we've got unemployment with a three in front of it. Now, the unemployment rate today was a bit softer than it has been, but it is still around historic lows. It moderated today, but coming on the back of what was the fastest jobs growth of the first six months for a new government on record. And so we started from a very strong foundation and a very strong base when it comes to job creation in the first six months of this government, and it's come off a little bit when we're talking about January this year. Now, the outcome today was completely consistent with what the Budget anticipated in October, and also what my predecessor's Budget anticipated in March as well. We have been expecting an uptick in the unemployment rate as the economy slows a bit, as the obvious consequence of a slowing global economy mixed with the impact of interest rate rises here in our own economy. So this is the expected outcome, the expected consequence of global turbulence and rising interest rates playing out in our economy. And our current expectation, the expectation of the Treasury and the Reserve Bank, is that our economy will slow a bit more, and unemployment will tick up a bit more in the coming months.
Inflation is the biggest threat to our economy, and dealing with it is the government's highest priority and we've made that clear on multiple occasions. And our three point plan, as you know, is relief, repair and restraint. Cost‑of‑living relief where we can do that without adding to inflation, repair of our supply chains including our workforce, because broken supply chains and labour shortages have been a big part of the story, as the Governor said, when it comes to inflation in our economy, and spending restraint as well, in a responsible budget. We saw a lot of that in October. Now these three things ‑ relief, repair and restraint ‑ were guiding features of the Budget in October, and they will be the guiding features of the Budget in May as well. And that's because it's the right strategy in an economy where inflation is expected to have peaked, but will be higher than we'd like for longer than we'd like.
The government's strategy is the right one, and this was a point made yesterday by Governor Lowe, presenting his evidence and taking questions here in front of the parliamentary committee. And I think the Governor yesterday made four really important points. First of all, our budget is broadly neutral, it's not adding to in his estimation, the inflation pressures in our economy. Secondly, fiscal and monetary policy are not working at cross purposes. You will hear this alleged from time to time by people who have other motivations, but the Governor feels like our fiscal policy and monetary policy are broadly aligned. Thirdly, he pointed out that most of the upward revision in revenue is being allowed to flow through to the Budget. That's an important part of our strategy. In October, 99 per cent of that revenue upgrade for the two years where inflation is the most acute, being allowed to flow through to the Budget ‑ 92 per cent over the course of the forward estimates. And the Governor pointed to that yesterday as an important feature of our policy. And then lastly, he made the point that our energy package is taking some of the pressure off inflation, and that's what it's designed to do. Our energy package is all about taking some of the sting out of these high energy prices, which are a big part of the inflation challenge in our economy. Governor Lowe acknowledged yesterday that our energy plan is one of the key reasons why we are able to take a little bit of the edge off this inflation challenge in our economy. Now there are some key elements of our economic plan before the parliament right now. We already saw at the end of last year, the Opposition vote against a bit of relief for families and pensioners and small businesses when it comes to their energy bills. They've learned absolutely nothing from the diabolical decision that they took in December. And now they're shaping up to oppose us on Safeguards, the Housing Fund, and the National Reconstruction Fund as well. And I think we do need to shine a light on the fact that in voting against manufacturing jobs and fixing our supply chains, voting against more affordable homes for more people, and voting against some energy bill relief, the Opposition is voting for even higher inflation for even longer. That is the inescapable conclusion from the way that the Opposition is playing politics with the government's economic plan. It has been acknowledged that key elements of our economic plan are the best way to go about dealing with this inflation challenge in our economy. When the Opposition votes against the government's economic plan, they're voting for higher inflation for longer.
Before I take your questions, I just wanted to say something just very briefly. Our hearts go out to the families and the workers and the community of Cloncurry in Northwest Queensland, as they seek to locate these two miners that have gone missing ‑ Dylan and Trevor. I know that this will be a really difficult time and I know that that is a really wonderful town, a really terrific part of Australia, a really wonderful community. I know that they will be doing it tough right now, as the search continues, and our hearts go out to them.
JOURNALIST:
Given that this number has come in higher than expected, would you hope this would reduce the need for too many more interest rate rises?
CHALMERS:
Obviously, the Reserve Bank Board will factor this into their decisions that they take in subsequent months. But in terms of expectations, I've been saying for some time in this room, and on other occasions that we expect unemployment to tick up a little bit. But we need to remember that the unemployment rate is still near historic lows. And so we need a bit of perspective when it comes to this number, we've got unemployment with a three in front of it. We had an amazing period of six months of a new government, of jobs growth throughout the course of last year, and that's one of the things that we have going for us. Despite all of the difficulties being thrown at us from around the world and despite these rate rises, we've still got unemployment with a three in front of it and I think that's important to remember.
JOURNALIST:
The RBA's central forecast is for the unemployment rate to rise to 4.5 per cent to bring inflation down to 3 per cent in the next coming years, as though it's partly the fault of people in the market at the moment finding employment has contributed to solve this inflation. Do you think full employment would be 4.5 per cent?
CHALMERS:
I think our expectations of full employment have changed over the course of recent years. I think if you'd asked most economists maybe a decade ago or around then, they would have considered full employment to be in the mid fours or 5 per cent. I think the fact that we've been able to maintain an unemployment rate with a three in front of it has probably recalibrated people's expectations. When it comes to the interaction of the labour market and what we expect to see in interest rates, obviously I'm not going to get in the business of predicting or otherwise future movements in interest rates. But it's very clear that we've got an inflation challenge in our economy because of global conditions, because of weaknesses in our own supply chains. What I mean by that is this inflation threat that we have in our economy is not because of workers doing the wrong thing or too much wages growth or anything like that. We've had stagnant wages growth for the best part of a decade. We know what the causes of this inflation challenge are. We know what the Reserve Bank and the Treasury expects when it comes to the unemployment rate, and that is for it to tick up a bit more into the middle fours. And I think the experience of the last couple of years has taught us a lot about our expectations for full employment. One of the reasons why I'll be releasing with my colleagues the Employment White Paper later this year is because I think we do have a lot to learn from the last couple of years about the nature of our labour market and where the opportunities lie. We want to learn those lessons and we want to set us up for the future.
JOURNALIST:
On the ACCC's inquiry into bank savings interest rates, I think most people don't need an inquiry to tell them that mortgage rates go up quickly and savings interest doesn't. What's your message to the banks as they post these mega profits, on the attitude towards raising rates for savings?
CHALMERS:
Pass on the interest rate rises to savers as quickly as you pass on the interest rate rises to mortgage holders. And I understand that people are furious, when mortgage rates go up more or less immediately, and savings rates go up much slower or not at all. This is the reason why I've asked the ACCC to do some work in this space because we want to make sure that banks are doing the right thing here. I think there is a lot of community anger about this. I share people's concerns about the stickiness of savings interest rates when they're on the way up. And the ACCC has got an important role to play in looking into it.
JOURNALIST:
The housing industry today was saying the number of new home sales has halved over the three months to January compared to the same period a year earlier. This is obviously a result of climbing rates ‑ that's what they say. How are you going to achieve your housing goals? How are you going to improve housing supply at a time when climbing rates are hitting the construction industry hard and is there anything you can do about it?
CHALMERS:
I think we've got a number of indications that the housing market has softened as an obvious consequence of rising interest rates, as you say, and as the commentary around the data this week has said. Our plan to build more affordable homes is one that recognises the pressures on the industry. One of the reasons why I got the building industry together with institutional investors, state governments, local government and the Commonwealth Government is because we want to be able to understand from the industry what are the pressures, whether it be workforce pressures, the costs of building materials, some of the issues around planning and zoning and land release. That intel that we get from the industry guides us in our housing policies. We don't have enough homes in this country, we've got vacancy rates incredibly low, rent inflation is much higher than we would like and so we need to build more homes. That's what the Housing Australia Future Fund is all about and that's what the Housing Accord is all about.
JOURNALIST:
With inflation where it is, why is a neutral budget setting preferable to a contractionary budget setting?
CHALMERS:
Because we have to balance all of the various pressures and considerations in the economy. We've said inflation is the biggest threat to the economy and that means we need to be careful that where we are committing public funds that it has an economic dividend. Not every dollar that you spend in the budget is inflationary. A lot of the investments that we have been making in early childhood education or fixing supply chains and in all kinds of other ways are about expanding the capacity of the economy so it can grow faster without adding to this inflation. And so as I might have said to you on the weekend, David, or perhaps on other occasions, the magnitude of the spending matters, but so does the nature of the spending ‑ what you're actually investing in. And whether it's the IMF or others, they have said that our plans to deal with labour shortages in our workforce, our plans to make early childhood education cheaper, and some of the other things we're doing are important investments in growing the economy without adding to inflation. And also we need to recognise that the May Budget, though it will have a lot of the same guiding principles that the [October] Budget had, it will also be delivered in circumstances which are a little bit different. In October, we knew the inflation peak was ahead of us. In May, we hope that the inflation peak is behind us. We are entering what we expect to be much slower economic growth as a consequence of these rate rises and global conditions. And so we need to weigh all of that up. The May Budget won't be identical to the October Budget ‑ it will have some of the same guiding principles. But every budget has to factor in the economy as it is evolving and that's what we'll do.
JOURNALIST:
Treasurer, in tackling inflation, does it necessarily mean that there has to be an uptick in unemployment and secondly, the Greens are seeking a ban on new gas and coal projects as a condition for signing the Safeguard Mechanism. You come from a great resource state, what would be the consequence of Labor agreeing to that?
CHALMERS:
First of all, I think it is broadly accepted that the interest rate rises which are in the system are about taking some of the heat out of the economy ‑ and that has consequences for the unemployment rate. I suspect we're seeing the beginning of that in the number that is released today. Our job, our objective, our aspiration is to try and grow the economy as fast as we can, with unemployment as low as it can be without adding to these inflationary pressures. And obviously, there's a relationship between all of those objectives in the economy. When it comes to the various pieces of legislation before the parliament, what the Coalition's pigheaded approach has done is that it has dealt the Greens into the game, when the Coalition takes the absurd decision to oppose, for example, the Safeguard Mechanism that they designed and supported nine months ago, then that makes the Greens more relevant than they would otherwise be. One of the implications of the obstructionism that we see from the Opposition is that it makes the Greens relevant, at the same time it is effectively a vote for higher inflation for even longer. They should reflect on that. When it comes to the Safeguard Mechanism, for example, the business community is crying out for certainty so that they can invest. These characters in the Opposition wander around pretending to be the party of business. The business community right across the board, all the peak organisations, they want to see this passed. They want the stability, they want the certainty, they know that the Safeguard Mechanism is the best way to make sure that our economy is increasingly powered by cleaner and cheaper energy at the same time as we don't damage the competitiveness of our industries. That is agreed broadly across the business community. And the Opposition turning their back on that makes the Greens more influential than they would otherwise be.
JOURNALIST:
Will you guarantee people's loans who took out mortgages based on the Reserve Bank's advice, that rates won't rise until 2024? And based on that advice, would you like to see Philip Lowe remain as governor beyond September?
CHALMERS:
As I've said before, the decision that the government takes on Governor Lowe's reappointment or otherwise will be made closer to the middle of the year. And the reason for that is that I want to see what the Reserve Bank review says about the structure and processes and objectives of the Reserve Bank going forward. And I want to make sure that whoever we appoint governor has the ability to put in place the directions that we agree after having received the report. I think you will know ‑ we've talked about it in this room a number of times ‑ I have a good respectful relationship with Governor Lowe. Now he has a hard job to do, which is to try and get on top of this inflation challenge without crunching the economy. And we have a hard job to do in the government as well, which is to provide that relief and repair those supply chains and show that restraint in the Budget. And so my time is best spent focusing on my job, which is to focus on those things. I have said repeatedly and I mean it, the government hasn't taken a decision when it comes to Governor Lowe's position, we will genuinely consult on that with my Cabinet colleagues with the Prime Minister and others and resolve that closer to the middle of the year.
JOURNALIST:
Do you have full confidence in him?
CHALMERS:
I do.
JOURNALIST:
Treasurer, last night Senate Estimates heard that of the 36 immediate action items out of the Jobs and Skills Summit 16 haven't been implemented. What is the hold up there and when do you expect the full 36 to be implemented?
CHALMERS:
I didn't see that evidence last night but if those numbers are correct, then that sounds like we're making good progress on most of the recommendations of the Jobs and Skills Summit. Not all of them were recommendations for immediate effect, some of them involved further work, some of them crossed multiple levels of government. I thought the Jobs and Skills Summit that the Prime Minister and I hosted here last year was an important demonstration of our willingness to bring people together around some of our big economic challenges and I was absolutely delighted with the spirit in the room and the work that has been happening since the Jobs and Skills Summit. We said at the time that we would implement what we could as fast as we could and that some issues would be matters for considering in subsequent budgets. And that's the approach that we've taken.
JOURNALIST:
Accepting that you've agreed that the Reserve Bank is independent and the Governor's making the decisions, why is it that you don't have any kind of discussions with Phil Lowe around interest rates?
CHALMERS:
I'm so pleased you asked me about that because I thought what Governor Lowe said yesterday was a really important affirmation of the appropriate role between the government and the Reserve Bank. Now, Governor Lowe and I talk frequently about the economy. We talk frequently about the bank itself. We spoke last night, for example, we speak frequently. And the point that Governor Lowe was making which I agree with 100 per cent is that I don't ring up the Reserve Bank Governor on the morning of a Board meeting and say this is the outcome that the government wants.
JOURNALIST:
That's not what I'm suggesting, I'm more asking why it's not a point of discussion given how many millions of Australians this affects.
CHALMERS:
What I'm saying is we do talk about the pressures on the economy, the steps that the government is taking and the steps that the Reserve Bank is taking. When I look at what Governor Lowe said yesterday about this, he said there's no pressure from the Treasurer, he said we talk about the economy ‑ not just this Treasurer, but Treasurers before him ‑ they don't give me views about what interest rates should or shouldn't do and that's because we respect and cherish the independence of the Reserve Bank and one demonstration of that is, I know that no matter what the Reserve Bank review says when I receive it on the 31st of March, we won't be messing with the independence of the Reserve Bank. It's an important feature of our system.
JOURNALIST:
The RBA has inflation staying above the top of its target until mid '25. The stage three tax cuts kick in in mid '24. Presumably they're going to add to some aggregate demand in the economy. Is that the right time to be bringing those tax cuts in given the RBA inflation forecast?
CHALMERS:
As you know John, we haven't changed our position on those tax cuts. In every budget we factor in the conditions at the time and our expectations for the economy but our priorities lay elsewhere in some of the things I've been talking about.
JOURNALIST:
Given at least half of Australia's inflation outbreak is supply driven according to the RBA, are you at all worried about the prospect that unemployment will increase as expected and high inflation will remain entrenched?
CHALMERS:
I'm certainly concerned that we'll have inflation in our economy which is higher than we'd liked for longer than we'd like and even as the unemployment rate most likely ticks up a bit more. Obviously, that's a concern for us. And the balance that we have to strike as a government is not dissimilar to the balance that the Reserve Bank has to strike, which is getting on top of this inflation challenge while being cognisant of the fact that our economy is expected to slow considerably throughout the course of this year as a consequence of those higher interest rates and the slowing global economy as well. We balance all of those considerations up. Sometimes that's a difficult balance to strike but I'm confident that we've got the right plan.
JOURNALIST:
Treasurer, the RBA is forecasting the economy to grow in line with population growth for the next two years, about 1.6 per cent. So no real per capita growth in the economy. The figures today show two consecutive months of a fall in total employment. The ABS's retail figures showed a fall in the amount of spender consumption during the last three months, the HIA figures today point to a real downturn in the housing. Are you getting worried that the economic canary is looking a bit sick?
CHALMERS:
I think any Treasurer is worried about the prospects of a slowing economy and I am of course. When the economy slows, when the unemployment rate ticks up even if it still remains at or near historic lows, there are human consequences for that, just as there are human consequences for the decisions that the Reserve Bank takes. And so obviously, as we enter what we expect will be a really difficult year for the economy and for our people, clearly the prospects for a slowing economy and higher inflation than we'd like for longer than we'd like, obviously, that's a concern. But we have the ability here, to put in place the right economic plan which invests in growth and fixes our supply chains and makes our workforce bigger and more productive and gets that wages growth in our economy at the same time as we get on top of the inflation challenge.
I remain optimistic about the future of our economy and the future of our country. But as I've said for some time now and others have said for some time now, we expect it to be difficult for a little while longer. Our job is to make life easier for people where we can and to also make sure that we're putting in place the right economic plan to deal with these pressures in our economy in the medium term as well and that's what we're doing.
Thanks very much.