JIM CHALMERS, TREASURER:
This is really tough news for Australian homeowners who are already facing skyrocketing costs of living in the form of spiking energy prices and higher prices for groceries as well. Australians expected higher interest rates today, but that doesn’t make this news any less difficult for them. For an average mortgage of $330,000 remaining it’s about $87 a month that Australian homeowners will have to find. For an average new mortgage, it’s almost twice that at about $157 a month. So, this will be very difficult news for all of those Australians who are already facing the skyrocketing costs of living in this country.
When interest rates went up before the election it was made clear then by the Reserve Bank that interest rates would go up even further. The reality is that Government changed hands at a time of high and rising inflation, rising interest rates, and falling real wages as well. Today’s decision, in addition to the pressure it will put on family budgets, will also make it more expensive for the Commonwealth Government to service that trillion dollars of debt in the budget.
Now, in our economy, we do have some things going for us in the labour market and in terms of relatively strong household demand, but the reality is, the truth is, that we have an incredibly difficult combination of challenges as well: high and rising inflation, rising interest rates, falling real wages at a time when our ability to respond to these challenges is constrained by the fact that the budget is absolutely heaving with Liberal debt.
Now it is within our grasp, it is within our reach, to strengthen our economy and to have a better future, but first, we need to navigate through this high and rising inflation and the interest rate rises that accompany it. We need to be honest and up‑front with the Australian people about the nature, the severity, the magnitude of this inflation challenge that we confront. It is the universal expectation across economists and Government and the Reserve Bank that this inflation challenge will get harder before it gets easier. Australians already know that because they’re paying ever‑higher prices for their groceries and for their energy and now to service their mortgage as well.
The Albanese Labor Government does not underestimate the serious combination of challenges that we have inherited. We will do what we can to alleviate the pressure on Australians who are facing the worst combination of price pressures in their economy. There is some cost‑of‑living relief in the budget as it stands. Our responsibility as the new Government is to make sure in the October budget that I will hand down that there is a cost‑of‑living package that includes our policies on child care and medicines, but also to get that longer‑term downward pressure on energy prices and to get real wages moving again. This cost‑of‑living crisis has been brewing for the best part of a decade. It will take more than two and a half weeks to turn around. We’ve been up‑front about that. We want to work with Australians. We want to work with all parts of our economy to do what we can to get on top of this inflation challenge and the interest rate rises that accompany it. I will update the Parliament when it returns on this combination of challenges that we’ve inherited in the lead‑up to the October Budget as well, which will begin to deal with some of these serious challenges in the budget and in the economy that we’ve inherited from our predecessors.
JOURNALIST:
[Inaudible] inflation still [Inaudible] going to remain on this trajectory?
CHALMERS:
It’s very clear that inflation will be higher than the 5.1 per cent we saw in the most recent data release. The Reserve Bank expects that to be the case, the Treasury, of course, market economists, all expect inflation to be significantly higher than the 5.1 per cent we saw recently and clearly coming hand in hand with high and rising inflation, unfortunately, for Australian homeowners is rising interest rates as well.
JOURNALIST:
You mentioned that it’s obviously going to be more expensive to service the trillion dollars. How much more expensive?
CHALMERS:
Our Commonwealth budget has a combination of different dates for the way that that money has been borrowed, and so that combination matters when it comes to servicing costs. But when you think about the fact that it was already costing around $20 billion a year, give or take, to service that debt that we’ve inherited, part of that debt will be impacted by these rising interest rates. I will talk more about that when I update the Parliament at the end of July or soon after that.
JOURNALIST:
Do you know how many Queensland households are currently under mortgage distress?
CHALMERS:
I’ve seen reports about that and I know that there’s something like 3.4 million mortgage holders in Australia. I saw reports today about hundreds of thousands of Queenslanders under mortgage stress. Some Australians have been able to build a buffer in their home loan repayments when interest rates were low by historical standards, but not everybody has been able to do that and so this interest rate rise will impact on different people in different ways depending on whether or not they have that buffer. Interest rate rises, unfortunately, have a disproportionate impact on those already doing it tough, and when you have an economy which is characterised in part by skyrocketing costs of living, including spiking prices for energy and groceries, you can see that today’s decision will make it that much harder for a number of Australians.
JOURNALIST:
[Inaudible]
CHALMERS:
The banks would report on that sort of information and the Reserve Bank itself. Clearly there’s a combination here of homeowners who are able to withstand an interest rate rise of this magnitude, but also many Australians who will find it incredibly tough. It is appropriate that the regulators have imposed lending standards which ensure that when you get a loan – it used to be two per cent higher, now it’s three per cent higher – that you can service a loan of that size but that doesn’t mean that an interest rate rise of this magnitude today won’t make life much more difficult for people already facing skyrocketing costs of living.
JOURNALIST:
Are you considering any short‑term measures to help people out ahead of the budget coming in?
CHALMERS:
There’s already some cost‑of‑living relief in the budget whether it comes from petrol price relief or there’s been some other forms of cash payments which have been made in the context of the last budget which we supported when it came to those payments. Our job as the Albanese Labor Government is to make sure that after that when that relief runs out, that there is some responsible and sustainable long‑term and permanent relief in the budget after that. That’s why the budget in October will implement our plans for cheaper child care and cheaper medicines, and training people for higher wage opportunities to make sure that we can get real wages moving again, implement our Powering Australia Plan, which is all about cleaner and cheaper energy over time. Those are our priorities in our economic plan. You’ll see that in October.
JOURNALIST:
Is household relief a live option for the Government in response to higher costs‑of‑living pressures especially power prices?
CHALMERS:
Well there’ll be cost‑of‑living relief in the October Budget in the form of child care relief, in the form of relief from the costs of medicines. When it comes to getting real wages moving again and getting that downward pressure on energy prices clearly, the budget in October will take into consideration all of the various pressures that Australians are facing at the time. Budgets should always recognise and respond to and reflect the precise combination of economic challenges that exist at the time.
The best thing that we can do as a Government is to make sure that we grow the economy without adding these inflationary pressures, that we get real wages moving again, and that we actually have something to show for this trillion dollars in debt that our predecessors have racked up, because what really matters here, when it comes to the level of Government spending in the context of high and rising inflation, is not just the magnitude of Government spending but the quality of that spending as well. Our economic plan is all about growing the economy without adding those pressures. You do that by training more Australians to alleviate some of those capacity constraints by making it easier for people to work more and earn more via the child care system, if that’s what they want to do, and by investing in key sectors like advanced manufacturing, the care economy and others.
JOURNALIST:
You’ve had a couple of weeks now to look in the books since the election. What have you found and how confident do you feel that there’s enough there to be able to offer some sort of relief when you hand down the budget in October?
CHALMERS:
We already identified just before the election something like $11.5 billion in budget improvements which for an Opposition is a good start and a good effort. But Katy Gallagher and I have already begun going through the budget line by line we’ve got that audit of rorts and waste in the budget for a reason and that’s because what we desperately need to do in the context of high and rising inflation and rising interest rates is to make sure that every dollar we invest in the budget is going to a good economic purpose. For too long now, the best part of a decade, our predecessors treated the budget as a giant political slush fund, and we need to change that by re‑orienting money which isn’t direct towards useful and productive investment in the economy to make sure that we actually get an economic dividend from it. That work has already begun.
JOURNALIST:
[Inaudible] the previous Government’s assertion that increased wages would have inflationary pressure. Is your advice from Treasury in the first few days of the job consistent with what you believe that the stimulative effect of that will offset any [Inaudible]?
CHALMERS:
I worked really closely with the Treasury in the submission that the Albanese Government made to the Fair Work Commission. I worked closely with Tony Burke with Anthony Albanese and with the Treasury to make sure that we made the case that in a time when Australians across the board, but particularly low‑paid Australians, are facing these severe cost‑of‑living pressures; they shouldn’t be going backwards, and the reason we know that that’s not inflationary of itself is because something like 9 out of the last 10 Fair Work decisions have been in line with or on top of inflation. This is not the challenge that we have in the economy. The challenge in the economy we’ve had for the best part of a decade is stagnant wages and the fact that no matter how hard people work, they just can’t keep up with these rising costs of living. So, we’ve made a responsible recommendation, based on Treasury advice to the Fair Work Commission that low‑paid Australians shouldn’t go backwards during this cost‑of‑living crisis.
JOURNALIST:
You mentioned that inflation is going to be higher than the 5.1 per cent that it’s running at now. In Labor’s – in the Government’s submission – let me start again. In the Government’s submission to the Fair Work Commission, you outlined the 5.1 per cent. Should you have made that number higher, or should there be some kind of an addendum statement so that people aren’t going backwards, because if it’s going more than 5.1, they’re going to be going backwards.
CHALMERS:
The point that we make in the submission is that the Fair Work Commission is asked to consider the most recent data that they have on the economy. They’re making that decision as we speak, and the most recent data on inflation is 5.1 per cent headline and 3.7 per cent underlying and they’ll take both of those numbers into account. We would like to make a submission to the Fair Work process when it comes to minimum wages at each opportunity based on the economic circumstances. We have not proposed that there be some kind of automatic mechanism that takes the most recent inflation number and automatically flows it through to wages because you need to take a whole bunch of factors into consideration. The most important one in this submission is that inflation number. We don’t think people should fall behind that. We will make future submissions based on the economic circumstances.
JOURNALIST:
The average worker listening to today’s news you’re talking about an extra $87 a month and they hear you talk about a commitment to increase wages. Is he or she thinking, “Oh, well, I’m getting an extra 87 bucks a month in the pay packet to make up for it”?
CHALMERS:
I think Australians understand that they’ve just turfed a Government who said that a deliberate design feature of their economic policy was to keep wages growth low, and that was mission accomplished for the best part of a decade. For too long what’s been neglected in this cost‑of‑living equation is the fact that wages have been stagnant and for the last little while real wages have been going backwards. You can get sensible, responsible, sustainable wage growth by making the economy more productive, which is why our policies on training and child care and investments in advanced manufacturing, investments in the NBN, that’s all about making the economy more productive so that you can have wages growth over time at the same time as you’re not adding these inflationary pressures. That’s the key.
JOURNALIST:
Is this basically like the shit sandwich you needed to have with all these different things happening at once and now you’re basically arguing that Australians need to be patient; these things obviously can’t be fixed overnight and in the immediate and the short term, it’s going to suck.
CHALMERS:
I think Australians understand when a lot of these economic challenges have been brewing for nine years that they can’t be fixed in two and a half weeks. I think Australians do understand that. What we’ve tried to do in the time that we’ve been in office, the short time that we’ve been in office, is to be really up‑front with people about the nature and the magnitude of these challenges. They feel it for themselves in their household budgets, and what they need is a Government which understands these challenges, which doesn’t overpromise and under‑deliver but acknowledges these challenges and wants to work with people to address them. I think it’s self‑evident now that when the Government changed hands, we had that high and rising inflation. We had rising interest rates. We’ve got falling real wages. We’ve got a trillion dollars of debt in the budget. All of those things are facts. They’re not opinions. Australians are up for a responsible mature upfront conversation about these challenges. We do have things going for us as well but right now the defining issues in the economy are around skyrocketing costs of living and falling real wages. We now have a Government which takes these challenges seriously and cares enough about addressing them over time to deal with them, and that’s what you’ll see in the October Budget.
JOURNALIST:
On the energy crisis do you believe that there’s a deliberate manipulation of the energy market by the major players particularly in terms of the gas and coal supply?
CHALMERS:
One of the reasons why I’ve asked the ACCC to dial up their monitoring of prices in energy markets and to advise me on any regulatory changes that they think are necessary based on the evidence that they collect is because we want to make sure that we’ve covered that angle. We want to make sure that there’s nothing dodgy going on in energy markets at a time where there is this extreme volatility, which is absolutely punishing industry and punishing ordinary households as well. We want to make sure that the markets are operating effectively in a competitive way. That’s what the ACCC is responsible for. I work closely with them and with Ministers Bowen and King and with the Prime Minister to make sure that a time when energy prices are going through the roof, there’s nothing untoward happening in the pricing.
JOURNALIST:
So, should the resource sector be making a greater contribution to the budget bottom line given how much the companies who are selling Australian resources are making?
CHALMERS:
We’ve seen developments overseas when it comes to some of those policy proposals in the UK and elsewhere and obviously, we monitor all of that. But in saying that, all options are on the table we’ve also made it clear that we’re not progressing an idea of that nature. Our priority is to make sure that we’re working with states and territories and Chris Bowen is meeting with the relevant ministers tomorrow. We’ve engaged the ACCC. Madeleine King has engaged the gas companies. Ed Husic’s engaged the manufacturers. If there are steps that need to be taken on the regulatory side to make sure we’re doing what we can to take some of the sting out of these high energy prices, then we will take those steps, but some of those proposals that we’ve seen in the UK and elsewhere are not part of something that we’re progressing. Thanks very much.