JIM CHALMERS, TREASURER:
I wanted to speak briefly about two sets of numbers that we've received in the last 24 hours or so. Of course, the inflation number that just came out, as well as the growth forecasts for the world economy from the International Monetary Fund.
Inflation is high and rising and global growth is slowing and both of these things have a direct impact on Australians and their living standards. We are not surprised to see inflation north of six per cent but it's still confronting. This is not a surprising outcome but it's a confronting outcome. It's not news to millions of Australians who feel this inflation challenge every time they go to the supermarket and every time the bills arrive. This inflation outcome today mirrors the lived experience of Australians who are doing it tough right now. If you have a look at the release from the ABS when it comes to inflation, as you know, it rose by 1.8 per cent in the June quarter to be 6.1 per cent higher through the year. This is the highest rate of annual inflation since June 2001. It is the equal highest inflation in the inflation targetting period. And that's the headline number, obviously, the trimmed mean was 4.9 per cent through the year in the June quarter, which was stronger than the market expected. And so these are confronting numbers when it comes to the cost‑of‑living pressures that Australians in every corner of our country are feeling.
Inflation is high and rising, it will get tougher before it starts to ease. The reality is that this quarterly outcome doesn't yet include the electricity price spike that came in in July. So these numbers are obviously for the June quarter. And there is price pressure to follow the period that we're learning more about today. Before I get on to the IMF, I wanted to welcome the Bureau of Stats indicating in the release today that they will release, next month, a paper on how they can provide more frequent updates on the CPI, heading towards a monthly indicator. I think we've all in different ways spoken at different times about how hard it is to keep track of official inflation when it comes out quarterly. And so, I really wanted to welcome Dr Gruen's efforts in this regard and the ABS to try and give us more frequent updates on inflation on the CPI in our economy.
The inflation in our economy is primarily but not exclusively global. There are domestic factors as well. And that's why we are focused as a government in dealing with some of the supply chain issues which are pushing up inflation here in Australia, whether it be the issues around labour shortages, or the issues about a lack of resilience in our supply chains. I think Australians understand when they're at the supermarket, when prices are going through the roof, that this challenge is partly global but there are domestic components of this challenge as well and I wanted to reassure them that the government is very focused on those domestic factors.
The global slowdown which has been described by the International Monetary Fund is very concerning to us as well. The global economy is treading a precarious and perilous path. And you can see that in the quite substantial downgrades that the IMF has released overnight. The concerns that we all share are centred on the American economy. Of course, their inflation problem is even more difficult than ours and their central bank has indicated that they are prepared to intervene quite sharply. And so, the rest of the world is watching that and monitoring that with great interest. There are issues out of China, particularly with the management of COVID. Still pursuing a version of COVID Zero in China has implications for the global economy too. Obviously, Russia's illegal, immoral, invasion of Ukraine has dire consequences for energy and food security and we're all feeling that around the world as well. And then you've got vulnerable countries like Sri Lanka and others that are in some strife when it comes to the management and the maintenance of their debt. And so, the IMF is reacting to those pressures and other pressures in sensibly downgrading their expectations for global growth. If you look at the release, as some of you have, they're downgrading the outlook for global growth this year to 3.2 per cent. It was 3.6 per cent. They expected the global economy actually contracted in the second quarter of this year and they expect global growth in '23, to further slow to something like 2.9 per cent which is two thirds of a per centage point downgrade since the April outlook. And so, that gives you a bit of a sense of the concerns that the IMF have and that we share here in Australia given the potential impacts on our own economy.
My Ministerial Statement tomorrow will show the combined impacts of rising interest rates and slowing global growth on our own economic growth here in Australia. It will be primarily focused on the economic forecasts rather than the Budget forecasts, it will focus on the implications of this high inflation which brings rising interest rates and the implications of the global situation that the IMF has described and what all that means for Australians and for their economy as well. It will be confronting in the sense that ‑ what you can expect to see in the Ministerial Statement tomorrow is inflation revised up substantially, growth revised down, and all of the implications that that brings. So the Ministerial Statement tomorrow will provide you with forecasts for inflation, for wages, for economic growth, for unemployment, and some of the related measures. It will also begin to describe what we expect that to mean for the Budget in October when it comes to the bottom line. Many of you have followed closely the monthly release of the financial statements, which show that we've been very fortunate, in the last Budget year and the beginning of this Budget year, because of commodity prices and lower than expected unemployment ‑ that we have had some things going for us in the Budget. But what I will explain tomorrow and describe tomorrow is that the things that have been working for us in the Budget, are temporary, highly temporary, and some of the challenges are more enduring. And part of those enduring challenges in the Budget will be the impact of some of the revisions that we'll have to do to our economic forecasts, as well.
I want to remind you, of course, that forecasting is always difficult, but particularly in volatile times like we find ourselves in now. The choice that I had to make was whether to wait until October or indeed wait until May when the original Budget was scheduled before I provide these forecast updates. And there is always a risk in providing new forecasts, particularly out of cycle, because frequently, as we all know, forecasts are not bang on. But I wanted to make sure that Australians understood and understand the circumstances as we expect them to be over the coming months and years, so that they can understand the types of decisions that might be made necessary by those economic conditions.
I'll finish on this set of points. We've got a lot going for us in Australia. We've had good prices for our commodities on global markets. We've got unemployment historically low, which is obviously very welcome. But one set of things that I think we really have going for us as well ‑ and I detect it around Australia in the broader community ‑ is there is an appetite for real talk about our economic position. There is a hunger ‑ after a decade of division ‑ for Australians to come together around our economic challenges. And there is an understanding that it is not possible to clean up nine years of mess in nine weeks. It will take time for us to get on top of these issues, as I've described them, but we will get on top of them. Inflation will get worse before it gets better, but it will get better. Some of these other challenges with the right policies and the right mindset and the right approach and with some degree of patience will turn around for us as well but it's going to be a difficult time ahead. The inflation numbers show that, as do the new forecasts from the IMF. We'll go Chris and then Clare and then Ron.
JOURNALIST:
Treasurer, you're expecting that inflation will peak like the Reserve Bank now somewhere above seven per cent by the end of the year and then come down. You were recently overseas, and one of the things that we know from history is that a persistent high oil price and war lead to a move from a low inflation environment to a high inflation environment. Are we seeing a tipping point in the world? Do you think that we might have persistent high inflation?
CHALMERS:
Well, it remains to be seen, but our forecasts have our expectations for inflation peaking towards the end of this year, beginning to moderate next year, but off an incredibly high base and so, it will take some time to get to more normal levels of inflation.
The particularly challenging aspect of the oil price in particular ‑ and obviously, Russia, Ukraine, and the necessary sanctions have played a role there ‑ there's a lot of pressure on energy security around the world. The difficulty with oil prices, as you know, is it has an inflationary impact, but also has an impact on global growth. And that's one of the issues that the IMF has identified. Clare and then Ron and then Andrew, then Shane.
JOURNALIST:
Thanks Treasurer. [INAUDIBLE] Does the government now support the minimum wage rising in tandem with inflation? And if not, what is the government doing now to ease that cost‑of‑living pressure that people are feeling now?
CHALMERS:
Yep, thanks Clare. So we were very pleased with the decision taken by the Fair Work Commission with our encouragement to give low‑income Australians a decent pay rise that allowed them to keep up with the skyrocketing costs of living. We said then, and we've said subsequently, that each time that the Fair Work Commission meets to determine the minimum wage, they should take into consideration the whole range of economic conditions. And so, we will make our submission when the time comes ‑ we've only just been through a wage review round ‑ so when the time comes, we will factor in the cost of living, we will factor in all of the other considerations when we make our submission, and then they will make their decision independently.
On the government's broader steps to ease the pressure on people during this cost‑of‑living crisis ‑ it is not possible with our Budget constraints to fund every good idea that people might have about cost‑of‑living relief. We need to tread a pretty careful path here. When it comes to the Budget, we've inherited a Budget heaving with a trillion dollars in Liberal Party debt. We've got to make sure that everything we do ticks more than one box ‑ cost‑of‑living relief, but also has an economic dividend. And that's why our focus is on childcare cost relief, which is incredibly important, as well as relief in the cost of medicines. There are a range of good ideas out there about other things that we might contemplate but we are intent on being responsible economic managers. And so, we're operating under some pretty severe fiscal constraints. Ron.
JOURNALIST:
Thanks Treasurer. [INAUDIBLE] you said that there were significant Budget pressures that were not disclosed by the Coalition that would make those monthly figures that we’re seeing not so good come time for the Budget. And you indicated you might give us a bit of insight into those. Are you still intending to do that tomorrow and outline what some of those are?
And just on the IMF, one of the big issues for the Eurozone, is that sort of Nord Stream and the supply of Russian gas into Germany and the rest of Europe [INAUDIBLE] With the reduction of the supply through Nord Stream as well, that 40 per cent down to 20 per cent reduction and the 15 per cent reduction across all of the Eurozone, is there anything that Australia is looking at doing right now to support Europe during this process?
CHALMERS:
Well, we've got our own challenges in our gas market, which I'm working closely with Madeleine King and Chris Bowen on and before long, I'll be releasing the ACCC report into our gas market. And so, our focus has been – at least in the last few days ‑ largely domestic when it comes to the pressures on the gas market. But I know from that G20 meeting I attended in Indonesia, which many of you covered, that arguably, if not the highest concern, the most prominent concern people have, at least around the top of the list is energy security.
The Americans have publicly proposed a way to arrange the sanctions so that there's a price cap on Russian oil and I think most countries are contemplating a version of that, but largely the G7. So there are some conversations that are underway, but in the last week or so my main focus has been domestic.
JOURNALIST:
[INAUDIBLE].
CHALMERS:
So you got a good sense of one of those yesterday from Stephen Jones. So quite soon after the government changing hands, we learned that in one of the government's programs, there was something like a billion‑dollar unfunded shortfall. And the more we look, the more likely we are to find those kinds of challenges. That is in addition to some of these programs that were slated to end, in our view prematurely ‑ the hospitals deal with the states is an obvious one there. You're all familiar with the issues around paid pandemic leave. And so, there are a number of pressures which we've had to budget for, or we will have to budget for in one way or another, which are putting pressure on the Budget. And I'll have a bit to say about that tomorrow but the Ministerial update will be largely focused on the economy rather than presenting four new underlying cash balances. Probs and then Shane, and then Pat.
JOURNALIST:
Treasurer, wage stagnation has been Labor's political preoccupation for some years now. Are we going to have any real wage growth within this term of government? Are we going to have any real wage growth in the next 12 months?
CHALMERS:
I'll speak about this at some length tomorrow but what I'm prepared to say in advance of that, is clearly when we've got inflation already north of six per cent, we expect it to get higher and I'll detail that tomorrow too. The idea that we would be forecasting wages growth that keeps up with that, I think would not be credible in the near‑term. I will give you a bit more detail tomorrow as we process the numbers that we just received in the last hour or so. That gets fed into the numbers that I'll provide tomorrow. But my expectation is that there will be real wages growth, in this term of the Parliament.
It has proven particularly tricky to forecast wages growth in the last little while so I'm conscious of that and cautious about that. But there are two parts of the story. Inflation needs to moderate. And we need to get that sustainable, responsible wages growth in the economy that is, in many ways, a primary focus of our economic policy. So our expectation is that the real wages outlook will improve this term. And I'll give you some more detail on that tomorrow.
JOURNALIST:
Can you define the near‑term? You just said near‑term, don't expect it.
CHALMERS:
I'll provide some more information...
JOURNALIST:
Is that 12 months or six months?
CHALMERS:
I'll provide some more information tomorrow. Shane.
JOURNALIST:
Treasurer, just two points. The IMF report said that governments need to look at deeper spending cuts to take pressure off central banks. Is that going to be part of the picture over the next few months? And just technically, will the forecast tomorrow be based on the market pricing of the cash rate over the next 12‑18 months?
CHALMERS:
On the first part of your question, Katy Gallagher and I are looking for ways to trim spending in the Budget, as you know. And that begins with the audit of rorts and waste which we've spoken about before but it doesn't necessarily end there. If there are other opportunities to remove duplication in the Budget, or to sensibly trim spending, then we're obviously prepared to do that and we've been engaged with colleagues, Ministerial colleagues about this for some time, and they've been constructive about it in welcome waves. But what we need to balance here is we've had in this country a wasted decade of missed opportunities and messed‑up priorities where we haven't seen the investment in the economy that we need to see. And that has made us more vulnerable to the sorts of shocks that we're going through now, whether it's global inflation, or both. And so our task is to responsibly trim spending that's not providing an economic dividend and redirect it in ways that does provide an economic dividend ‑ in some of the areas we've talked about ‑ cleaner and cheaper, more reliable energy, and childcare and skills, investment in industries which will be big employers.
And so, even in the event that we find substantial savings, we recognise that at least some portion of that will need to go towards funding our priorities, which is so important to getting the right kind of growth into the future. Pat.
JOURNALIST:
[INAUDIBLE] cash rate pricing, underpinning the forecasts?
CHALMERS:
The Treasury will be using the usual assumptions around the cash rate. I don't intend to get into that in a lot of detail in the Ministerial Statement tomorrow, but when the numbers are finished running and when I've given the speech, if we can provide you some more information on that, I'll do that. But I haven't been proposing a substantial change to the methodology. I think I said Pat next.
JOURNALIST:
Economists say that high inflation doesn't affect all parts of society equally. So who's bearing the brunt of this kind of high and rising cost of living?
CHALMERS:
There's a lot of commentary about people having buffers in their home loans, for example, which wrongly assumes, in my view, that interest rate rises and inflation isn't hurting people. It already is. For every dollar that people find to service their mortgages, every extra dollar, it means a dollar that can't go to funding the skyrocketing costs of other essentials. And so, I think we need to take a broad view about the impact of inflation on the economy, but also on the most vulnerable Australians.
A lot of people are living pay cheque to pay cheque for whom this inflation will be devastating because it's getting harder and harder for them to substitute things out of their household budgets. I speak to people, I try and be a relatively engaged local member, I try to engage beyond the capital cities and all of that and what you hear again and again and again, is that maybe in the first instance people started winding back on discretionary items ‑ Netflix or something like that, we saw that in Netflix's numbers ‑ but it comes to a point when people are trying to work out what's left to substitute out? I think that's the practical demonstration of what's happening here. Because at some point, the most vulnerable people are making decisions between vegetables or rent. And that's when it really bites.
I think we'll go Rob, then John, and then here.
JOURNALIST:
Thanks Treasurer... the high cost of petrol obviously, is one of the main drivers of inflation going through the roof. The terminal gate price has come down but we're not seeing savings passed on. What more can be done about that? And what do you say to those retailers?
CHALMERS:
Australian motorists, for good reason, get absolutely filthy about when the global price goes up, the price rise gets passed on immediately and when the global wholesale price comes down, it seems to take longer. Australians are filthy about that and they should be. And so, service station owners, the companies shouldn't treat Australian motorists as mugs.
People desperately need some relief to these cost‑of‑living pressures. And so, if and when the wholesale global price comes off, so should the price at the bowser.
JOURNALIST:
Thanks, Treasurer. Given the IMF and I think you're maybe foreshadowing that growth next year is likely to fall below trend, it's going to be challenging, is it not to keep the unemployment rate with a three in front of it over the medium‑term and do you think that's a realistic goal to do that?
And just, you've been talking a lot about the Budget opening up supply of the economy ‑ have you got any ambitions to expand that beyond the election measures that you've been talking about like childcare, cleaner energy, skills, and that sort of stuff given that we're in a different environment now?
CHALMERS:
On the first part of your question, I mean, clearly, if the impact of rising interest rates and slowing global growth is a downgrade to our expectations for growth here, that will have an impact on the unemployment rate. And I'll talk a bit more about that tomorrow.
My reluctance to give you specific numbers today is because when you get a number at 11.30, you feed it through all the various models at the Treasury and they come back with a final set of numbers. So I'm reluctant to be much more specific than to say if rising interest rates and slowing global growth will slow our economic growth here, then you can expect that to have implications for unemployment as well.
JOURNALIST:
Just on the supply side ‑ any plans beyond the election measures that were not already announced?
CHALMERS:
We'll keep looking for ways to untangle and unclog supply chains in the economy. I think as I said in some detail last week, we've got the independent Reserve Bank doing what they can on the demand side of the economy. There's a role for government, focusing on what we can influence and one of the things that we can influence is to try and make our supply chains more resilient. If there are other ways to do that within our fiscal constraints, then obviously we'd look at them.
JOURNALIST:
Some of the highest figures in the inflation numbers are around housing, not just construction, but rental affordability as well like places ‑ like rent's up 11 per cent in Darwin... Perth. You mentioned a minute ago people are choosing between rent and food. How do you reflect on those numbers in light of what more the government could be doing on housing but also rental affordability?
CHALMERS:
Well obviously, the specific challenge in housing is the cost of labour and the cost of materials and that flows through to the rental market as well, not just the owner/occupier market. And so that's obviously of concern as well. That's one of the reasons why some of our most substantial policies, which you'll see budgeted for in October are around housing. Whether it's Help to Buy, whether it's the Housing Future Fund, we've made housing a big priority, because that's a big part of this inflation challenge. And then Michelle, then Pablo, and then we'll finish.
JOURNALIST:
Your government has all but ruled out extending the fuel excise cut. Is today the day you actually take that off the table or is there a glimmer of hope that there may be an extension to come?
CHALMERS:
I said during the election campaign, before the election campaign and after the election campaign that Australians shouldn't expect us to be able to afford to extend that petrol price relief. And I've tried to be up‑front every single time I've been asked about this.
You know, the price tag attached to even a six‑month extension is around $3 billion. And we have inherited a trillion dollars of debt with not enough to show for it. We've got to walk that fine line between responsible investments and growing the economy the right way and dealing with these supply chain issues, at the same time, as we recognise that every extra dollar that is borrowed costs more to service. And so that's the conundrum. And I don't want to give people false hope when it comes to the end of that program.
We've said, really since the day that it was introduced by our predecessors that people should expect it to end in September. And I know that will be really difficult for people. And I think about it ‑ there hasn't been a day I haven't thought about it in one way or another. But my responsibility to the Australian people is to be as responsible as I can with taxpayer dollars. And when I think that something is likely to be too expensive for us to responsibly fund, then I'm going to say so. We'll have Michelle, then Pablo, then we're done.
JOUNALIST:
In these straightened times, many Australians will be looking towards their superannuation and anxious what's happening to that. And yet the government is looking to wind back some of the protections and information that consumers are getting. How do you justify that?
CHALMERS:
We want to end the ideological war on super. And the big opportunity, not just for the government, but for the country is to recognise that superannuation is one of the things that we've got going for us. We want to make sure that the regulatory arrangements are right. We want to make sure that superannuation is being paid, we want to make sure we get to that 12 per cent superannuation guarantee. At some point, I'd like to find a way to responsibly fund paying it on paid parental leave. There's a whole bunch of things we should be doing in super which we now have an opportunity to do because we're not caught up in that ridiculous ideological war on industry super, in particular, by a Liberal Party which pretends to support superannuation at the same time as they undermine it at every turn.
We created super, we're proud of it, it's not perfect, there are ways to improve it. And we give ourselves ways to improve it by making sure that we've got all the arrangements in place in a way that's not ideological, it's not partisan, it's all about the best thing for the funds and therefore the members of the funds.
JOURNALIST:
Your changes don't necessarily benefit members. I think Peter's written a pretty good piece today explaining some of those changes that haven't been published, except for on the website. How do you...
CHALMERS:
Our efforts are about responsibly striking the right balance in the regulation of superannuation and a lot of the changes that have been imposed on funds and members over the last decade have not been well motivated. And our efforts are all about striking the right balance but most importantly, as I said, in response to Michelle, making sure that superannuation is appropriately recognised as one of the big strengths in our economy, one of the things we have going for us and we should be looking for ways to ensure it makes a bigger contribution rather than engaging in fights about regulatory matters. [INAUDIBLE]
JOURNALIST:
Treasurer, you spoke about vulnerable Australians bearing the brunt of this. But, again, looking forward to the Budget, you've expressed your apprehension about the short‑term cost‑of‑living measures. Are you prepared to say to those Australians, your hands are tied and there's very little you can do?
CHALMERS:
My message to Australians doing it particularly tough is that we will do what we responsibly can to ease the pressure that they're under and we will do that within the pretty serious fiscal constraints that we've inherited. So our focus, our priority, as we've said ‑ childcare, making childcare cheaper, making medicines cheaper, and dealing with some of these supply chain issues which are pushing up inflation in our economy.
I think Australians understand that this inflation challenge is primarily global, but not exclusively global. And I assure them that anything that we can responsibly do to take some of the pressure off them over time, we will consider doing but part of that is being up‑front with people about what we can afford and what we can't afford.
I've tried to set that tone every day that I've been in this job because we don't want to stuff people around and raise people's expectations. This is a confronting period in our economy domestically and globally. I'll talk a bit more about this tomorrow. And the government takes its responsibilities seriously. We didn't make this mess but we take responsibility for cleaning it up. It will take more than nine or 10 weeks. Thanks very much.