Jim Chalmers:
The Reserve Bank has just cut interest rates by a quarter of a percentage point to 3.6 per cent. This means 3 interest rate cuts in the space of 6 months. It means the lowest interest rates for more than 2 years. This is very welcome relief for millions of Australians. It will put more money in the pockets of people who are under pressure. It means $109 a month for every $700,000 owed, and the 3 cuts this year together are about $330 a month, or almost $4,000 a year. When you put together the 3 rate cuts we’ve seen in the last 6 months, that will deliver a saving of about $4,000 a year for every $700,000 owed on a mortgage.
This welcome decision wouldn’t be possible without the progress that Australians have made together on inflation. Getting inflation down from those very high peaks in the year that we came to office, down to well within the Reserve Bank’s target range has given the independent Reserve Bank the confidence to cut interest rates 3 times this year.
To give you a sense of the achievement here, the Australian people together for the first time in almost 2 decades have delivered an outcome in the labour market and in interest rates which means that for the first time in almost 2 decades we’ve seen 3 interest rate cuts in a calendar year with the unemployment rate still lower than 5 per cent. That gives you a sense that here in Australia we’ve been able to get inflation down, we’re seeing interest rates come down 3 times in 6 months at the same time as we have maintained historically low unemployment as well.
These rate cuts won’t solve every problem that we have in our economy, but they will certainly help. This relief is welcome because it will take some of the pressure off millions of Australians with a mortgage. But this progress on interest rates, on inflation, on real wages and in the budget also puts us in good stead to focus even more substantially on the bigger structural issues in our economy as well.
These interest rate cuts and the progress that we’ve made in our economy, they put us in good stead for the global uncertainty that surrounds us and for the big economic challenges which confront us as well. Inflation is down substantially and now in a sustained way. Interest rates are coming down multiple times. Unemployment is low, real wages and incomes are growing, debt is down, but we know that people are still under pressure. We know that the global environment is uncertain. We know that growth in our economy is not what we need or want it to be, and we’ve got these persistent structural issues as well. And if you look at the revised forecast released by the Reserve Bank today, you really see just how important the government’s focus on productivity is. Productivity is the most serious economic challenge we have in our economy when it comes to those persistent structural issues. Productivity is the main one and that’s why it’s the central focus of the reform roundtable next week.
We do have a productivity challenge in our economy. That challenge has been longstanding. It is also global as the Reserve Bank points out. But it is substantial and it is the government’s primary focus not just next week at the roundtable but, indeed, for the course of this parliamentary term.
So we’ve got a big agenda. Our economic plan is front and centre. We’re focused on delivering it, and the best way to work out the next steps in our economy is to do that together and that’s what the reform roundtable is all about. Today’s very welcome decision on interest rates gives us confidence that we are on the right track, but obviously, as always, there’s much more to do.
Happy to take a couple of questions.
Journalist:
Treasurer, you’ve set up a $900 million National Productivity Fund [inaudible] states and territories to take initiatives about cutting red tape in the housing sector and such. Would you think to be increasing that amount to turbo charge one of your intended roundtable goals to combat overregulation in Australia?
Chalmers:
Well, we see the states and territories as really important partners in productivity. We’ve made that clear. We’ve been working closely with my state and territory counterparts for some time, including via that productivity fund that you referenced in your question to see where there are reforms of national significance which require the Commonwealth to incentivise the states to do the right thing by the national economy. So we’ve provided that $900 million fund, that fund has not been completely committed yet, so there’s still a bit more to do out of that initial allocation. Let’s see how that goes before we start committing extra money.
I’ll be meeting with state and territory treasurers on Friday in advance of the roundtable. Treasurer Mookhey will be joining us at the reform roundtable as well. Which is a good thing because so many of our economic challenges – productivity, resilience, sustainability – rely on the states and territories putting in as much effort as the Commonwealth is prepared to.
Up the back, yes, Anna.
Journalist:
Treasurer, we just heard from the – off the shadow cabinet they’ve resolved to reverse the Palestinian statehood decision if elected. What’s your view on that? And if I could just secondarily ask whether or not as part of your efforts in the productivity space you are reviewing grants to the Northern Territory Government?
Chalmers:
In reverse order, that’s not something that I’ve been considering. Obviously we want to make sure that the funding provided to the territory is effective and efficient. That’s true of all of the states and territories. I know that there is some commentary, particularly around Garma and in other contexts, about making sure we get value for money. That will always be the government’s priority but I’ve been focused on some other issues.
When it comes to Palestine, I think it’s been clear from the comments made by our political opponents that they want no part of the global momentum and the global progress that is being made here. And I think it’s a very good thing that Australia is making our contribution to that progress and to that momentum. The two‑state solution is the best way to break this endless cycle of violence that we’re seeing in that part of the world, and recognition is an important step in that right direction.
Now, we’re not naïve about how hard it will be, but we will continue to work with the international community to keep the authority up to the mark on the commitments that it’s made. But we need to remember what this is all about in its essence – this is all about making sure that families in Israel and in Palestine can raise their kids in peace. And for too long we’ve seen this unnecessary bloodshed. It would be better if our political opponents played a more constructive role. It is disappointing, but not especially surprising to see that they’re not prepared to play that constructive role.
We’ll go Trudy then Charles then Ron.
Journalist:
So just continuing on from that, so you want to hold the Palestinian Authority to account here. Can you foresee Australia restoring funding to the Palestinian Authority? It happened up until 2018, it was cut off by the Morrison government. Can you foresee that happening?
Chalmers:
Look, I’m not here today to talk about that level of detail when it comes to these considerations. I’ve tried to give a fulsome answer to Anna’s question because the Prime Minister and Foreign Minister yesterday and others have covered some of these questions in a bit more detail. My focus is on the interest rates decision and preparations for next week’s roundtable.
Charles then Ron.
Journalist:
One of the reasons given for the hold from the Reserve Bank last time was the timing was out with the quarterly CPI data. Seemingly given this decision, they’ve used mortgage holders’ money to buy themselves some certainty. Can you give an update on where the government and the Bureau of Statistics and the Reserve Bank is at with modernising that system so that we don’t have situations like we’ve had just now?
Chalmers:
Yes, well, I’m very proud to say that from – I think from memory – October or November the first of the full monthly figures will be provided. So we’ve worked very closely with the Bureau. Again, I shout out David Gruen and also Andrew Leigh and our team for the work that they’ve done. We want to make it easier for everyone in the economy to make better decisions based on quicker, more accurate, broader data. And so we’ll be instituting that monthly CPI before the end of the year, and that’s a very good thing. That will help the Reserve Bank. It will help the government with its decision‑making, but the broader community as well to understand the movements in prices in something which is a bit closer to real time.
Ron.
Journalist:
Treasurer, what is your assessment of the neutral cash rate? Do you expect Treasury will have to follow suit with the RBA in reducing the productivity assumptions? And just on AI, if I can, ahead of the election Ed Husic as Industry Minister had been working on a fairly substantive piece of work around artificial intelligence and a framework to regulate that. Is that now dead, buried and cremated?
Chalmers:
Of course not. All of the work that we’re doing is building on the work that Ed did in the first term. I’ve publicly on a number of occasions acknowledged not just Ed’s interests but Ed’s expertise and effort over a long period of time in these areas and I do that again today.
Our responsibility on AI is to find a responsible middle path between people who say just let it rip and people who pretend that we can turn back the clock. None of those are realistic options for Australia. And so we’re working very hard with Ed’s successor, Tim Ayres, with Andrew Charlton and with other colleagues to make sure that we find that responsible middle path so that we can capture the tremendous upsides of AI at the same time as we manage the very real risks, whether it’s the creators or workers and the like. And so that’s our intention. That’s our objective. That’s our focus as we work through some of the very complex issues around AI.
The other 2 parts of your question, the first one around assumptions about neutral interest rates, obviously economists, including at the bank and at the Treasury have assumptions around that. That’s not something that I focus on. We know that interest rates have been restrictive for some time. We know that part of getting on top of that inflation which was extremely high in the year that we were elected has meant higher interest rates, and that’s put pressure on people and that’s why it’s so welcome that we’ve had these 3 rate cuts in 6 months, getting closer to neutral, however you want to define neutral interest rates.
Now, when it comes to productivity, the Reserve Bank has downgraded their assumptions for productivity in the forecasts that they’re releasing today. That’s not unexpected and it really does shine a light on the productivity challenge that we have in our economy, which we’ve acknowledged. The Reserve Bank also says that this challenge is a global challenge and a longstanding challenge. It’s not a problem that emerged in our economy 3 years ago, it’s a problem which has been a central feature of our economy for a couple of decades now, and it will take time to turn around as well. The main difference between the Treasury’s assumptions around productivity and the Reserve Bank’s is the RBA takes a much shorter period – they’re talking about an assumption over the next couple of years. The Treasury assumption is a longer‑run assumption around 10 years, and that’s why the 2 assumptions aren’t directly comparable.
Clare, next to you, Jacob, then up the front, then we’re done.
Journalist:
Thanks, Treasurer. One of the ideas that different voices seem to be coalescing ahead of the roundtable is the introduction of some kind of road-user charge. If there were to be some agreement or process out of the roundtable on that issue, is that something you see that could be delivered this term or would you have to take it to the election?
Chalmers:
Well, we said before the last election that this was an area we’re working on with the states and territories. And in parts of our political Opposition, there’s a sense of bipartisanship as well on dealing with this challenge. Really for at least a year or two we have said publicly that this is on the agenda, and so we’ll continue that work with the states and territories. I assume it will get raised even this Friday, certainly over the course of the next couple of meetings, the states and territories will raise this as an issue, and we’ll keep working on it. We’ve said that we’ve got an interest in fixing this. There is a longer‑term issue in the budget that we need to address, and we’ll take the time to get it right.
Journalist:
Treasurer, your spending on alcohol and tobacco as a share of total family spending is now almost halved compared to 3 and a half years ago. Are you concerned about the revenue, and that’s largely [inaudible] booming black market. Are you concerned about revenue from the tobacco excise falling even further below what’s forecast in the next federal budget?
Chalmers:
Well, a couple of things about that, and pretty consistent with all of the other times that I’ve been asked here and elsewhere about that. There are 2 reasons for that – one is a good reason and one is a bad reason. The good reason is more people giving them away, the bad reason is people finding ways around compliance. I’ve provided hundreds of millions of dollars to law enforcement and Home Affairs to crack down on illicit tobacco. That is a part of the problem, I’ve acknowledged that.
We’ve had some recent successes, actually. There have been a couple of really quite substantial busts in recent times, that’s a good thing, it shows that some of these resources that we’re dedicating to the task are beginning to work, but we’re under no illusions about how challenging this is. We’d like to see tobacco revenue come down because people are giving the smokes away, we don’t want to see it come down because of illegal often organised crime. That’s why we’ve devoted hundreds of millions of dollars to try and get the compliance part of that story right.
Jake.
Journalist:
Just following up on the EV thing, EV revenue road-user charging, how are you thinking about other classes of vehicle where the revenue is falling sharply? I’m thinking particularly hybrids, which are very popular. People who I know who own these things tell me that they’re spending a lot less on fuel when they buy these cars.
Chalmers:
Well, it’s really the same answer I gave Clare – we’ve said repeatedly we’re grappling with some of these sorts of issues. You’ve gone down another layer of specificity, but these are the sorts of issues that we’re grappling with. The tax base is changing over time as more and more people move away from internal-combustion engine cars and more people go towards hybrids or fully electric cars. The tax base is changing as a consequence of that. We’ve been upfront about that, and we’ve been upfront about our intention to address it. We’ll go about that in a considered way, consultative way and we’ll take the time to get it right.
Last one.
Journalist:
Treasurer, [inaudible] you were mentioning like this is the first time in almost 20 years that there’s been 3 rate cuts within a calendar year. Would you consider this a vindication of your economic approach? And also on the flipside, even though mortgage holders have been getting more relief throughout the year with the interest rate cuts, the Reserve Bank was saying that living standards are recovering a lot slower than initially expected. So just how concerning is that, though, given that while some people might be seeing relief in their mortgages other people who don’t necessarily have mortgages might be having a harder time?
Chalmers:
I’m trying to find the reference in the statement, but the statement makes it clear that incomes and living standards are recovering. When we came to office, measures of living standards and real wages were falling dramatically, and we’ve turned that around. And we’ve acknowledged that it has been an especially difficult period for people with higher inflation in the year that we were elected and what that meant for real wages and living standards and it has been heartening in recent data to see the real wages measure turn around. We’ll learn more about that tomorrow. The living standards measure is growing again in welcome ways, but we’ve got some ground to make up and this interest rates decision will help today.
In terms of vindication, we’ll try not to use a word like that today, but really it does give us confidence. It gives us confidence that we’re on the right track when it comes to dealing with these cost‑of‑living pressures in our economy, primarily inflation. And it gives us confidence that this progress that we’ve made together on some of the cyclical issues, that we can now use it as a foundation to deal with some of the more structural issues in our economy.
Our economy is not productive enough, it’s not resilient enough in the face of all this international uncertainty and we’ve made good progress on the budget as well, but we need to try and make it even more sustainable and so these are the challenges before us. And as I said before, this interest rate decision puts us in good stead. The progress we’ve made together puts us in good stead to deal with the uncertainty that surrounds us in the world and to deal with the big economic challenges which confront us and so that’s another reason why today’s decision is very welcome.
But primarily today’s decision is welcome because it puts more money into the pockets of millions of Australians who are still under pressure. We know there’s more work to do, but we also know that when interest rates are cut 3 times in the space of 6 months that provides meaningful relief to millions of people and that’s why today is a good day.
Today’s decision by the independent Reserve Bank is a welcome decision because it helps people who are under pressure and it gives us, as I said, the confidence that we’re on the right track.
Thanks very much.