JIM CHALMERS:
Today's National Accounts reflect an economy which is rebounding from the disruptions of the pandemic but it's still being held back by capacity constraints, skills shortages and declining real wages. This is an economy which is growing but the challenges are growing as well. It's a solid outcome but it doesn't tell the full story about our economy. I think Australians know that in the more than two months since this data, some of the pressures on them and some of the pressures on our supply chains have grown. And that's been a consequence of rising interest rates, the deteriorating global situation and of course, high and rising inflation which is primarily but not exclusively global and has domestic elements to it as well - as the Reserve Bank talked about yesterday.
The headline figures in today's National Accounts are encouraging. But the details do confirm the pressures that are being felt by Australians and the pressures that are being felt in our supply chains in particular. Real GDP increased by 0.9 per cent for the June quarter and it was 3.6 per cent higher over the year to June. This solid growth is welcome and it's broadly in line with our expectations but the drivers of this growth were still narrowly based. It was supported by some temporary factors and a lot has happened since the end of June. The big contributors to this growth were household spending and exports. Consumption increased by 2.2 per cent contributing 1.1 percentage points to real GDP growth. And a big part of this story is the fact that people felt increasingly willing to spend on discretionary services, in particular, as we came out of that phase of the pandemic. And at the same time as we've seen that growth in consumption, we've seen a pretty sharp decline in the household savings ratio which fell from just over 11 per cent in March to 8.7 per cent in the June quarter. And what this shows is that while households on average are still saving, they're saving less. And we also know that they're impacted by the rising cost of living and the fact that their real wages are falling as a consequence of that.
Our net exports contributed one percentage point to real GDP this quarter as exports recovered and imports slowed. Mining and agriculture picked up because those severe weather conditions passed and also because they were able to respond to the really strong global demand for energy following those pretty extreme disruptions to Russian gas supplies to Europe.
So there are some encouraging aspects of these results. But we can't pretend away or paper over the real and growing challenges in the economy that the National Accounts also make clear. Weak investment in dwelling and engineering construction shows the impact of skill shortages and capacity constraints in our economy. Dwelling investment fell by 2.9 per cent in the June quarter to be 4.6 per cent lower over the year. This was a bit weaker than people expected given we've got that large pipeline of work in the sector but it does reflect the fact that we've got quite acute labour and supply chain pressures and that the sector is under considerable financial strain from high inflation and input costs. New engineering construction also fell in the June quarter to be 6.6 per cent lower over the year as well. We also see in these numbers even more evidence - not that Australians around the kitchen table needed it - of the significant cost‑of‑living pressures that are impacting Australian households. We saw company profits reached record highs as a per centage of GDP but real household disposable incomes fell for the third consecutive quarter by half a per cent in the June quarter. And while there are some welcome and encouraging signs that nominal wages are starting to pick up, there is no existing measure of wages growth that tells us anything other than real wages are still falling given the high and rising inflation that we confront in our economy.
A number of the pressures, as I said, on the economy have grown since the June quarter and so they're not completely captured in the data that the ABS has released today. For example, we've seen since then another one and a half per cent increase in interest rates. Households are paying more for their energy bills and that is a consequence, I think, of some long-standing failures in energy. Prices are expected to increase further before they come down. And you all know that Treasury's forecasting CPI to peak at seven and three quarter per cent towards the end of the year. We've also seen a deterioration in the global situation, we've seen some of the concerns and pressures that we're monitoring in the global economy intensify in recent months. We've had negative growth in the US and UK, we've had extended lockdowns in China, we've got concerns about the ongoing impact of higher energy prices and interest rates on global growth as well. We've got those global supply chain disruptions and capacity constraints in the global economy, obviously, but also here at home and that's putting pressure on our economy as well.
When it comes to the Budget, the story is a bit similar to what's happening in the economy. We've got temporary factors which are boosting revenue in the short-term but other issues which are creating more substantial pressures that will be felt for far, far longer. High commodity prices have led to record high terms of trade in the quarter but we can't rely on these high prices persisting. Commodity prices have come off their peaks. Just one example since the end of the June quarter - the iron ore price. The spot price has come off 19 per cent in the couple of months since the end of the quarter that we're talking about today. There are also some substantial short, medium and long-term pressures on our Budget as well. The Finance Minister was talking about these this morning. We've got the higher cost of servicing the debt that we've inherited, we've got additional COVID-related spending and hidden cost blowouts in that area, we've got significant spending growth in areas like the NDIS, aged care, health care and defence as well. And all of that obviously has implications for our Budget.
Despite some of the issues and challenges that we are being buffeted by, I still think there is substantial cause for us to be confident about the future of our economy. And I'm equally confident that the Government has the right economic plan which is specifically geared towards these challenges that I've run through today. We're doing what we can to ease the skills and labour shortages, to ease the cost of living where we responsibly can and to get wages moving again. We made some really important progress, as you know, at the Jobs and Skills Summit last week - 36 concrete outcomes including those investments in skills and housing, getting migration right, a commitment to fix the broken bargaining system, as well. We're not naive about the scale of these challenges and we've approached the Australian people in a spirit of bluntness and frankness and candour in saying a lot of these challenges can't be fixed overnight. There's not a switch that we can flick to make cost‑of‑living pressures go away overnight or to make real wages grow again. But we've begun the important work, bringing people together around these big economic challenges to see what we can achieve together to take some of the pressure off Australians and take some of the pressure off their economy as well.
So these numbers today are new numbers but they're telling a story which is now pretty familiar to us - a growing economy but we want to see more Australians benefit from that growth. Different pressures hitting the economy but our future is still packed with potential. We've got an economy which has been made vulnerable by a wasted decade and the task of the Budget, the task of the Government is to make our economy and our Budget more resilient into the future as well.
We're now on the home stretch when it comes to Budget preparation - I think seven weeks yesterday until the Budget is handed down. We're obviously meeting the expenditure review committee for some hours, including late into last night and that's important because budgets at their core are about weighing up competing priorities. The Prime Minister and the Finance Minister in the last couple of days have been upfront with the Australian people about the challenges we face in the Budget. We will do the right and responsible thing and that means doing what we can to responsibly ease people's cost‑of‑living pressures, it means dealing with the issues in supply chains which are holding our economy back and it means beginning to deal with the legacy of rorts and waste which has been a feature of our Budgets for too long. Happy to take your questions.
JOURNALIST:
Thank you Treasurer. On inflation, you painted a pretty bleak picture of the global economy and we know a lot of those inflation pressures are coming from the global economy. How confident are you in Treasury's prediction of seven and three quarters per cent inflation in December? Can you rule out that going into double digits like it has in the US? And I know some of these figures are from the June quarter, so they don't necessarily take into account interest rate hikes here in Australia. But are you I guess disappointed or worried that households are still spending what they're spending?
CHALMERS:
First of all, on the robustness or otherwise of the forecasts - it's a notoriously difficult task and especially so when we've got this global volatility that we've got. I think it speaks volumes about the situation that we're in that when the Americans get an inflation figure with an eight in front of it, it's welcomed as good news because it was better than what was forecast for that particular set of data. So it's a volatile time. Forecasting is notoriously difficult. But that's the best assessment that Treasury has most recently given us about the peak in inflation. There's a lot that can change and inflation has a number of sources - global and domestic. Energy is a big part of the story, of course, but these supply chain pressures too and so that remains our expectation.
When it comes to the behaviour of households, it's not for me to tell people how to manage their own household budgets. The independent Reserve Bank has made it clear that they see a role for themselves in managing that demand in the economy and our job is not to second guess that and nor is it to make the job of the independent Reserve Bank harder. And so what we're trying to do is provide cost‑of‑living relief in the most responsible way that we can and in a way that delivers another economic dividend. Making childcare cheaper delivers a massive economic dividend, making medicines cheaper delivers a massive dividend when it comes to health costs, easing the cost of TAFE in some areas is obviously a cost‑of‑living measure, making electric vehicles cheaper with a tax cut that we hope to pass through the Parliament, getting wages moving again - these are the things that we can responsibly do to help Australians through a very tough period without interfering with the work that the Reserve Bank does independently.
JOURNALIST:
Thanks Treasurer. As you said, the growth was driven by household spending and people were spending more on things like travelling, clothing, dining out. Given that and given, as you mentioned as well, the Budget constraints you've got - how much cost‑of‑living assistance do Australians really need at this point?
CHALMERS:
The task in providing responsible cost‑of‑living support is to make sure that you can do it in a way that doesn't put extra pressure on the Reserve Bank and risk being counterproductive. And so, the cost‑of‑living relief that you will see in the October Budget - childcare, medicines, electric vehicles, TAFE fees and our efforts to get wages moving again in a sustainable way, strongly, but sustainably - are all about easing the cost‑of‑living pressures on Australians, dealing with some of the constraints that are in our economy which are preventing the economy from growing at a greater capacity and to do that in a way where we get maximum value for money in the Budget.
As I said before, budgets are always about competing priorities. Every single budget is about that. It just so happens that there is a particularly complex combination of challenges that we confront right now. We'll do the right and responsible thing. There will be cost‑of‑living relief for Australians in the Budget but it will be delivered in a way that doesn't make the task of the independent Reserve Bank harder.
JOURNALIST:
Paul Keating and Bill Kelty have dropped their support for the 15 per cent compulsory superannuation payments. Is that still Labor's long-term aspiration? And do you think it's worth reconsidering given the architect of the scheme said that the 15 per cent rate was really aimed at baby boomers in their forties who didn't have any savings?
CHALMERS:
We've made it clear for some time now, including in the party platform, that when we can responsibly improve people's retirement incomes we should look to do that. But we've equally we've not indicated in coming budgets or in our election commitments a timetable to get to 15 per cent. Our priority in super is delivering the already legislated superannuation guarantee increases which get people to 12 per cent. That seems like a long time ago, but that was actually a fight here in this Parliament to make sure that our predecessors stuck to that and we will stick to that - we'll get it to 12. That's important. And I've outlined some of my other priorities for superannuation as well. How do we make sure we can get a good return for superannuation fund members at the same time as we make it easier for super to invest in some of our big national priorities, whether it's the energy transition or housing or in other areas as well. So we've got a big agenda on super, it doesn't currently contain trying to get it to 15 per cent. We've got enough to do in the interim regardless.
JOURNALIST:
Treasurer, just given some of the spending pressures that you outlined in the budget, the inflation pressures that we're also experiencing, how ambitious do you expect to be to pull back on spending and aggregate demand in the economy in this Budget to assist the Reserve Bank? And are there particular broad areas that you're going to be focusing on? You talk about rorts and waste but what areas are you actually broadly talking about?
CHALMERS:
First of all, that work is ongoing and it's not completed. But as I said before, Katy and I and the ERC colleagues and others are working very hard - especially now that we've got the Jobs and Skills Summit under our belt - to go through the budget line by line. I'm not going to preempt where those savings will come from, except to say we've made it clear that in some of these discretionary funds we're not getting value for money or bang for buck from some of the ways that our predecessors went about allocating from some of those funds. So that will be an obvious focus. We took to the election some billions of dollars in budget improvements so you can expect to see them in the budget in some form as well. But in terms of managing aggregate demand, I think we have to be realistic here as well. I see our task in the budget is not making the work of the independent Reserve Bank harder. I don't think that there is an opportunity to cut so savagely into aggregate demand in the way that you're describing. I see the task is to not make it harder on the demand side - that's a big task. I like to focus on where we can make a meaningful difference. And I think the meaningful difference that governments can make is on the supply side. We've got these big supply side challenges: our supply chains are bent and broken in many areas. We've got labour and skills shortages. This is all pushing up the cost of living. There are elements of the global challenge that we don't have any agency or influence over. There are elements of the Reserve Bank's work that we don't want to interfere in. My focus is on the supply side as I've said before.
JOURNALIST:
Treasurer, the ABS estimates the cumulative cost to GDP from COVID at $158 billion. The budget has run up around $200 billion in deficit, the Reserve Bank created north of $450 billion and God knows what the states spent themselves. Was it worth it?
CHALMERS:
Inevitably when you've got the kind of economic shock, which is posed and presented by something like COVID, governments need to step in. Clearly, not every dollar of support that was provided during different phases of the pandemic was well targeted or well spent. And we've made our views known, for example, when it comes to wastage in JobKeeper and other programs. But overall the principle that governments step in when times are toughest, I think is broadly shared. What matters is how effectively and how efficiently you do that. We've made our views clear about some of those programs. It's too easily forgotten, including deliberately by some, people want to pretend that all of these challenges in the economy and the budget are just a consequence of COVID-19. Our predecessors had already doubled the debt before COVID. We had long-standing issues with productivity, wages and living standards and all of these things even before any of us had ever heard of coronavirus and so I think we need to remember that too.
JOURNALIST:
Given escalating costs and material shortages, is there a case for the government to drastically scale back planned infrastructure spending in the budget, both to save money and to avoid competing against the private sector?
CHALMERS:
There are obvious issues in the construction sector when it comes to labour and skill shortages and the price of materials. Whether it's the capital city mayors that I met with this morning, whether it's the state and territory treasurers that I've discussed this with - and we'll discuss it again on Friday, whether it's the infrastructure minister, Catherine King and others, I think there is a broad understanding that it is difficult right now. When you consider the infrastructure pipeline across all three levels of government plus the private sector, there are obvious pressures on timetables and costs. It would be strange to ignore that. And so there is a conversation going on between all levels of government about how we deliver those infrastructure commitments in a way that gets value for money and on realistic timeframes. I'm sure we'll have more to say about that at some point.
JOURNALIST:
Should the Reserve Bank Governor, Philip Lowe, resign?
CHALMERS:
I'm not making that call. It's not for me to second guess the decisions taken by the independent Reserve Bank. There's a long-standing convention, a welcome one, in this place amongst the big parties at least that the work of the independent Reserve Bank should be free from political commentary. I've known Phil Lowe for some time, someone I've worked relatively closely with. I don't think it's helpful to associate some of the difficult decisions that the Reserve Bank has to make, to over-personalise them.
JOURNALIST:
You don't think he should be held accountable for his words and his actions?
CHALMERS:
He is accountable for his words and his actions, and he's capable of defending them - and he has been doing that. He has made himself available - more I think than previous RBA governors - to try and explain the decisions that he has taken. He has publicly said a number of times now that the economy recovered in a different way than he anticipated, and he's put his hand up for that. But I'm not going to get into the practice after each meeting of the Reserve Bank Board of second guessing the board or bagging the Governor or calling for resignations. They've got an important and difficult job to do, as does the Government and I'm focused on the Government's job.
JOURNALIST:
Treasurer, just on your cost of living relief, a lot of those packages like childcare don't come online until next year. The pain point will be the December quarter at 7.75 per cent as outlined. Should the budget include short-term measures for relief in that period, or are your hands tied?
CHALMERS:
Again, you want to be careful not to make the task of the Reserve Bank harder. And so, whenever we are considering and weighing up different proposals that are put to us about cost of living relief, it's material to us what the impact would be on the economy, and how it would factor into the Reserve Bank's considerations. I know that people are doing it really tough. I know that people would prefer, that these skyrocketing costs of living weren't there. And we've been upfront with people a) about our ability to eliminate those cost pressures, and b) about our capacity to fund some of our priorities when it comes to the cost‑of‑living. Before long, there will be a big cut to the cost of medicines in this country, and that will make a meaningful difference to a lot of people. That's only in a couple of months-time. In the middle of next year, which is not that far away, there will be a game-changing investment in making childcare cheaper, at the same time as we invest in one of the key drivers of economic growth in this country. And so what we say to Australians, is that we will provide cost of living relief, we need to do it in the most responsible way that we can, and in a way that delivers a broader economic dividend, and doesn't make it harder for the Reserve Bank.
JOURNALIST:
Treasurer. Are you concerned that Aussies feeling the pinch from cost‑of‑living pressures might actually decide to tighten the purse strings around Christmas?
CHALMERS:
Individual Australians will make their own decisions about their own personal finances. We've got incredibly strong consumption numbers in these National Accounts today, at the same time as people are starting to eat away at their savings. I think the big issue that we need to keep an eye on, is the impact of these interest rate rises on the way people manage their household budgets. And so between now and the end of the year, we will get a clearer picture of the impact of these interest rate rises and the increase in prices for some of the essentials that people can't avoid. And so, as always, we will refrain from giving people personal financial advice. Consumption has been strong, that's been a reflection of people more willing to spend in the discretionary services part of the economy, in particular. They will make their own choices. Our job is to focus on what we can do, to make life a little bit easier for people, and to deal with the supply chain issues which are holding the economy back. You've had one Reece, I'll go to James.
JOURNALIST:
Treasurer, a lot of childcare workers have gone off the job today, arguing for better pay, do you think that pattern bargaining or multi-employer bargaining would actually alleviate the strike action, stop it from happening or make it more common?
CHALMERS:
The changes that we're contemplating and consulting with employers and unions and the broader community on, they're about more agreement, not more conflict. And when you recognise, I think, as is broadly recognised, that the bargaining system is not delivering strong and sustainable wages growth. And a big part of the challenge is in industries dominated by women, then you can see that our efforts here in trying to improve bargaining are about trying to get wages growing again, particularly in those industries dominated by women, where wages growth has been especially hard to come by. These childcare workers are doing a really important job, they do it for not much pay. I think most Australians and not just those of us who interact daily with the childcare system, would like to see our childcare workers paid fairly for those efforts.
JOURNALIST:
Treasurer, just on that you are increasing subsidies for childcare, should any of that, some of that, go into the pocket of the workers?
CHALMERS:
We think that there are two important tasks here. First of all, to invest in the system and make it cheaper for parents, which is what you're referring to, and secondly, to improve bargaining so that people get fair outcomes. Responsible, sustainable, but stronger outcomes than they've been getting. And so our efforts have been directed at bargaining, in particular. When it comes to the broader care economy, as you know, we've said that there are issues in childcare, but there are also issues in aged care, and other important industries dominated by women. And there's a case before the Fair Work Commission, and that's our nearest priority, that case from the Fair Work Commission. And we want to improve bargaining for childcare workers as well, so they can get the pay that they need and deserve.
JOURNALIST:
Treasurer, in terms of expenses, most family budgets are obviously feeling the pinch of the price of petrol, and will be, I guess, gearing up the fuel excise to return at the end of September, or for that cut to be stopped. Will the cost of living relief you're offering in the Budget, match the relief most have enjoyed with that reduction in fuel excise?
CHALMERS:
We're not looking to try and replace the same $3 billion over that six months with another $3 billion spent on a different purpose, over the similar period. We've been incredibly upfront with people before the election, during the election, and after the election, that we consider it too expensive to continue that petrol price relief forever. I've been working closely with the ACCC, to make sure that the servos and suppliers don't treat Australian motorists like mugs, when that excise relief comes off. It needs to be understood in the Australian community, that if the market operates as it should, we shouldn't just see an immediate 23 cents a litre increase, at midnight on that night, towards the end of September. What matters is how much stock they have in the tanks underground, and how long it takes to sell it. The ACCC has got an eagle eye on the servos and suppliers, to make sure they don't treat people like mugs. We understand that petrol prices are part of the pressure that families are under, but we're being upfront with people about our ability to fund that relief forever. We'll just go here, the last one.
JOURNALIST:
Just on the tax cuts, and I know you've been asked a lot of questions about the tax cuts, including yesterday in question time. You didn't exactly back-in the economic benefits when you were asked about them. Do you personally want to see those stage three tax cuts be brought into law, or will these be sort of contingent on the economic circumstances at the time, when they do come in in a couple of budgets time?
CHALMERS:
I think we've made it really clear that our position on stage three tax cuts hasn't changed, that the comments that we've made on stage three tax cuts, that our view hasn't changed.
JOURNALIST:
Do you believe in them though? What are the benefits of them?
CHALMERS:
I'm just answering the question. Our view hasn't changed. And the reason our view hasn't changed, is because our nearer priority, when you consider that those tax cuts don't come in for a couple of years, the right and responsible thing is to focus on some of the issues that I've talked about today. Labour shortages, skill shortages, cost‑of‑living, getting wages moving again, investing in supply chains, all of these sorts of things. The right and responsible thing is to focus on those things. That's what we've been doing. Our position on the tax cuts hasn't changed. Thanks very much.