Jim Chalmers:
Today the Reserve Bank increased the cash rate by 25 basis points to 4.85 per cent. Today’s decision was widely expected, but that doesn’t make it any easier for Australian families and businesses to absorb. It will be difficult news for many Australians who are already paying a hefty price for circumstances outside of their control. Australians are already struggling, and this will stretch their budgets even further. Especially when you consider that the full impact of the previous rate rises from earlier this year hasn’t been fully felt yet, and they will slow our economy further when they are. Today’s decision was widely anticipated, but it was not unanimous. This is unsurprising given the considerable uncertainty in the outlook and risks in both directions.
The Middle East is a big factor in the uptick in inflation. It’s the primary driver of that uptick in inflation, but it’s not the only driver. The war in the Middle East is pushing up inflation and interest rates around the world, and markets are expecting interest rate rises now in every major advanced economy. The war is in its ninth month, and its re‑escalation is putting sustained upward pressure on inflation, it’s weighing on growth, and its end can’t come soon enough for the global economy or for Australians facing cost‑of‑living pressures.
If you look at the Reserve Bank statement on Monetary Policy today, which accompanied the new forecasts, it said and I’m quoting, ‘In particular, materially higher global energy prices as a result of the Middle East conflict have added to inflationary pressures. Fuel and other commodity prices affected by the ongoing Middle East conflict are expected to contribute more to underlying and headline inflation than previously expected’.
Inflation is higher than anyone would like, and the conflict in the Middle East is making our existing inflation challenge much worse. If you look at the forecast that the Reserve Bank has released today, and you compare the August forecast with today’s forecast, in August they assumed the global oil price would be around $81 a barrel; instead, as you know, they’ve hovered higher than $110 a barrel in recent weeks.
I want to make this really clear: we take responsibility for our part of the fight against inflation. We’re helping with the cost of living in a really responsible way at the same time as we manage the budget responsibly and we try and address Australia’s long‑standing productivity challenge. The cost‑of‑living relief is coming via the wages system, the tax system, the health system and in other ways, because we know that people are under pressure.
We know that budgets aren’t the primary driver of prices in our economy, but responsible economic management does play a helpful role. That’s why we found $180 billion in savings, it’s why there was a record amount of savings in the May budget, it’s why all 8 of our budget updates so far have had savings in them, and it’s why the ninth will have savings in it as well when we release it in December.
I want to make a point about public demand growth. We know that last financial year, public demand growth halved while private demand growth tripled. If you look at today’s updated forecast from the Reserve Bank, what you can see there is that they have revised down the near‑term outlook for public demand. So, at a time when they are worried about capacity constraints, and they’re worried about excess demand in the economy in the near term, the public component of that has been revised down in the Reserve Bank’s forecasts. They say, and I’m quoting, ‘Public demand was weaker than expected over the first half of the year’.
We’re not immune from the global pressures being faced by comparable economies right around the world but we are better placed, we are better prepared, we do have a stronger budget than the major advanced economies. We’re doing what we can to take some of the pressure off Australians at the same time as we improve the budget and we make our economy more productive and resilient in the face of some really volatile global conditions. It shows why our economic plan is so important given the outcome of today’s meeting today.
Journalist:
Treasurer, how many of the 5 interest rate rises this year are down to government spending?
Chalmers:
If you look at the forecasts released by the Reserve Bank today, you can see that the public demand contribution to growth has been revised down, and that is consistent with what we’ve seen over the course of the last year or so, where public demand growth has eased quite substantially at the same time as private demand growth has almost tripled in that period.
There are a number of issues at play here. Primarily, but not exclusively, the war in the Middle East. Our budgets are not what’s putting upward pressure on inflation, but we can play a helpful role and that’s what we intend to do. It’s why we’ve had savings in all of our budget updates and why there will be more savings in the mid‑year budget update that I release in just over a month’s time.
Journalist:
Treasurer, thank you. You would have seen polling this week that has you rated as the lowest‑performing member of the government. I’m wondering if that frustrates you given that the Prime Minister and other ministers are responsible as well? And on that note, I’m wondering whether you’ve given any thought to stepping aside and giving someone else a go?
Chalmers:
No is the answer to the second half of your question. Obviously, I’m aware of the contents of the first part of your question. As other ministers have pointed out, when you’re doing difficult things you see that reflected in the opinion polls. I think any Treasurer taking on difficult reforms which have been neglected for too long – in our tax system, in our housing market and elsewhere – no reforming Treasurer expects there to be some kind of unanimously positive reaction to that, and we see that play out in the polls.
I’ve acknowledged on other occasions in response to some of your colleagues and counterparts in the room today that I take responsibility for the difficult reforms I’m pushing through the parliament, and I’m not surprised to see that reflected in opinion polls.
Journalist:
Treasurer, what created the $170 billion worth of extra costs over the medium term between MYEFO and the May budget? Why was this not disclosed, and how did it appear in a period of 5 months?
Chalmers:
The story that you’re referencing reflects, I think, a fundamental misunderstanding of how budgets are updated between budget update to budget update. It’s entirely normal for the parameters between budget updates to change. In fact, that’s one of the reasons why budgets are updated, because they reflect different variations, including in this case things like an increase on the cost of servicing the trillion dollars of debt that we inherited from our predecessors.
That story which I’m assuming, like most of those stories, comes from the Liberal Party, comes from a Liberal Party which has at least $110 billion in extra unfunded commitments since the election and that means that their deficits will be at least twice the size of the existing deficits. The same Liberal Party that is currently opposing $10 billion of budget improvements in the parliament, the same Liberal Party that never delivered a surplus in 9 attempts, the same Liberal Party that racked up around two‑thirds of the trillion dollars of debt in the budget today.
I won’t be taking lectures from the Liberal Party, whether it’s via the newspaper or in other ways. It’s entirely normal for budgets to be updated, including the parameters in budgets to be updated.
Journalist:
Treasurer, just on the midterms, how are you thinking about them and what the outcome might be, especially on US spending and some of the other things that flow from it, like the war?
Chalmers:
Every election’s consequential, but this one seems especially so. I’m not a commentator on the US election but I’m watching it closely like, I suspect, most people in this room and many people around the country and around the world are watching that election closely. Because there are some very substantial policy issues playing out in the global economy with implications for the Australian economy.
For example, I think most people and certainly markets are watching very closely any potential developments when it comes to the war policy in the Middle East. Whether people are expecting or anticipating an escalation or a de‑escalation in the war in the Middle East is a pretty fundamental question that markets are grappling with right now. It’s why we’ve seen about $10 movement in the barrel price for Brent oil in the last 24 hours or 48 hours or so, because it’s a very volatile environment and markets are edgy about the outcome of the election and what it might mean for developments in the Middle East, and therefore, developments in the global economy. We’re watching it closely like everyone is.
You can see that markets not just for oil and other commodities, but exchange rates, global bond yields, they’ve been especially sensitive to developments in the Middle East, and I think the issues being played out in the midterm elections over the next day or so will be a real focus for markets and for people like me around the world.
Journalist:
In the RBA statement today, alongside the war in the Middle East, they also talked about AI investment driving rapid growth. Does government spending need to come down to compensate for that kind of investment for the country to be able to benefit from that?
Chalmers:
One of the interesting elements of the updated forecast today in the statement on Monetary Policy is that business investment has been revised substantially up, at the same time as growth has been revised down, and I think that partly reflects the investment boom in AI. That’s not a brand‑new development. That’s something that we’ve been seeing in recent data – CAPEX data and other business investment data in the national accounts, and elsewhere as well.
Our budget settings take into consideration all of the economic circumstances, whether it be the AI boom, more business investment, or other economic pressures and developments. We try and take all of it into account and when we update the budget, as we will next month, we make sure that we respond to the economic conditions that we find ourselves in, including that investment boom that is underway.
Journalist:
Treasurer, Capital Brief today had a poll showing about a third of people attribute the inflation going up to global issues, about 45 per cent think it’s excessive government spending. I’ve heard what you said at the start about your position on government spending and its contribution, but are you losing the politics of this or at least the public debate?
Chalmers:
When people are under pressure it plays out in opinion polls, including when people are looking for reasons for the pressures that they’re under. This is a government which doesn’t just acknowledge that people are under pressure, we act on it. We respond where we responsibly can with tax cuts and more bulk billing, cheaper medicines, decent wages. All of this is part of our cost‑of‑living agenda because we understand that people are under the pump.
Again, a bit like in response to Cam’s question near the start of the press conference, when people are under pressure it’s not especially surprising to see that play out in opinion polls. I don’t ignore that, but I’m not surprised by it.
Journalist:
Treasurer, you’re quite right to identify public demand in your opening statement, that it’s lower in the near term. I think, at the end of this year, it’s lower than the RBA had forecast the previous time. But from June 2027 out to the end of the forecast horizon, it’s actually revised up, the public demand numbers. I guess, how does that sit with your argument that the government’s doing its bit to do as much as it can to tame inflation?
Chalmers:
The point that I’m making is the Reserve Bank, in its statement or statements, is making it clear that they’re worried about excess demand in our economy right now. That’s one of the reasons why they say they took the decision today to increase interest rates again. I’m just pointing out that at the time when they’re most worried about excess demand in the economy, they’ve written down the public contribution to that.
Beyond that, there are a range of factors at play, obviously. But in the period that they are most worried about, the period that they are responding to right now, they’re saying via their own forecasts that public demand growth is a smaller component, not a larger component, of that concern.
Journalist:
Unemployment is rising and growth is already slowing. Do you expect savings or spending cuts in MYEFO to have a material effect and push unemployment up further? And if you were to implement the $31 billion in spending cuts that the Opposition is calling for, how much more do you think that would slow growth and push unemployment up?
Chalmers:
First of all, like most things the Opposition says, I’m not sure that the $31 billion figure is a credible one and even if it was, they’d still be $110 billion short. By their own logic inflation and interest rates would be higher if their policies were put in place.
On the substantive part of your question – the more important part of your question – it is the case that when central banks are setting monetary policy and governments are setting fiscal policy, we have the same objective which is to get on top of inflation. But we’ve got the same responsibility to also care about maintaining full employment in our economy. The Reserve Bank’s got a dual mandate and we’ve got a similar approach to making sure that as we get on top of inflation in our economy we are also cognisant of the pressures on people, and particularly the pressures on the labour market.
What we’ve shown in recent times, including not that long ago, is that it’s possible to have low unemployment and inflation within the target range. It wasn’t that long ago, in 2025, that we had that before the big resurgence in private demand and private investment towards the end of calendar 2025. So, as we go about taking the decisions that constitute the mid‑year budget update, we’ll be conscious of all of those economic pressures. The work on the mid‑year update happens in November for a December release, and so a lot of that work is still ahead of us.
Journalist:
Treasurer, the government obviously has a lot of scrutiny for public spending. On the RBA side, they increased rates before the war, and they cut a few times last year. Do you think the lesson out of this period of resurgence of inflation is that the kind of narrow path strategy, the idea that you can keep rates a bit lower than the rest of the world and still keep inflation in check, was that wrong on the RBA’s part, and should they admit they got it wrong last year?
Chalmers:
It’s not for me to give them that kind of free advice, and I think it’s a good development that the Governor has the opportunity to speak with your colleagues in Sydney today and on other occasions to field some of those sorts of questions. That’s not my focus. I’m focused on my part of the fight against inflation, and that’s about providing cost‑of‑living relief only where we can do it responsibly. It’s about managing the budget and finding savings where we can. I’d rather focus on that than the sorts of questions that would more legitimately be put to the Governor.
Journalist:
You said last week that inflation’s going to stay high at least till the end of next calendar year. We’ve got a Northern Hemisphere winter coming up; fuel prices are going to get worse if the situation in the Gulf doesn’t improve. What percentage likelihood are you factoring for a recession if this inflation crisis just continues to worsen? Is Treasury war‑gaming, are they giving you a likelihood?
Chalmers:
No, because neither the Treasury nor the Reserve Bank is anticipating the economy to go backwards. Obviously, we monitor very closely developments in the global economy and the risks to growth in our economy, including the impact of monetary policy on the economy at a time when there are all of these other compounding pressures. We’re very alive to the pressures on growth, but neither institution is anticipating or I believe, as far as I’m aware, war‑gaming the economy going backwards for a couple of quarters.
Journalist:
Treasurer, the overwhelming majority of people we spoke to on the streets today were mostly concerned they would not be able to afford their mortgages anymore. How concerned are you about people who won’t be able to keep paying their mortgage and will be foreclosed on?
Chalmers:
Of course, I’m extremely concerned about the extra pressure that this rate hike puts on people including people with a mortgage. People are under very substantial pressure already, and this will obviously intensify the pressure on people and on our economy, but particularly people servicing often large mortgages. We’re obviously very alive to that.
Journalist:
Just back on your savings for MYEFO, do they need to be net savings to put down pressure on inflation or not?
Chalmers:
I think the composition of the savings matters, and as Secretary Wilkinson said at estimates last week, looking right across the budget we’ll do the best that we can to find the appropriate level of savings which takes into consideration the risks in our economy in both directions, but particularly to respond to this inflation challenge which is more persistent than any of us would like.
Journalist:
The RBA statement noted that higher fuel prices will flow through to the increased cost of goods and services. I know you’ve ruled out cuts to the fuel excise, but does that bolster the argument for a cut to the heavy vehicle road user charge?
Chalmers:
Two things about that, as efficiently as I can. First of all, when it comes to cost‑of‑living relief, we’re rolling that out already in the ways that I’ve described it. We keep the other options under more or less constant review, but you know my view about the excise. If there are other ideas put to us, then obviously we consider that in the usual way.
There’s another important point which comes from the first part of your question, and I’ll finish on this. One of the important elements of the statements today from the Reserve Bank is that they don’t just anticipate higher fuel prices to play out in the headline inflation figure. They are also saying that it’s playing out in the trimmed mean – the underlying inflation measure – as well. Which is a fairly substantial reminder that even the underlying inflation measure is being impacted by higher fuel prices, which is a consequence of the Middle East.
Again, I’m not saying that the Middle East is the exclusive driver of the uptick in inflation in our economy, but it is the primary driver of that uptick in inflation in our economy. You can see that in last week’s CPI, and you can see it in today’s revised RBA forecasts as well.
Thanks very much, everyone.