Jim Chalmers:
Today, the independent Monetary Policy Board of the Reserve Bank decided to lower the cash rate once again.
This is the second interest rate cut in the last 3 months. This is very welcome relief for millions of Australians. We are really pleased to see more help is on the way for working families with a mortgage, and that’s what this decision today is all about. It does reflect the very substantial and sustained progress that we’ve made together on inflation in our economy, and it also recognises the uncertain global environment as well when it comes to inflation.
Both headline inflation and underlying inflation are now in the Reserve Bank’s target band for the first time in almost 4 years, and this is the first time since records began that we’ve got the unemployment rate in the low fours at the same time as we’ve got both measures of inflation in the target band.
I was really pleased to see in the statement released by the Reserve Bank the 3 main points that the Monetary Policy Board has made. First of all, inflation has fallen substantially since its peak, and the upside risks to inflation have diminished.
Secondly, it does recognise in ways that the government recognises that global uncertainty has increased in recent times. It also points out, though, that household incomes have picked up in our economy as well, and that’s a good thing.
Today’s interest rate cut doesn’t mean that the job is finished when it comes to the cost of living, but it will help millions of Australians with a mortgage, and it’s worth remembering that 3 years ago, this week, this government came to office. When we came to office, inflation and interest rates were both going up, and now both are going down, and that’s a good thing.
To give you a sense of the benefits, the average benefits for Australians with a mortgage, this decision today for a $500,000 mortgage, means $79 a month, or $947 a year. For someone with a $750,000 mortgage, $118 a month, or $1,420 a year. Now remember, this is the second interest rate cut in 3 months, so the benefit that people will get from today’s interest rate decision is twice that when you combine the February decision and now the May decision as well.
This decision does reflect the substantial progress we’ve made on inflation, but also that we haven’t had to pay for that progress with substantially higher unemployment or a substantially slower economy. That makes us unusual around the world, that we’ve been able to get inflation down, we’ve got real wages growing again in incomes. We’ve got the debt down. Interest rates are falling. Growth is recovering in our economy. Unemployment is low. All of that is happening at the same time, and those are all very welcome developments.
What makes the soft landing in our economy especially important is because of this increased global economic uncertainty that we’re seeing, not just out of DC, but out of China, indeed, right around the world, a lot of global economic uncertainty, and Australia is better placed and better prepared than most to deal with that uncertainty.
Today’s interest rate cut reflects that, but so does the progress we’ve made on inflation, real wages and growth and unemployment and in the budget as well. So this is a very welcome decision. We are very, very pleased to see that millions of Australians with a mortgage will get a little bit of extra help as a consequence of this decision. We know that the job’s not finished. We know that there’s more work to do. But this is a very good development, and we welcome it enthusiastically.
Happy to take some questions.
Journalist:
Treasurer, just on energy rebates, while there are groups of economists that have called for the rebates to come to an end at the end of the year, when they’re due to expire, will you rule out doing so?
Chalmers:
What we’ve made clear over the course of recent months, certainly in the recent weeks since the budget is that this energy bill relief is an important way that we are helping Australians with the cost of living.
We only extended it for 6 months, rather than 12 months, because we know that at some point this electricity bill relief will taper away and will have to end. We’ve made that clear publicly on a number of occasions.
The point that I made on Friday, which I think is what you’re referring to, and that strange story today was referring to, is that when I was asked on Friday about the cost‑of‑living help, in this case, energy bill rebates, I made the point that I make before and after every single budget we’ve handed down, which is:
We evaluate the economic conditions, we evaluate the budget constraints and the pressures that people are under, and we do what we can to help.
The final point I’d make about that is, I thought it was very unusual in a story which was about energy bill rebates compared with ongoing help with energy efficiency or renewable energy, not to mention the hundreds of millions of extra dollars that we’re investing when it comes to renewables for social housing in particular. We announced that towards the end of last year, it’s a very substantial investment, and what it shows is that we’ve been able to find room in our budget to help people with bills at the same time as we help people grasp the opportunities of renewable energy, including when it comes to people in social housing.
Journalist:
Will you rule out continuing with them at the end of the year?
Chalmers:
I think I’ve given a really comprehensive answer, and in the second part of my 3 part answer, I pointed out that I say before every budget and after every budget that we evaluate the conditions and the constraints and the pressures that people are under, we’ve budgeted for it to end at the end of this year. That’s clear in the budget papers. But what we do each budget in this room next door is we sit down with the Expenditure Review Committee and we work out whether we can afford to provide more assistance, and if so, what form that what assistance would take.
That will be our approach in future budgets, just like it was in the first 4. It’s currently budgeted to end at the end of this calendar year.
Journalist:
You’ve mentioned many, many times before that the RBA is an independent body that the government doesn’t have a direct role to play with it, but we’ve seen the last rate decision was a pause while the election campaign is going on. Parliament hasn’t sat yet, this one, Parliament likely won’t sit before the next one, and it’s probably the most stable we’ll ever see government decisions. What role does that have in what the RBA does? Do you think that this rate cut move is because there is this kind of stability in what the government’s doing?
Chalmers:
I don’t see today’s decision in political terms. I see it in economic terms. It is the right decision made for the right reasons. The right reasons to make an interest rate cut like we’re seeing today is the fact that together, as Australians, we’ve made a heap of progress on inflation.
The global environment is uncertain, and for reasons outlined in the independent Reserve Bank’s statement today, they felt the conditions warranted this cut.
The other thing, which is a very good development, is the Governor herself will be up shortly, and will be able to speak through the rationale and the reasons for the decision that they’ve taken today.
Politics do not play a role in decisions taken independently by the Reserve Bank. They weigh up the economic conditions, as they have in this case, and they have the opportunity to talk through their reasons.
Journalist:
On super, one of the things the Greens want in return for the support of the division 296 legislation in the Senate was for limited recourse borrowing arrangements to be banned. That was actually Labor policy up until the 2019 election cos of concerns it was overheating the property market. What’s the government’s current thinking on that? Do you support, is there room to maybe support banning those LRBAs by SMSFs as part of your negotiations with the Greens.
Chalmers:
That’s not something that we’ve been considering. The point that we’ve made on a number of occasions since the election, the Parliament will return at some point. It won’t be in the next few weeks. No doubt there’ll be discussions in the Senate about the superannuation changes but those discussions haven’t begun.
Journalist:
Are you open to it though?
Chalmers:
First of all, that’s 3 elections ago now, and so it’s not our intention to resurrect all of the policies from 3 elections ago. We took our agenda through the election, including the changes to superannuation tax concessions to make very generous concessions slightly less generous, but still generous. We would like to see that legislated in the Senate. We’ve not had any discussions about any of the changes that the other parties would like to see in the Senate.
Journalist:
The Reserve Bank Board said headline inflation is likely to rise at the end of the year as things like the energy rebate rolls off. Should households be worried when they see those numbers tick up again? Does it mean that future rate cuts won’t be on the table towards the end of the year?
Chalmers:
First of all, we should acknowledge that the Reserve Bank has substantially revised down their expectations for inflation. Headline inflation by the middle of this year, in February, they thought it’d be 2.4 now they think 2.1. The end of the year, and this is partly because of the energy rebates, they’ve wound it down from 3.7 to 3.0. Trimmed mean underlying inflation they’ve revised down for every half over the next 3 or 4 halves. So in the Statement on Monetary Policy the Reserve Bank is releasing today, they’re downgrading, they’re lowering their expectations for inflation, and that’s a good thing. And they treat the unwinding of those energy rebates in the same way that the Treasury does with their forecasts. It’s been clear for some time that when they are unwound, that has a short term implication for the headline rate. But we are really encouraged and really pleased to see the Reserve Bank reflect in their Statement that the upside risks to inflation are diminished, that we have made a lot of progress together on inflation, I think that’s reflected in the fact that they have taken their forecast for inflation both headline and underlying down.
Journalist:
Can I please get your take on the Coalition split today?
Chalmers:
This is a nuclear meltdown. And the Coalition now is nothing more than a smoking ruin.
They are hopelessly divided on personalities and on policy. It shows that the new leadership has failed its first test. It shows that they’ve learned absolutely nothing from the last few weeks, or indeed the last few years. This is a nuclear meltdown in the Coalition. And it’s hard to see how Australians can take them seriously when they don’t even take each other seriously. So the Coalition is now little more than a smoking ruin. I think that is really clear. Also clear is the contrast between a government getting on with the job, managing the economy responsibly, here to talk with you today about the second interest rate cut in 3 months, and a Coalition – or a former Coalition – completely and entirely focused on themselves. They tried to divide the Australian community in the election campaign and they ended up dividing themselves. And the consequence of that is that the Liberal Party is now barely bigger than the crossbench in the Parliament.
We’ll impose some order, so we’ll go you 3, and then back here, and then we’re done.
Journalist:
Treasurer, this is the first interest rate –
Chalmers:
We’re chuckling because I meant behind you, and then we’ll come to you. If Tom’s alright, we’ll start here. Please, mate. I wanted to explain why Tom and I were smiling.
Journalist:
This is the first interest rate cut basically since Donald Trump imposed his tariffs and the RBA in its decision was mentioning all the uncertainty internationally and how that affects on the domestic front. Given that, a lot of economists were saying that we’re expecting 4, potentially 5, interest rate cuts this year. How do you see that those developments overseas will affect any possible cuts in the future? And also just on the Nationals issue as well, does that make governing even easier for you, given that the Opposition is now effectively halved?
Chalmers:
First of all, there’s nothing easy about governing. And we don’t underestimate our political opponents, even at their worst. And so I think it’s self‑evident today that they’ve torn themselves apart. But our focus is not on our Opposition our focus is on our economy, it’s on the challenges of the next 3 years and the decades beyond. I think you can see that contrast laid out pretty clearly today. Our focus will continue to be on providing the responsible economic management which has been a defining feature of this Albanese Labor government. It was the primary focus in our first term and during the campaign, and it will be the primary focus in our second term as well.
And one of the reasons for that goes to the first part of your question. There is a lot of unpredictability and volatility and uncertainty in the global economy. We see that reflected in the Reserve Bank’s Statement. We see that reflected in the Statement on Monetary Policy and in the way that they’ve changed the forecasts. Global economic uncertainty is casting a dark shadow over the whole global economy, and we are not immune from that. We’re better placed, we’re better prepared, but we’re not immune from those developments, and you can see that in the way that the Reserve Bank has grappled with and explained this decision today. And no doubt Governor Bullock will also be asked about that shortly.
Journalist:
You suggested, during the campaign, citing market expectations, there could be as many as 4 rate cuts this year, we’ve got 2 done now. Is that still your view? Do you think this could be the last cut for a while?
Chalmers:
I think, as you would appreciate, I’m given lots of opportunities to make predictions on future movements on interest rates and I don’t take up that very kind offer of yours. The market has expected for some time that there would be multiple interest rate cuts this year, that is a matter for the independent Reserve Bank, and it’s a matter for the market and for the economists to make those sorts of assessments. There was an almost 100 per cent expectation of a rate cut today, and that’s what we saw. Obviously, the further out you go, the more uncertainty there is about that, partly because of the question before around the global environment. So that decision will be taken independently by the Reserve Bank. I won’t predict or pre‑empt those decisions that they take. The market expects there to be further interest rate cuts, but market expectations change over time. David.
Journalist:
Does this second rate cut give you more confidence that you can as a government, help to put upward pressure on wages while delivering cost of living relief in a way that doesn’t impact adversely on inflation? And just on the Coalition split more broadly, nationally I guess, does it concern you that we may be seeing a deeper divide between city and country coming out of this split?
Chalmers:
I’ll take that reverse order again. The only party in the national Parliament capable of representing the cities and suburbs and regions and rural areas is the Labor Party. And that’s clearer now today than it has been for some time. The splits in the former Coalition are so deep and so personal that they can’t be resolved. In the Labor Party, we’ve got representatives from right around Australia, with different backgrounds, our party room looks like Australia. And only Labor under Anthony Albanese has the capacity to bring people together and focus the country on our big economic and other challenges. The Coalition has proven itself, not just incapable of sticking together, but of providing that kind of representation in every corner of Australia, which the Prime Minister prides himself on providing.
When it comes to the various developments we’ve seen in the economy over the last few years and indeed over the last couple of quarters, we are especially proud that we have been able to get inflation down, see interest rates start to come down, at the same time as real wages and nominal wages have been growing much quicker than they were under our predecessors. We’ve had really quite extraordinary employment growth, 1.1 million jobs created in the 3 years that we’ve been in office. We’ve got the debt down in the budget. All of this is happening at once. And what makes Australia unusual in the world is a lot of our peers have had to pay for that progress on inflation with much higher unemployment or with negative quarters of growth or recessions, in some cases, New Zealand, the UK. I think the US is experiencing a negative quarter, or, most recently, predicted negative quarter. And so what that shows is that we’ve been able to do collectively as Australians, not just the government, the whole country, has done a good job of balancing those competing pressures. And so the soft landing that we’ve been aiming for and trying to engineer in our economy looks more and more likely now, and the decision today by the independent Reserve Bank to cut interest rates gives us more encouragement that we can have low unemployment, we can have growing wages, we can have falling inflation, we can have interest rates being cut, we can have growth returning to our economy, private sector playing a bigger role in that, we’re having all of those things at once. Other countries with which we compare ourselves have had to choose between one or other of those developments. Australia has seen all of that at once, and we’re pleased to see some of that recognized in the Statement and the decision today.
Last 2.
Journalist:
As noted in the Statement today about that global uncertainty, you’ve spoken about the influence of the United States. The PM’s just had his first overseas trip, would you like to see him go to the US? And was it disappointing that he didn’t have a chance to meet Vance when he was in the Vatican?
Chalmers:
The Prime Minister had a discussion with President Trump after the election result was known. He’s had a number of conversations with President Trump in the last few months, since President Trump was elected or re‑elected at the end of last year. And so we engage wherever we can and whenever we can, because this relationship is of mutual economic benefit. We’ve got a lot of skin in the game when it comes to these escalating trade tensions. And so a number of us in the government, including the Prime Minister, have engaged with our counterparts in the US and we should expect that to continue. I’m not going to tell the Prime Minister how to arrange his travel schedule. He’s had a number of important meetings in Indonesia and also in Rome, and that’s appropriate.
Now because you’ve asked me about the US economy – and a number of you have shown an interest in the last day or 2 about the Moody’s downgrade to the credit rating in the US – that is another reminder, which goes a bit to David’s question before, about how much better we are faring than other countries like the US. Our gross debt position is better than the US. Our budget balance is better than the US. We’ve got the triple A credit rating from all 3 of the agencies, the US have just been downgraded by Moody’s. We’ve got lower unemployment here. We’ve got stronger employment growth here. And we’ve got lower interest rates here in Australia as well, at the same time as we’ve got similar levels of inflation. So that comparison, I think, is another reminder that Australia is especially well placed and well prepared to deal with all this global uncertainty.
Journalist:
If I can just sneak another Vatican question in there. Don Farrell went over, he made a prayer when he was there for Anthony Albanese and the Labor Party. It’s been quite the 2 weeks, I mean, how’s the Labor Party feeling at the moment.
Chalmers:
We’re focused on the job at hand, and obviously we’re very grateful for the opportunity the Australian people gave us. We’re especially grateful for the magnitude of that victory. But we know that the Australian people didn’t elect us to celebrate, they elected us to govern and to take seriously the challenges that we confront together, in my case, the challenges in the economy and in the budget. And that’s what we’re doing. We’re very pleased with the result. We’re very grateful for the result, but we’re not going to dwell on it, because we’ve got work to do.
Journalist:
Party splits can be pretty consequential in political history. Do you see this as being a long term realignment or a blip for the Coalition? Obviously, it’s probably politically good news for the government?
Chalmers:
I think it remains to be seen how long this lasts. It is a seismic event in our political history, I think that’s really clear. And I think it shows that the most basic, elementary test here has been failed. And failed and fallen at the first hurdle. And so, as I said before, I mean it is rare, but as I said before, it’s consequential because the divisions in the Coalition were unable to be reconciled. And I think it does show that the former Coalition parties learned nothing from the election result. They’ve learned nothing from the last 3 years. They’re focused inwardly on themselves while the Albanese government is focused on governing. So it’s a nuclear meltdown. They are a smoking ruin. And I think developments today made that really clear.
Thanks very much, everyone. Appreciate it.