JIM CHALMERS:
I'm really pleased to be in Washington DC for a brief but busy opportunity to engage with my colleagues from the G20, International Monetary Fund and World Bank as well. It couldn't be a better time to take the temperature of the global economy as we put the finishing touches on the Budget less than four weeks away. That Budget will be defined in so many ways by the economic pressures that we're seeing from around the world, but which are being felt around the kitchen tables of Australia. And when we confront uncertain times in the global economy, the best possible response is responsible economic management at home and that's what we'll see in the May Budget.
We know from the International Monetary Fund, from the forecasts which were released earlier this week, that the global economic community is not ruling out a hard landing when it comes to the way that central banks are responding to this inflation challenge in economies right around the world. So obviously, the war in Ukraine combined with the lingering impacts of COVID have pushed inflation up right around the world and that has invited a blunt and brutal response from central banks right around the world. That's why the International Monetary Fund and others can't rule out a hard landing in the global economy. We won't be completely immune from that in Australia but we are better placed than most to deal with this global uncertainty.
We've got a lot coming at us from around the world but we've got a lot going for us as well at home: low unemployment, the beginnings of wages growth, and very good prices for our exports on global markets. We enter this new period of global economic uncertainty from a position of relative strength. We are confident but not complacent about how this will play out. We are optimistic about the future but we are realistic about what a global downturn would mean for our economy. Treasury and the RBA expect our own economy to slow considerably and that will be reflected in the budget forecasts when they're updated in the May Budget in less than four weeks from now. So the best possible response to this global economic uncertainty is responsible economic management and that's what we'll see in the May Budget.
Over the course of the next 45 hours or so, the 18 meetings with my colleagues and counterparts around the world will be a crucial opportunity to take the temperature of the global economy as it enters a perilous phase, as it enters what is a more complex and challenging environment than it was even a few months ago. We take these challenges seriously, we work through them in a methodical way. There'll be a premium in the Budget on what's responsible and sustainable. It will be all about providing responsible cost-of-living relief where we can afford to do that. It will lay the foundations for future growth but it will also try and make us more resilient to the types of global economic shocks that we'll be discussing here in DC.
JOURNALIST:
[INAUDIBLE].
CHALMERS:
We expect inflation in Australia to be higher than we'd like for longer than we'd like. This inflation problem in the global economy and in our own economy is a persistent one, and even when we see welcome developments, like we've seen in the last few hours, further moderation in inflation here in the US - headline inflation - there is enough to trouble us in the core inflation number that was released at the same time. So what we're seeing right around the world is this inflation challenge is a persistent one. It is one of the defining challenges that we're all asked to deal with - no doubt, there'll be a lot of comparing notes about how different countries have faced this challenge. In Australia, for our economic plan, one of the most important elements is responsible cost-of-living relief without adding to these inflationary pressures. We can do that in a responsible way and you’ll see that in the May Budget.
JOURNALIST:
[INAUDIBLE] Do you anticipate that anything from this document from the Pentagon will impact how you approach these meetings? Will it come up with allies?
CHALMERS:
That remains to be seen. I mean, obviously that's a very serious breach. We saw some of that analysis come to light publicly but the conversations that I expect to have with my friend and counterpart from Ukraine is about the support that Australia is providing for the war effort. We pay tribute to the incredibly brave, courageous, really quite incredible people in Ukraine who have resisted this Russian invasion. We are a big supporter of the Ukrainian people and the Ukrainian military.
JOURNALIST:
Treasurer, there have been very notable bank collapses through the United States and in Europe. Has the government taken any steps to further stress test Australia's own financial institutions? And are you confident that there aren't similar problems, given the rate of interest rate hikes that we've seen?
CHALMERS:
In Australia, our banks are well regulated, well capitalised and well placed to deal with the kind of turbulence that we've been seeing in the banking system elsewhere. And I have been convening the Council of Financial Regulators, which is the RBA, APRA, ASIC, the Treasury and others, to make sure that we stay across developments in the financial system globally. But our banks are in much better nick than some of these counterparts that we've seen around the world get themselves into trouble. And one of the key points of discussion here in Washington DC is how do we deal with any remaining vulnerabilities in our banking system, particularly when you recognise, whether it's digitisation or social media, the sorts of bank runs that we've seen averted in recent times, particularly here in the US, they are much quicker than they were when the GFC rules were first put together more than a decade ago. And so we want to make sure that banking regulation keeps pace with the pace of developments in the financial system, and that will be an important part of the discussions.
JOURNALIST:
Treasurer, you're here for the IMF meetings. The IMF's Monitor has said you've got to think about deficits, building up tax revenue. They've suggested consumption taxes are a good way to do that. You've been resistant to that. Why is your government so resistant to reforming things like the consumption tax, especially in this modern day when you can do so much to make it work financially and politically?
CHALMERS:
Well, a couple of things about that which you'd be familiar with. From my point of view, there are distributional issues with the GST in particular, every cent goes to the state and territory governments. And so it wouldn't be an opportunity necessarily, at least not directly to repair the Commonwealth Budget and our priorities lie elsewhere. A modest but meaningful change to superannuation tax breaks, changes to multinational taxes consistent with the global agenda that will be advancing here at these meetings - these are our priorities when it comes to tax reform, but also showing spending restraint in the Budget, particularly when it comes to these revenue upgrades from higher commodity prices. And also trimming spending, where we think that we can get better value for money elsewhere. We did that in the October Budget, and we'll be doing it again in May.
JOURNALIST:
So the response then is thanks IMF, but no thanks, we don't need your advice?
CHALMERS:
Look, we take seriously the input and suggestions from the IMF - from all the global institutions. But it's our job to make our own priorities clear and I've just run through our priorities when it comes to the Budget. But the fastest growing cost in the Commonwealth Budget is the interest costs on the trillion dollars in Liberal debt that we inherited from our predecessors. That is growing faster than the NDIS, aged care, health care and national defence. So we do take those challenges seriously and we did get - by banking such a large proportion of the revenue upgrades in October - we did get those deficits down and as a consequence, less debt than there would be otherwise. That's important, because the cost of servicing that debt is going up.
JOURNALIST:
Just in terms of that debt. The debt to GDP ratio, of course, has gone up significantly during COVID [INAUDIBLE]. In the wake of this Budget coming up, is there any chance [INAUDIBLE]?
CHALMERS:
It remains to be seen, we're still finalising the final Budget numbers. But we've made it clear that we expect the Budget in the near term to get a little bit better because unemployment is low and commodity prices are high. And that's a welcome improvement in the near term. But in the medium term, the pressures on our Budget are actually intensifying rather than easing. Those big five pressures and borrowing costs - NDIS, healthcare, aged care and defence - they are putting additional pressure on the Budget so we need to make the Budget more sustainable. The point that the IMF has made and the point that the Grattan Institute earlier this week made is that there is a structural issue in the Budget. Katy Gallagher and I take that very seriously and that's why we have managed the Budget in such a responsible way and you'll see more of that Budget responsibility in May.
JOURNALIST:
Is the Australian dollar [inaudible]?
CHALMERS:
Look, I don't make predictions about the trajectory of currency on foreign exchange markets.
JOURNALIST:
[INAUDIBLE] What would you like to find out in your meeting with Janet Yellen?
CHALMERS:
I'm looking forward to seeing Janet Yellen again. We have a very close working relationship with Secretary Yellen and the Biden Administration. And it will be an opportunity to talk about how we invest in cleaner and cheaper energy, in particular, how we shore up our global supply chains so that they are more reliable, how we progress our other agendas, whether it's tax reform and multinational tax reform, and in other areas as well. But I think the main topic of conversation here in Washington DC will be about dealing with any remaining vulnerabilities in the banking system. We are worried about the spill-overs into the broader economy. People are very jumpy about the global economy right now and the banking system in particular. I think that'll be central to the meetings.
JOURNALIST:
Will you raise concerns about the IRA and inflation reduction, and how that might have an impact on Australia's ability to get to net zero?
CHALMERS:
Look, we want countries around the world investing in cleaner and cheaper, more reliable, increasingly renewable energy. And so we see the developments here and around the world as an opportunity. Australia's got huge advantages when it comes to investment in cleaner and cheaper energy, it will be an opportunity to discuss those, with Secretary Yellen and with others. You think about the big shifts that are necessary in our economy, whether it's in our workforce, whether it's in energy markets, Australia is really well placed. And that's why I come here to Washington DC with a message of Australia's relative strength, vast opportunities to invest in the Australian economy. I am confident and optimistic about the future but we've got some choppy waters to navigate in the interim. And that's why it's so important I'm here less than four weeks from the Budget so that we can understand fully, developments in the global economy and the banking system, what it means for us and what the opportunities are for us as well. Thanks very much.