GREG JENNETT:
Let's bring in the Assistant Treasurer Stephen Jones now. He's with us right here in the studio. Welcome, Stephen. At an annualised 6.8 per cent, this is going completely in the opposite direction to Budget forecasts, which would have had it at 6 per cent by the end of June. We all know what happens next, don't we?
STEPHEN JONES:
Look, when we have a look at the inflation figures, we see there's a couple of lumpy items in there. Petrol prices, energy prices in particular, and accommodation, a bit of an anomaly, holiday accommodation in particular. But overall, we know that households and small businesses are doing it tough. And it's our job as a government to ensure we're not making a bad situation worse and that we're dealing with some of those supply side issues that are feeding into the inflation challenge. Pleasingly, both the Reserve Bank Governor and the Treasury Secretary confirmed what the Governor's been saying all along, that if anything, our Budget is deflationary. But we've got some big challenges, including those that are coming to us from overseas.
JENNETT:
He did do that. And I want to take you through some other challenges domestically, in fact, on wages. But just looking back on statements that you've made previously around interest rate hikes, you've said there was enough pressure in the system and ahead of one monthly meeting, we're hoping that we don't see further interest rate increases, was your form. What's your entreaty to the Governor today?
JONES:
The Governor will exercise his mandate in the way that he's required to, and the entire Reserve Bank Board will look at all of the factors. It's not for me to advise or lecture the Reserve Bank Governor. What I will say‑
JENNETT:
Even if you've done it before?
JONES:
What I will say, there's not a person in this place that wants interest rates to be higher, any higher than they absolutely need to be to bring down inflation, and I'm included in that number. We don't want to see interest rates a percentage point higher than they need to be. We don't want to see households paying a cent more on the mortgage than they absolutely need to be. But I think one of the things that the Reserve Bank Governor did a good job of explaining today is, what's the counterfactual? What's inflation getting away from us look like? And it's a tax on households, it's a tax on investment, a tax on small business.
JENNETT:
And you're on the same page with him now on that?
JONES:
I've always been on the same page as the Reserve Bank Governor, that fighting- letting inflation get away from us is a significant challenge. So, keeping a lid on inflation, having it return to the Reserve Bank target rate is absolutely critical, and it's a shared goal.
JENNETT:
All right, straight out of the blocks this morning in his testimony, Governor Lowe was very strong on wages or wage demands, more specifically, in the absence of productivity growth, and he says that just hasn't been there. In the normal course of things, 4 per cent wages growth is not problematic, but it is problematic if we have no productivity growth. That was a message to the government itself and members right through to the backbench, wasn't it?
JONES:
Productivity is a long term challenge and that's why one of the features of this Budget is to invest in those things that are going to drive productivity growth. So energy, skills, National Reconstruction Fund, which is focused on areas where we have both natural advantages and capacity in areas where we need to be getting technology moving in our favor. These will all drive productivity over the medium term.
JENNETT:
Over the medium term? I was going to say when, over what period of time? Because they are longer‑term issues and yet getting wages moving was the policy put to people by Labor ahead of the last election.
JONES:
And I'm not - and we don't shy away from that. We want to see working people get ahead. And most of all, we don't want to see the most disadvantaged and the lowest‑paid people in Australia falling behind. So, we don't shy away from the fact‑
JENNETT:
When does that kick in? Real wages growth.
JONES:
We don't shy away from the fact that one of the first things that we did was to encourage the independent Fair Work Commission to lift the minimum wage by $40 a week. That's having a real impact on people struggling with cost of living. Don't shy away from that. Absolutely a good thing, and we want to ensure that minimum wage workers don't fall behind. But for those other workers, it's the direct bargaining that occurs between themselves, their unions and their employer which will drive wages growth. And absolutely productivity has got to be‑ and capacity to pay is one of the things that will influence those wage outcomes.
JENNETT:
And I think it was that other workers class that he was referring to specifically today. He spoke of some disappointment, I use the word he lamented earlier, the assignment of responsibility when it comes to shrinking demand in the economy. The Governor feels as if it's left entirely to the Reserve Bank to do that when there are other options available. Raising taxes, more drastically reducing spending than we saw in the May budget. Should governments, and when will governments step up to the plate on that side of the equation?
JONES:
Well, I think we've put in a pretty good instalment of fiscal responsibility, ensuring that we didn't add to inflation, but at the same time ensuring that we were helping households who were struggling, particularly with energy prices and investing in those things that are going to drive productivity, namely skills. We've got a skills crisis. Businesses can't get the workers they need with the skills they need. Never - the best time to have dealt with this would have been ten years ago. The next best time is now, and we're not going to let it go another ten years without addressing the skills crisis. So, absolutely critical.
In terms of budgetary pressures, one of the reasons why we ensure that 87 per cent of the new revenue that came in went straight to the bottom line, paying off the previous government's debt, was exactly for this reason, to ensure that we're not adding to inflation, getting the Budget back under control again. Over $40 billion worth of Budget repair over the last two Budgets. Absolutely critical. And in the Reserve Bank Governor's own words, the government itself and the Budget itself is not adding to the inflation problems.
JENNETT:
Now, you definitely said that. PwC, I know you've answered many questions on this over not weeks, but months. One specific one that arises from evidence in the last 24 hours or so: why don't we have more sophisticated communications between departments like Finance and Treasury on one side and everyone else on the other? By that I mean Federal Police, the Defence Department, because people are still letting contracts, we discover this week, while the penny is dropping there in Treasury and Finance.
JONES:
On the issue of letting contracts, I don't think we could be clearer. The new ethics test that will be applied to the letting of any new contract. Absolutely critical, a response to PwC. And by the way, as the Prime Minister said in question time today, we want to have fewer of these outsourced contracts because we want to build up the capacity of the public service because it's the right thing to do, but it also costs less. The amount of money we're spending on contractors makes my eyes water, and I think a lot of that work could be done better in house.
On the PwC stuff, I think there's four things that we've done. Referral to the Federal Police, commend the Treasury Secretary for doing that. An initial tranche of legislation bogged in the Senate at the moment. We call on the Senate when they come back to business in a fortnight's time to pass that bill immediately. I've already mentioned the ethics test for new contracts. There's going to have to be another line of work that is done around reforming the things that you're talking about, Greg, because I think the evidence that we've seen over the last 24 hours, and the whole tawdry of PwC affairs indicates that more needs to be done in this area.
JENNETT:
Yeah, it was quite disconnected, seems to be the overall observation we can make.
JONES:
We won't rush - one of the things we won't do is in the heat of the crisis, make quick decisions. So calm, deliberate consideration of the problems with very decisive action to follow, and you'll see that.
JENNETT:
We'll revisit that with you as and when those announcements are made. Stephen Jones, thanks for joining us today.