RAFAEL EPSTEIN:
Stephen Jones is the Assistant Treasurer. He is part of Anthony Albanese’s Cabinet. Thanks for joining us.
STEPHEN JONES:
Good to be with you, Raf.
EPSTEIN:
Do you think the Reserve Bank’s strategy is working?
JONES:
Look, we think inflation has peaked and the information available to the government, the information I see, leads us to believe that inflation has peaked. We always expected over the Christmas holiday period that there would be a seasonal and abnormal level of spending which would be pushing prices up, with all sorts of problems in the supply chain, that was going to force inflation up higher than we wanted it to be. But we think that that seasonal factor has flown through and we think inflation should be on the way down now. Obviously, the Reserve Bank makes its decisions on the information available to it. It operates independently of government. We share the objective of driving inflation down. As we have discussed in the past, inflation drives the cost of living for every household in the country. So, we all need it to come down and interest rates are a blunt instrument of making that happen.
EPSTEIN:
Is it working though? You say it’s a blunt instrument. I’m just not sure I heard – and there’s nothing wrong with anything you said there. I’m just not clear if the government thinks those rate cuts are having an impact.
JONES:
Two things. Maybe it should have been implicit in what I said. We think inflation has peaked and over the next quarter it should start to come down. To the extent that interest rates are pulling money out of the economy, then that is having its intended effect. But we also know that there’s going to be a delayed impact on these because there’s around about 800,000 households who don’t roll off their fixed-rate mortgages until the end of June this year. So, some of it's impacting now. Some of it will have its full effect in June next year. But over all of that, we think inflation has peaked and yes, rising interest rates are a part of that.
EPSTEIN:
I just wanted to play something to you, Assistant Treasurer. We’ve chatted to a number of people. I want to know how you respond to this. I guess it’s a sentiment and an experience, more than the economics. We had a chat to Emily. She’s basically had to return to work from her maternity leave much earlier than she planned because of the rate rises. Here she is.
EMILY:
Pretty tough. I’ve only just gone back to work after maternity leave. We’ve got an 11-month-old. So, for us, I had to go back early because of the amount we’re paying on our mortgage now. Unfortunately, our interest rate is a variable one so it keeps going up.
EPSTEIN:
Stephen Jones, what you would say to someone like Emily, who had to go back to work earlier because of the rate rises?
JONES:
Yeah, I feel deeply for Emily. I represent an electorate which is full of households like Emily. They’ve got young families, high mortgages, struggling to make ends meet, dealing with cost-of-living increases and making tough decisions like the one that she’s talked about. One of the reasons that we’re bringing in additional support, particularly through child care, providing additional support for households through child care –
EPSTEIN:
I wasn’t actually sure if she was benefiting from that.
JONES:
She certainly will by June when the full effect of the interest rate rises but also the child care increases – increased funding for child care will come through the system. It’s also why, you know, households at the other end of the age spectrum who have a higher use for medicines, it’s why we’ve put an emphasis on the medicine relief up to $30 off the cost of medicines, for many households and in addition to that, Raf, the energy price subsidies that we will be providing more detail for, over $1.5 billion, announced at Christmas, will start to flow through after the May Budget. So, all of this adds up to a story that we understand what households are going through. We’re deeply concerned. We think we’ve gone through the worst of it and we’d like to see over time those interest rates start to come down again.
EPSTEIN:
I just want to get back to basics and I don’t want to turn this into an economics class because I know some people, many of us, get confused – supply and demand, et cetera – but as Assistant Treasurer you mention the RBA is basically taking money out of the economy. If our mortgages cost us more, we don’t have as much to spend. That’s not really the problem we have, is it? Is an interest rate cut the right instrument? There’s a whole lot of other things driving inflation. It’s not necessarily that there’s too much cash looming around. Is it too much of a blunt instrument?
JONES:
Look, it is a very blunt instrument and effectively you’ve got monetary policy, which is interest rates conducted by the independent Reserve Bank; the more they raise rates, the less money that households that have a mortgage, businesses that have got a loan, that is a floating rate loan, that takes money out of their budgets that they can’t otherwise spend on other consumption. It pulls money out at an aggregate level – a very blunt instrument. The other instrument available to us is, of course, fiscal policy, budget policy, how much money that the Commonwealth Government is spending and that’s why we’ve been signalling for the last six months now that the May Budget won’t be a budget where a lot of money is being thrown around –
EPSTEIN:
Earlier a caller from Daylesford told us you’re spending too much already.
JONES:
Well, a whole heap of the expenditure is non-discretionary. I don’t think anyone is suggesting that we shouldn’t continue to pay pensioners, that we shouldn’t continue to pay rent assistance, that we shouldn’t continue to pay for Medicare and all the other Defence Force, all the other locked-in expenses that we have no discretion over, and that’s the vast majority of our expenditure. So, May Budget won’t be a give-out, a giveaway budget. There will be some very targeted cost relief pressure for households through energy, the stuff that I’ve talked about on child care and medicines, but we are not going to make a bad situation worse by boosting spending, putting more demand into the economy, forcing the Reserve Bank to jack rates up again. That’s just not a sustainable strategy.
EPSTEIN:
A lot of the election campaign was Labor saying in March, April, May last year, “We will help you lower the cost of living.” Did you effectively make a promise you knew you could not keep?
JONES:
In March, April last year, we were facing a very different set of circumstances. Nobody could have foreseen the impact the war in Ukraine has had on international commodity and energy prices, and so much of that is flowing through to household budgets here in Australia. So, nobody in March last year could have contemplated a whole bunch of the other supply issues that we thought were going to turn around a lot quicker –
EPSTEIN:
So, you agree you couldn’t keep a promise?
JONES:
What I’m saying is we are doing everything – the straight-up answer to the question: we didn’t foresee at this time 12 months ago, earlier than 12 months ago, that the international circumstances were going to have such an impact on the Australian economy. That’s the first thing. The second thing I would say is that everything that we are doing is directed at ensuring that we provide some relief and don’t make a bad situation worse –
EPSTEIN: Is it also you saying you overpromised?
JONES:
No, I’m not saying that at all. All things had – if the circumstances played out in the way that everyone anticipated they would from January last year, all of those things would have flown through. We’ve got to make decisions today based on the information that we have today and I can tell you fiscal restraint, Budget restraint, together with providing target relief to households is the path – very narrow pathway – through here, to ensure that interest rates come down over time and we are able to walk that very narrow path, one of the few countries in the world, according to the IMF that is likely – the International Monetary Fund – that is likely to walk a pathway through this international crisis without dipping into recession.
EPSTEIN:
Final question, do you need people on the Reserve Bank board who have got a mortgage, because basically people with mortgages are the ones who feel the pain?
JONES:
Yeah, I think we need a broad range of experience on the Reserve Bank board, particularly people with deep experience in monetary policy but also people with a broad range of experience. And indeed, Raf, that’s one of the things that we’re looking at in the review of the Reserve Bank board that the Treasurer has got underway at the moment.
EPSTEIN:
Thanks so much for your time.
JONES:
Great to be with you.