THE HON JIM CHALMERS MP
MEMBER FOR RANKIN
ADDRESS TO SKY NEWS AND THE AUSTRALIAN
2022 ECONOMIC OUTLOOK BUSINESS LUNCHEON
WEDNESDAY, 8 JUNE 2022
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Good afternoon and thanks for the opportunity to join you here at Crown.
Can I begin by acknowledging the traditional owners and really thanking William, for the perfect acknowledgement of country a moment ago, but also for giving us genuinely a bit of a lift at the beginning of the proceedings today. So one more time for William, please.
To Paul, thank you very much for the invitation to be here. To my co-panellists, Jennifer Westacott, to Dan Walton as well, just so you know, this is the most civilized that Dan gets on Origin Day. He's got a bit of a bounce in his step, because 18 days ago, Dan became the most senior person in Australia who follows the Cronulla Sharks. So just bear with Dan, as he processes all of that. To Owen [Wilson] and Melina [Cruickshank], thank you for your support of the event today and to all of you here as well.
I did want to say something about Sky in acknowledging Laura [Jayes], Andrew [Clennell], Ross [Greenwood] and all of the Sky colleagues who are here today. Sky has provided such an important forum for those of us engaged in politics and those of us who are engaged in business, to discuss some of the big national issues that I want to get into in a moment, and that the panel will want to discuss as well.
Yesterday, I think I began the day on Danica De Giorgio's show and I finished the day or almost finished the day on Ross's show. I don't like to go more than a full day without talking to Ross. So that really was an indication yesterday of the opportunity that Sky provides us to discuss some of these issues. So I wanted to acknowledge that as well.
Now, key among the many things that we have going for us in this country, particularly in difficult times, is the willingness of major players in our economy, to lead and engage in a big national conversation about the trajectory of our economy and even more important than that, the trajectory of our society as well.
I've always been conscious of this, but especially so now as we try and navigate together some pretty choppy waters. I'm especially grateful for the engagement of many of you in this room over a long period of time and I'm especially cognizant, having spent much of the last 18 days meeting with the Treasury, meeting with all of the regulators, the state and territory Treasurer's, and so many leaders from the business community, including the leaders of the peak business groups, like Jennifer, and so I want to do acknowledge all of that and say thank you for all of that as well.
Today, the Treasury Secretary is giving another speech as well about some of the issues that I want to talk about today.
I've got a meeting with the energy regulator later today, I have a meeting with the Premier and Treasurer of Western Australia, I'll meet with Governor Lowe tomorrow, I've got the BCA tomorrow as well at the kind invitation of Jennifer and her BCA friends and we've also got the New Zealanders in town this week so I'll be meeting with the New Zealand Finance Minister.
That's all a long way of saying that the most important thing that we've got going for us right now, in my view, is a genuine sense of collaboration as we try and address some of the issues that we confront at the moment.
As Paul [Whittaker] alluded to, in his introduction, a moment ago, there couldn't be a better time for us to put our heads together about these challenges.
I think in the community, there has been a bit of a mood shift or a gear shift, perhaps an inevitable sense that the conflict, which is central to an election year, is giving way to a bit of a sense and a bit of a spirit of collaboration.
There's a sense of recognition, perhaps not universal, and certainly not in all corners of social media, that some of our challenges are at least a decade in the making, and they can't be turned around in the first 18 days of a new government.
There's also a real hunger in the community for some real talk about the conditions that we confront. I want to adopt a bit of that spirit today.
It was tempting yesterday when we got that half percent interest rate rise out of the Reserve Bank board to think that that was the thing that focused our minds on this inflation challenge that we've got in the economy. But in my view in the broader Australian community, people's minds were already focused on this inflation challenge. Certainly since I think about Christmas, around summer, when we started to see some of these pressures break out, but also over a much longer period too when it comes to the wage stagnation that we've seen in our economy now for the best part of the decade.
But I think inflation is the best way for us to centre our thinking today and more broadly, as well. Because inflation to my way of thinking is really the defining challenge that we have in the economy because of its impacts on living standards, on real wages, on the economic outlook, and also the impact that it has on the costs of servicing the debt in the budget. It's not a partisan opinion but it's an observable fact that when government changed hands a few weeks ago, it was at a time of high and rising inflation, rising interest rates, falling real wages, and with around a trillion dollars of debt in the budget as well.
When we got those national accounts, not that many days ago, many of us I think we're tempted to welcome some of the numbers which by historical standards might have seemed relatively strong but what also matters to us is the comparison between what we saw in the national accounts, and what the Treasury and others were forecasting we would see in the March quarter. When you think about it that way, even some of those relatively welcome numbers, were a little bit short of what the budget had forecast. So there's a challenge there as well.
We've got a tight labour market, we've got relatively strong demand, we've got good commodity prices, some households have got buffers when it comes to their home loans. But even as the economy grows, the challenges in our economy are growing as well. We've got that inflation challenge, which is expected to get worse before it gets better. The Reserve Bank has indicated that and the Treasury thinks that too.
When the parliament resumes towards the end of next month, I hope to update the forecast for inflation, to give people a sense of what our updated view is on the outlook in advance of the budget in October this year.
Clearly, when you think about the most recent developments in petrol, electricity and gas, and I'm looking forward to hearing from some of the main players in those industries, shortly, you've had petrol prices go up more than 10 per cent since the end of April while wholesale electricity prices are up 237 per cent. East Coast wholesale spot gas prices increased almost 300 per cent compared to the average over the March quarter and as a consequence of all of that, and we saw this yesterday, confidence has taken a hit as well.
Now we expect those interest rate rises to dampen activity in the economy somewhat, they will impact house prices and savings but they will also have a disproportionate impact on people on the lowest incomes, people who haven't been able to build up those buffers in their own personal finances. All of this will flow through to the budget, it will put significant pressure on a budget which already has its share of difficulties including a relatively significant structural deficit and now with those higher borrowing costs as well on top of that.
Now we've got a choice when we think about these challenges in our economy, we can tiptoe around them, we can try and pretend them away but my style and my preference is to be pretty blunt about them. We do have a whole range of things going in our favour. I mentioned some of those things a moment ago. We've got cause for confidence in the medium term and in the longer term but in my view, there's no use mincing words, when it comes to this inflation challenge, which will get worse before it gets better.
Inflation will be, in my view, significantly higher than the 5.1 per cent that we saw in the most recent data. So we need to be upfront with all of that. We need to work together to address these challenges. Now, from my point of view, in this relatively new job that I've got, what I'm going to try and do is to try and structure this collaboration that I'd like us all to engage in as part of this big national conversation about our economic outlook, and how we strengthen our economy and our society.
Some of the opportunities for that in terms of the next 18 months or so out of my portfolio include beginning to go through the budget line by line with my colleague Katy Gallagher, to work out where we can redirect spending from unproductive purposes to more productive purposes.
I'm looking to begin the review of the Reserve Bank in the next month or two and hopefully that would report sometime around the middle of next year and I know a range of people in the room have got views on that which I welcome.
I'll provide that Ministerial Statement to the Parliament in July when it returns so that I can update some of the forecasts.
We'll have a Jobs Summit sometime after Parliament resumes and from that a White Paper on the challenges in our labour market, including skills shortages, the gender pay gap, and some of those associated issues as well.
By the end of September, we'll have the Final Budget Outcome for last year and we'll have the Budget in October. I haven't said this publicly before, but we're looking at the Budget being on or around the 25th of October, subject to the finalisation of the parliamentary sitting schedule. But certainly in the last week of October is our objective when it comes to the Budget.
The Productivity Commission will release their five yearly review of productivity in February of next year.
The May Budget will follow soon after that and I also hope to have an Intergenerational Report during the course of calendar year 2023, as well.
So that's just to give people an indication of the various ways that we can collaborate, and you can have meaningful input into our thinking on the economy.
Let me just finish on really quite an optimistic note, because I'm conscious that by running through the challenges that we are most concerned about, I need to be careful, we all need to be careful, to recognise as well what we have going for us too.
This final observation is prompted a bit by a question I got yesterday in a press conference about whether the new government had been served a particular kind of sandwich in coming to government, and a cartoon in one of the other newspapers today, which adopted a very similar theme. I don't see it that way. I genuinely think that Australia has a really big opportunity here to have a stronger economy and a stronger society after COVID-19 than we had before.
I strongly believe, and I wouldn't be here if I didn't, that Australia can take its place its rightful place at the absolute first rank of national economies in the world. But first, we need to navigate together these choppy waters that we are dealing with now. It's not beyond us.
It will get harder before it gets easier but I'm confident with the spirit that I've detected in all the conversations I've had the last 18 days, which I see here as well today, that we can get through a difficult period and we can have a strong economy and a strong society after we do.
Thanks very much.