THE HON JIM CHALMERS MP
MEMBER FOR RANKIN
WEDNESDAY, 8 JUNE 2022
SUBJECTS: Interest Rate Rise; Reserve Bank; October Budget.
GARETH PARKER, HOST: The Federal Treasurer is Jim Chalmers. He joins me on 6PR Breakfast. Treasurer, good morning.
JIM CHALMERS, TREASURER: Good morning, Gareth.
PARKER: And congratulations on your election and your appointment as Treasurer.
CHALMERS: Oh, I appreciate that. Thanks very much.
PARKER: It may not feel like congratulations are in order. You’re facing a series of difficult challenges as are indeed families trying to balance their budgets.
CHALMERS: Well, that’s true, Gareth, and I think it was a particularly difficult day for homeowners yesterday. They expected an interest rate rise, but that doesn’t make it any less difficult to find room in the household budget which is already getting smashed by other skyrocketing costs of living, like energy prices and grocery prices and the like. So, a particularly difficult day, we acknowledge that. A number of these issues in our economy that the Reserve Bank Governor was talking about yesterday, and I will be talking about at a forum later today, are really serious challenges. We’ve got high and rising inflation leading to these higher interest rates. We’ve got falling real wages and our ability to respond to some of these challenges is restrained by the fact that we’ve got a trillion dollars of debt in the budget. There’s no shortage of challenges. I’m confident that we can get through them if we can work together, but it’s going to be a difficult period.
PARKER: Jim, can you please explain to people, because I think they want to understand this – can you please explain to people how making them pay more for their mortgages will moderate inflation by bringing down the price of petrol or groceries or, in the east coast, gas and electricity?
CHALMERS: Well, if you were the Reserve Bank Governor, you would say that one of the issues we’ve got in our economy right now is we’ve got particularly strong demand at the same time as we’ve got high prices. Now, some of those high prices are already doing the job that higher interest rates would do because they’re spending on what the economists would call non-discretionary items, whether it’s petrol, whether it’s groceries, some of these other essentials that families in WA can’t do without, then obviously that’s taking some of the money out of household budgets. But because that inflation challenge is so serious and because it will get worse before it gets better, then the job of monetary policy, of interest rates is to try to take some of that demand out of the economy, which is difficult. It is tough. Countries around the world have got rising interest rates for the same reason, but that doesn’t make it any easier for Australians who’ve got to find that extra money in their monthly household budget.
PARKER: And this is the Governor Philip Lowe in his statement said the price of petrol, the price of electricity, the price of gas means that inflation expectations in the short term are higher than they thought they were going to be a month ago. How is making mortgagees pay more for their mortgage bring down the prices of electricity petrol, electricity, and gas which seems to be a global issue?
CHALMERS: Well, it has a broader task than that. Clearly, it’s not going to – interest rate rises of themselves will not bring down the price of petrol, but what they’re trying to do, and they can speak for themselves, the independent Reserve Bank, but what they’re trying to do is take some of the edge off this strong demand, which has the capacity to push up other prices in our economy. So, what they did yesterday, that 50 basis points or half a per cent rise that they announced yesterday, the Reserve Bank, in WA, the average new mortgage is $471,000 and so that means people have to find an extra $128 a month if you’ve got that average new mortgage in WA. That will be difficult for people, but it will also take some of the edge off the strong demand that we’re seeing in the economy.
PARKER: You are delivering a Budget in October. You’ve already said there will be cost‑of‑living measures in that budget. Can you elaborate on that beyond child care?
CHALMERS: Well, the Budget in October will have a few tasks, and it has to kind of strike the right balance between all of them, but part of the Budget, a key part of the budget, will be a cost‑of‑living package. You’re right, part of it will be child care, but there will also be a policy to bring the costs of medicines down. There will also be the implementation of our plan to get real wages moving again and, of course, energy prices, putting some downward pressure on energy prices over the medium term with our Powering Australia Plan as well. So, all those things are important commitments we’ve made that will be implemented in the Budget at the same time that we look to trim spending elsewhere.
My colleague the Minister for Finance, Katy Gallagher, and I have already begun going through the budget line by line so we can identify and trim spending which isn’t necessary in the context of high and rising inflation so we can redirect that spending from unproductive purposes into more productive economic purposes which can grow the economy without adding to these inflationary pressures, and that’s why training and child care and infrastructure and a lot of those investments are so important.
PARKER: Inflation has been running hot at over five per cent nationally. In Western Australia it’s running even hotter. It was over seven per cent in the last quarter. The expectations are it will continue to rise. You are talking to Mark McGowan, the Western Australian Treasurer, later today I understand.
CHALMERS: I am, yeah. I’m meeting with Premier McGowan. He’s also the Treasurer, as you know, so Anthony Albanese’s counterpart but mine too. Clearly, if you think about just Perth, inflation – I think it was 7.6 per cent at the last available data – and every commentator, every analyst expects inflation to get a bit worse before it gets better. So, we are aware, both Mark and I about the pretty serious price pressures in the WA economy. We’re also aware that because of the relatively strong performance of the economy out west, we do have particularly acute skill shortages, so we’ll hopefully be talking about some of those training needs that you have out west and some of the other issues that no doubt he talks to you about regularly.
PARKER: In the immediate term, even in the medium term, do we need to be realistic though? It doesn’t sound like there’s really much that you think you can do to ease this.
CHALMERS: Well, there’s a few different challenges at once. When it comes to energy, and I’m conscious here that we’ve got a particularly kind of east coast problem, but if you think about the national economy, energy price is a big problem. So, Chris Bowen, my colleague the Energy Minister, he’s got a meeting with the State and Territory Energy Ministers today to see what levers they can pull. The regulators over on the east coast have already imposed price caps and guarantees to try to take the sting out of some of these extraordinarily gas and electricity prices. So, there’s some near‑term steps and I’ve empowered the ACCC to make sure there’s not any dodgy behaviour –
PARKER: None of that is particularly relevant to us. In terms of petrol prices, grocery prices, short of mandating wage rises, which you’re not going to do, you can’t do, there’s really nothing else to say is there?
CHALMERS: Well, I’m not sure that that’s right. If you want to talk about wages, we’ve supported a decent minimum wage rise so that people on low wages can keep up with the costs of living. We’ve made that submission as the first act of the Anthony Albanese Cabinet. The first decision was for myself and Tony Burke to make that submission to the Fair Work Commission. That decision will come down pretty soon and will be implemented not long after that, so that’s something immediate in terms of cost of living. But beyond that, there’s some cost‑of‑living relief in the budget already at the petrol bowser, for example, and in the October budget we’ll start to implement some of those other long‑term, sustainable, responsible measures to get the pressure off household budgets.
PARKER: It might be a tough period to come Jim. I look forward to discussing the challenges with you in future. Thank you.
CHALMERS: Appreciate it, Gareth. All the best.
PARKER: The Federal Treasurer, Jim Chalmers.