THE HON JIM CHALMERS MP
TREASURER

MEMBER FOR RANKIN

E&OE TRANSCRIPT
TELEVISION INTERVIEW
ABC AFTERNOON BRIEFING
TUESDAY, 7 JUNE 2022

SUBJECTS: Interest Rate Rise; Inflation; Energy prices; ACCC.

GREG JENNETT, HOST: This decision by the Reserve Bank is the first under Treasurer Jim Chalmers' watch. It might have been anticipated by him but that doesn't make it easy news to digest. Jim Chalmers joins us now from Brisbane. Welcome back, Treasurer. Difficult day for so many Australians. The figures, I think, as you may have conveyed them a little earlier, $87 per month extra for someone with an existing mortgage balance of $330,000, $157 for the average new loan. You said inflation will get harder before it gets easier. So the bottom line here for families, isn't it, that they're going to gouge out many more dollars from their budgets before this is all over?

JIM CHALMERS, TREASURER: Greg, you're right to say that just because this was expected today, that interest rates would go up, it doesn't make it any easier for homeowners who have to find that extra money to service their mortgage at the same time as they're facing those skyrocketing costs of living, whether it be energy prices, grocery prices, or other inflationary pressures in the economy. It is a really difficult day, especially for those homeowners who might have an especially big mortgage or for those who might not have built up the buffer that others have been able to do. So a difficult day and a real reminder and a real reflection of this serious inflation challenge that we have in the economy.

I think it's almost universally expected now by the Reserve Bank, the Treasury, I've been speaking about this the last few days that this inflation challenge looks more difficult than the Government said at the time of the last budget. We've got high and rising inflation, rising interest rates, falling real wages and our ability to deal with some of these challenges is constrained by the fact that the budget is absolutely heaving with that trillion dollars of Liberal debt. So those are the challenges before us. We've got some things going for us at the same time but we've got some pretty serious choppy water to navigate first. 

JENNETT: Let’s get to debt and some other questions in a moment. But just on the question of how far can this go, both for interest rates but more immediately for inflation. Last figure, 5.1 per cent, in all likelihood, based on the language in this RBA statement today, we are looking into what now, the 6s, if not the 7s?

CHALMERS: I think certainly the Reserve Bank and certainly some of the comments I've made in the last few days it is expected across the board that inflation will be significantly higher than that 5.1 per cent that we saw in the most recent data. I will update that inflation forecast when I report to the Parliament when it returns towards the end of July as part of a big national conversation about our economic challenges of which inflation is probably the most pressing. 

JENNETT: Why do household budgets have to be singed to slay the metaphorical inflation dragon? Are there not other ways, particularly for you as a Government, to take that pressure out without leaving most of the heavy lifting to the Reserve Bank here?

CHALMERS: The responsibility for the Government, and one that we take very seriously, and you will see this in October when I hand down the budget, is to make sure that every dollar of spending in the budget is about investing in getting an economic dividend because one of the ways that you grow the economy without adding to these inflationary pressures, is to make sure that the economy has more capacity, whether it's skills and human capital, whether it's making it easier for parents to return to work to earn more and - work more and earn more by making child care more affordable, whether it's investing in the care economy or advanced manufacturing, these are the sorts of ways that we boost the capacity of the economy so that it can grow without adding to these inflationary pressures and it's also how we get real wages moving again by boosting productivity so that we can have wages growth without inflation as well. 

JENNETT: But there are other ways, aren't there, other tools in your shed, as it were, already based on your election commitments, there was a small, it must be said, minor increase to overall debt under your own projections. You could generally revisit spending, that is your own spending, not just what you call waste and rorts by the previous government?

CHALMERS: We'll implement our commitments because they are about boosting the economy without adding to inflation in some of the areas I just mentioned - training, child care, the NBN, some really important investments in actually dealing with this inflationary problem but overall we did nominate, $11.5 billion in budget improvements during the election campaign. Katy Gallagher and I are going through the budget line by line to see where more trimming could take place so that we are redirecting that spending from unproductive political purposes into more productive economic dividends for an economy which has got that combination of tricky challenges, whether it's inflation, falling real wages, the issues in the budget. We're very alive to these challenges, we take them seriously, we've been upfront about them, and the October budget will go about responsibly beginning to deal with them. 

JENNETT: Just to be clear, a budget that you describe as absolutely heaving with Liberal debt, it is still your fiscal plan to add a little extra Labor debt to that, based on the election commitments?

CHALMERS: Our plan is to invest in areas like skills and child care because the dividend you get from that is more important than the very modest increase in investment but at the same time as we're making those investments, we're also trimming spending, whether it's contractors and consultants, whether it's some of the other areas of wasteful spending that we were able to identify from opposition, and we are working through, already we've begun the work, Katy Gallagher and I, to see where spending can be trimmed in a responsible way that doesn't damage the economy and doesn't smash people who are already doing it tough enough. 

JENNETT: It looks like energy prices weighed heavily on the Reserve Bank board's decision today. So the imperative for some sort of breakthrough there is greater than ever, particularly with the likelihood, would you say likelihood that further energy retailers might go to the wall and if so, what can be done to prevent that?

CHALMERS: I won't speculate about that but obviously we've got really serious challenges in energy markets which are pushing prices through the roof and there's a combination of issues at play here. There's some near-term issues domestically, some international issues, of course, but sitting over the top of that is that these are, in many ways, the costs and consequences now of almost a decade of policy chaos when it comes to energy.

So what we need to do in addition to examining issues around the ACCC and the regulators imposing price caps and guarantees and working with the State and Territory ministers on the levers that they have before them, our overarching responsibility is to inject some resilience and some certainty into the energy market so that we can get that investment in cleaner and cheaper energy over time because that is the only way that we can address some of these problems that have emerged over the last decade or so. 

JENNETT: I think in the context of your request to the ACCC to take a look at this, you have referred to "dodgy" conduct that may have happened in these markets. What are you referring to specifically there? Are we talking about generators who may have unnecessarily planned maintenance work, for instance?

CHALMERS: I'm not making any allegations, Greg. I'm simply pointing out that the role of the ACCC is to make sure that there isn't any dodgy conduct, particularly at a time when we've got this extreme market volatility, to give Australians the comfort that they need and deserve that the market is operating effectively and so why I tasked the ACCC with that role is to dial up that monitoring, but also so that they can recommend to me, if necessary, after gathering all of that information, any further regulatory changes which might be needed.

The ACCC has some existing powers, but we also have the capacity to direct them towards this really important task as part of a broader suite of measures that we're considering. We want to make sure that pricing is above board, we want to make sure that the market is operating as effectively as it can at a time of this extreme volatility. I do that without any preconceptions about what might be going on. It's for the ACCC to advise us that everything is above board and if not, what we can do about it. 

JENNETT: I think roughly speaking, 25 per cent of the generation capacity in the energy market is offline at present. Do they, the ACCC, or you, the Treasurer, have any powers to order near to immediate restarts on those plants?

CHALMERS: It's a big part of the problem. Some of those outages are planned maintenance and some of them are unplanned around weather events and other sorts of events. So one of the things that the ACCC will be able to advise us on is the role and the impact of those shutdowns on the energy price. There is a whole range of levers already available to the regulators. We saw the market operator, for example, impose a price cap and a guarantee in the gas market, in particular. Those are really important levers and one of the reasons why Chris Bowen is sitting down with the State and Territory ministers tomorrow is because a lot of those powers exist at the State level, too. So we'll discuss with the states and territories.

We'll get advice from the ACCC on any additional regulatory influences that we may want to bring to bear on the market. But unfortunately there's a perfect storm of events. There's those outages, there's Russia/Ukraine obviously, there's been some flooding, there's issues around the response to the weather that we've got at the moment. All of these sorts of things together have created this perfect storm. You can't just flick a switch and make it all better again but we are working around the clock. I've met with Chris Bowen today. Those discussions are ongoing to see what else might be done. 

JENNETT: And that hook up tomorrow with State and Territory ministers is tomorrow. Jim Chalmers, thanks so much for joining us again on Afternoon Briefing today. We'll talk to you again soon. 

CHALMERS: Appreciate it, Greg. All the best.

ENDS