Doorstop interview, Washington DC
JIM CHALMERS:
You can't finalise a Budget in the current conditions without understanding what's happening in the global economy and you can't understand what's happening in the global economy without engaging with counterparts from around the world to get a proper understanding to feed into the Budget. That's why I'm here in Washington DC ‑ for two reasons really: to take the temperature of the global economy, and secondly to feed that into our Budget preparations as we put the finishing touches on the Budget. While I'm here, I'll be meeting with my counterparts from the G20, but particularly the economic ministers from the US, the UK, Canada, Korea and India, as well as the Head of the IMF, the Head of the World Bank, a number of private investment banks, and Mark Carney, a member of the President's Council of Economic Advisers. Today I met with the finance minister's coalition for climate change action ‑ a whole range of important meetings here to help us take the temperature of the global economy and feed that into our Budget preparations.
The global economy is on the edge. The global economy is on the edge once again for the third time in a decade and a half. This time, the risk is that skyrocketing inflation brought about by the war in Ukraine and other factors, has necessitated a blunt and brutal reaction from the central banks, which risks a hard landing in a number of the economies around the world. The International Monetary Fund has issued a very sober warning that something like a third of the global economy is either in recession or risks going into recession. This is the backdrop for the first Budget of the Albanese Government, which I will hand down in less than two weeks’ time. Now, the best way to build buffers against this global turbulence is a responsible Budget. The Budget that I hand down will be the building blocks of a more resilient economy. The Budget will be all about building our defences against this global economic turbulence.
Since the G20 last met in July in Indonesia, the global economy has taken a turn for the worse. The global situation has deteriorated substantially since ministers last gathered. The war in Ukraine has escalated. Inflation has been higher for longer. Interest rates have been lifted right around the world. And as a consequence of all of that, the global economic situation has deteriorated. Australia is in better nick than most other countries, but we need to be in better nick still, and that's what the Budget is going to be all about. We've got a lot of things going for us in Australia. We've got low unemployment, we've got relatively solid growth, and the world is paying us good prices for what we sell them and what we export. But we can't be complacent about this, we won't be immune from another global downturn. We won't be immune from a substantial deterioration in global economic conditions. It's why it's so important I'm here engaging with my colleagues, taking the temperature of the global economy so that we can feed that into the Budget as we put the finishing touches on what I'll hand down in less than a fortnight's time. Over to you.
JOURNALIST:
To what extent do you think the Fed is tightening monetary policy too quickly? Is that something you’ll be discussing with Jerome Powell when you speak to him?
CHALMERS:
I have an opportunity, when I speak with the Governor of the US Federal Reserve, to talk about what has been a substantial tightening of monetary policy here in the United States, but not just in the United States. What we're seeing right now is the sharpest synchronised tightening of monetary policy in the modern era, and that's having obvious consequences for economies right around the world. And what happens here in the US when it comes to interest rates has consequences for us as well. We've talked before in Australia about the wider the gap between US interest rates and Australian interest rates, the more pressure there is on our own currency, which has consequences for inflation at home. So the decisions taken here by the US Federal Reserve, the decisions taken by central bank governors right around the world will have an impact on our own economy. The risk here is a hard landing brought about by the blunt and brutal total application of tighter monetary policy. And that is a central part of the conversation that I'll be having with my colleagues from around the world.
JOURNALIST:
Treasurer, you mentioned you’d be willing to make last minute changes to the Budget if required [inaudible]
CHALMERS:
Well, really on both fronts. But what I meant was that the reason for this trip and the reason why I'm spending a couple of days with my international counterparts so close to the handing down of the Budget is because the global situation is deteriorating so quickly that we need to be able to update our Budget in real‑time. We've already said that our forecasts for global growth will be substantially lower than they were even in the July statement that I released. That will have implications for our own growth and our own economy, and for unemployment as well as a consequence. So we stand ready to do what is necessary to respond to the global economic situation as we find it. We play the cards that we’re dealt. We go into this with a lot going for us, but we won't be completely spared another global downturn. The backdrop for this Budget is a deteriorating global economy, high and rising inflation at home, and persistent structural pressures on the Budget. The best way to respond to that, the best way to respond to uncertainty in the global economy is with a responsible Budget at home. Our Budget will provide responsible cost‑of‑living relief with an economic dividend. It will invest in the capacity of our economy. And it will begin to trim the waste and rorts which have been a feature of our Budget for too long.
JOURNALIST:
If the global economy is sinking as fast as you describe it, is it responsible for a government ‑ a Treasurer in your position ‑ to cling to election promises that were made in a very different environment?
CHALMERS:
The commitments that we took to the election around investing in skills at a time of skills shortages, investing in child care when we want to make it easier for parents to return to work, particularly mums, at the same time as we provide cost‑of‑living relief. The promises that we made around cleaner and cheaper and more reliable energy, they're now more important than ever. The economic plan that we took to the people is proving to be absolutely bang‑on in terms of dealing with this global uncertainty. If further tweaks are necessary when it comes to reprofiling some of our spending or other sorts of shifts in the Budget, we're prepared to make those changes. But the plan that we took to the people is the right plan. There may be additional steps that we can take or different steps that we can take, or we can profile some of our infrastructure commitments more effectively to take into consideration the inflationary environment that we're in right now. But overall, what we're proposing is to put in place in this Budget the building blocks of a more resilient economy. The best way to deal with global uncertainty is with a responsible Budget, and that's what you can expect to see.
JOURNALIST:
Treasurer, how concerned are you that Australia’s economic impact and what we’ve seen around the world, could actually be delayed, so Australia mightn’t see the worst of it for months to come. Which would mean, essentially, your Budget could be out‑of‑date the day it’s delivered?
CHALMERS:
We need to be prepared for a range of scenarios. But no matter how this plays out, the most responsible, affordable, sustainable Budget, which is targeted to the economic conditions, is our best defence against this global uncertainty. And it is, of course, the case that this will play out, not over the coming weeks, but over the coming months, potentially over the coming years as well. And so we stand ready to always do the right and responsible thing, to respond to deteriorating global economic conditions at the same time as we factor in high and rising inflation at home, and some of these persistent structural pressures on the Budget as well.
JOURNALIST:
You’ve spoken about the need to deliver a responsible Budget. You've spoken about the need for monetary and fiscal policy to be working together. Are stage three tax cuts at odds with that?
CHALMERS:
The stage three tax cuts are around three budgets away as they're currently legislated, and so we've got more pressing priorities in the interim. The best thing that we can do right now when it comes to rising interest rates, and high and rising inflation, is to make sure that what we propose in the Budget isn't counterproductive, and that's why our cost‑of‑living relief has got an economic dividend. It's one of the most important lessons that we will take from these discussions, over the course of the next couple of days. It's been raised already with me, to make sure that the relief that we provide on the cost‑of‑living front is responsible, that it doesn't make the inflationary environment even worse. The best way to do that is to make sure it's got an economic dividend and that's our focus.
JOURNALIST:
Will this Budget flag any changes to stage three tax cuts?
CHALMERS:
No.
JOURNALIST:
Energy has been a big topic obviously here. The White House this week said it would consider export bans on gas. Are you considering tighter export controls on gas in Australia? And also if I could ask, are you seeking any meetings with your Chinese counterpart? And are there any concerns about the Chinese economy, demand, and what that means for Australia?
CHALMERS:
I think there are three parts to that. First of all, when it comes to energy, energy security is one of the most important issues that we'll discuss here in these meetings in Washington DC. Already, Australia has participated for the first time in the Coalition of Finance Ministers for Climate Action, and one of the main points that came out of our discussions this morning is that what we're seeing in Ukraine, what we're seeing with energy prices and energy security makes our work to make sure that there is cleaner and cheaper and more reliable energy in the system more urgent, not less urgent ‑ and that was one of the key conclusions of this morning's discussions. When it comes to gas, we flagged our concerns with the gas market. The gas market at the moment has got extraordinarily high prices. Extraordinarily high prices for gas are smashing our local industries, and particularly our manufacturers, and we need to take that challenge seriously and our whole Cabinet takes that challenge seriously. We're working on ways to add to the Heads of Agreement signed by Minister King to see what else can be responsibly done to improve the conditions in the gas market so that our manufacturers and our other industries and Australians more broadly aren't punished by these extremely high prices that we're seeing right now. I have flagged in recent days the work that I'll be doing with Ministers Husic and King and Bowen and others, working closely with the Prime Minister to see if more can be done to make sure that the gas market works in the interests of Australians and not against us, and that work is ongoing.
JOURNALIST:
Would that include tighter export controls? Is that something you're considering?
CHALMERS:
We've said we're considering is the operation of the market. We've already, in the Heads of Agreement, Minister King has secured additional supply into the market and that's an important place to start. Obviously, there are issues around price, they are issues around exports, there are issues around the capacity of the industry more broadly. I will do that work with my Ministerial colleagues and with the Prime Minister, to see if we can do more to improve the conditions for Australians and for Australian industry in the gas market.
JOURNALIST:
[inaudible]
CHALMERS:
As I understand it, my Chinese counterpart is not here at these meetings. Unless that's changed in the last little while, that's my understanding. So at this stage, I'm not contemplating any meetings with Chinese counterparts. But I do have meetings, as I said, with counterparts from other countries.
JOURNALIST:
Just on the exchange rate, does it concern you that it's fallen so rapidly, given Australia's terms of trade is so high, and is there some kind of barrier where you can raise the alarm, 60 cents, 55 cents?
CHALMERS:
The answer to the second part of your question is no. But more broadly, when the Australian dollar is much lower against the US dollar, that puts pressure on inflation, upward pressure on inflation in Australia. And so obviously that's of concern to us. As I said before, we're not the only country, by the way, who's dealing with this issue. One of the big issues that countries are dealing with is what's happening with the US dollar, as more and more people are attracted to it, as US interest rates rise. Downward pressure on the Australian dollar puts upward pressure on inflation at home because the cost of imports go up so that is obviously of concern to us. More broadly, there are issues around the cost of borrowing, which will be a part of the discussion here at these meetings. The sustainability of countries’ debt, particularly developing countries. A whole range of these issues, I think, will be central to the discussions that we'll have.
JOURNALIST:
While you are here in Washington [inaudible] is the Australian Government at all concerned about the possibility that Donald Trump could run again for the US Presidency?
CHALMERS:
The relationship between Australia and the United States is strong, no matter who is in the leadership positions of either country. Ours is a relationship between countries. Not necessarily just between Prime Ministers and Presidents. We play the cards that we’re dealt and we don't involve ourselves in the domestic politics of other countries.
JOURNALIST:
President Biden has said that he doesn't think there will be a recession here, and if there is, it will be slight. What's your view of that assessment?
CHALMERS:
I think there's a pretty broad expectation around the world that there's a big risk of recession here in the United States, as there is in the UK and Europe, and China's growth has obviously slowed as well. I think that is the broad expectation that some of the big economies that we monitor most closely are at real risk of recession. The risk of recession in some of the major economies has clearly edged over from possible to probable and that will have implications for us.
JOURNALIST:
Which is to say that Joe Biden has underestimated the threat?
CHALMERS:
I'm not going to parse President Biden's words. I'll have the opportunity to meet with his Council of Economic Advisers later in the week, and that will be a good opportunity to talk with them about conditions in the American economy. It's not for me to second guess President Biden's assessment. I think it is the broad expectation of most of the ministers who are here for these meetings that the United States is at real risk of recession, and obviously that has implications for us.
JOURNALIST:
Why is it important to rein in deficits as interest rates rise around the world?
CHALMERS:
It's important that we build buffers against this global economic turbulence, and for us, that means getting much better bang for buck from our spending. It's why a big priority in our Budget will be trimming some of the waste and rorts. It's been a defining feature of the Budget for too long. We want to make sure that there's quality spending in the Budget. We want to make sure that we're rebuilding our buffers to the extent that we can. The best defence against global economic uncertainty is a responsible Budget, and that's what you can expect to see in less than two weeks’ time. Thanks very much.
