Insiders 26/06/22

26 June 2022

SUBJECTS: Wage Growth; Inflation; Interest Rates; Reserve Bank Review; October Budget; Ministerial Statement; Pension Work Bonus; Staff Allocations.




SUNDAY, 26 JUNE 2022

SUBJECTS: Wage Growth; Inflation; Interest Rates; Reserve Bank Review; October Budget; Ministerial Statement; Pension Work Bonus; Staff Allocations.


DAVID SPEERS, HOST: Jim Chalmers, welcome to the program.

JIM CHALMERS, TREASURER: Good morning, David.

SPEERS: It sounds like keeping wage growth below this high level of inflation right now is a deliberate design feature of our economic architecture. Is that right?

CHALMERS: No, David. I think what everybody wants - whether it's Sally McManus, or Phil Lowe, certainly myself and the Government - we want strong, sustainable wage growth, which is created by a better trained, more productive workforce. The point that Sally McManus is making is an uncontroversial one, and that's that wages growth right now is nowhere near three and a half per cent and nowhere near headline inflation. Phil Lowe was making a similarly uncontroversial point, which is if you let inflation get out of control that's damaging for people's living standards and we want that wages growth to be sustainable. So I don't actually think people are a world apart from each other here. We've got a common interest in dealing with this inflation problem, in boosting wages in a sustainable way based on a better trained and more productive workforce, and that's our focus too.

SPEERS: And is around three and a half per cent wage growth sustainable?

CHALMERS: Well, it depends on what you get from productivity. It depends on other conditions in the economy, which is also a point that the Fair Work Commission made when they came to that very welcome decision to give low-paid workers a decent increase in their wages. When you take into consideration all of the factors in the economy, the three most important moving parts here are obviously inflation, obviously the wage price index, but also productivity. That's why our Economic Plan, and that's why the October Budget, will be so focused on getting that decent growth in the economy, which delivers for people - particularly working people - by allowing for sustainable wages growth in the context of all of these cost of living challenges they're facing.

SPEERS: Okay, but taking into account those factors right now that you mentioned, is around three and a half per cent wage growth sustainable?

CHALMERS: I'm not interested in nominating a specific number, David. Our job is to get wages growing in a sustainable way, to get them growing strongly. I think as Amy rightly pointed out a moment ago, we have had a decade now of wage stagnation and there is a prominent part of this conversation, no matter what the economic conditions, they think the answer to that is wage suppression. We're not in that cart. I don't believe the Governor's in that cart. And certainly Sally McManus and others aren't.

There's a lot of common ground here, which we want to rely on in the Jobs Summit, which will most probably be in September, subject to consultation. What we want to do is bring the whole country together behind this big economic objective that we all share, which is how do we deal with the fact we've got high and rising inflation, falling real wages, what can we do about that and how can we boost incomes so that people get the sustainable wage increases that they need and deserve so they can keep up with the costs of living.

SPEERS: So when will we see some real wage growth? Because you said it there, we heard it a lot during the campaign, everything's rising except you your wages. You were very critical of the then Treasurer. You're now in the job, when will we see real wage growth?

CHALMERS: Well, the difference between this government and its predecessors is they enthusiastically pursued wage stagnation and wage suppression, and we are enthusiastically pursuing decent, sustainable wages growth. That's the difference between the former government and the current government. As I said before, there are a couple of moving parts here. I'll update our expectations and our forecasts for inflation when I do a Ministerial Statement towards the end of next month when parliament returns, and what that will show is that inflation will get worse before it gets better. That's the expectation across the board now, and so that's a difficult situation that we need to deal with before inflation hopefully moderates throughout the course of next year. That's an important part of the puzzle, as is wages growth built on a better trained, more productive workforce. Those are the issues that we're confronting, these are our focuses in the Budget and beyond that too.

SPEERS: You just said inflation will get worse before it gets better. The RBA six months ago said inflation would reach two and a quarter per cent this year, then a few months later it said closer to three per cent, a few months after that it said no six per cent, now it's saying seven per cent. What do you think? Is that it or is it going to go higher?

CHALMERS: Inflation will be significantly higher than what was expected in the last government's most recent Budget, what was expected at election time as well, certainly higher than the five point one per cent we saw in the March quarter. This inflation problem will get more difficult before it starts to ease. I'll update that forecast towards the end of July, and we'll take into consideration the most recent information that we have about the economy, but the Reserve Bank has said something around seven per cent and that doesn't seem to me to be wildly off the mark, but we will do the work between now and the end of July to give people the most accurate assessment of where we think this inflation challenge is heading.

SPEERS: Okay, so coming back to the question I asked a little earlier, when will we see real wages growth that you promised? Will it be this term of parliament?

CHALMERS: What we've said, is that low wage workers are our first priority and we've delivered on that front. We made a compelling submission to the Fair Work Commission, which came to that independent decision to give low-paid workers a five point two per cent wage increase.

SPEERS: But inflation will be higher than that.

CHALMERS: Well, as we've pointed out, and as Tony Burke in the clip you played before, and I've pointed out a number of times, these decisions need to take into consideration, a whole range of economic factors, not just the headline inflation rate. We hope that inflation will begin to moderate next year, that's our expectation, it's the Reserve Bank's expectation as well. Our job in our Economic Plan and in our Budget is to get wages growing in a sustainable way so that we can get that real wages growth. That's our expectation, that's our objective, in the Budget and beyond.

SPEERS: So hopefully this term of parliament but you can't be too sure?

CHALMERS: It relies on the inflation rate, it relies on wages, and it relies on making sure that we have a more productive workforce, so that those sustainable and strong wage increases that we hope to see don't add to these inflationary pressures.

SPEERS: It's not just the ACTU Secretary who has been critical of Philip Lowe. One of your predecessors, Peter Costello, has described the Reserve Bank's recent performance as the worst failure in monetary policy since the 1990s, leading to higher and faster interest rate rises now. How would you describe the performance of the RBA?

CHALMERS: I'm not going to take shots at the Reserve Bank. I've got a mountain of respect for Phil Lowe in particular, I've said that a number of times now. The Reserve Bank, its Board, and its Governor are capable of defending its own decisions. I think over a long period of time we've been well-served by our economic institutions, whether it's the Reserve Bank, the Treasury, the regulators, and others. And my objective with this review of the Reserve Bank is not to take shots at the Bank or to take shots at the Governor, but to make sure that we've got the right monetary policy settings, that we're drawing on best practice from around the world, and we're taking the opportunity to learn the lessons from periods of volatility in monetary policy and periods of stability in monetary policy, to make sure that we've got the best set of arrangements. So I'll work with the Bank and with Phil Lowe on that Reserve Bank Review, so that we can get to a good outcome on behalf of the Australian people.

SPEERS: You do have to make a decision next year on whether to extend Philip Lowe's term. Do you want him to continue?

CHALMERS: There's still more than a year between now and Phil's appointment coming up, and the Reserve Bank review will report between now and then. I've got a mountain of respect for Phil Lowe, as I've indicated a number of times, but that decision would be taken later on. It would be part of a cabinet conversation, which I'm not keen to pre-empt either.

What I would like to see David, and there has been, I think, a welcome conversation about whether or not the Reserve Bank Board is broad enough, representative enough, whether it's the right size. When I announced the terms of reference for the Reserve Bank review, I think one of the key considerations should be Board representation, whether it's broad enough in geographic terms, and gender, and all the other important considerations, but to also make sure that the right voices are represented around the table, that the Board is have the right composition and the right size. That'll be indicated in the terms of reference for the Reserve Bank review. I think that's an important consideration, which we should focus on among others.

SPEERS: You've got a couple of Board appointments that are going to come up in the next few months, Sally McManus has said you really need someone with a union background. You mentioned there the diversity you'd like to see on the Board. What about someone from a union background?

CHALMERS: Look, I've got an open mind to making the Board more representative. It's one of the focuses I want from this Reserve Bank review. It wouldn't be unprecedented to have somebody from that side of the of the conversation represented on the Board. I don't believe in standing positions on the Reserve Bank Board, but on a case-by-case basis, I do have an open mind to making sure that workers are represented. This is one of the things that I want the Reserve Bank review to have a look at. I think it's an important consideration, and we want the Reserve Bank Board to be comprised of people representing all parts of the country, and all parts of the economy. So this is one of the things that I'd like to have a look at.

SPEERS: So perhaps not a standing position, as you put it, for the ACTU Secretary, but what about Sally McManus herself. Former Reserve Bank boss Bernie Fraser says it would be bloody great to have someone like Sally McManus on the Board rather than some academic pontificating on things. With Sally McManus make a good Board member?

CHALMERS: I'm not going to get into that, David. Obviously, I've got a lot of respect for Sally, I work closely with her. These decisions about Board appointments are cabinet decisions. I hope to do a lot of consultation with my colleagues and more broadly as well. There are a couple of appointments to be in that made between now and when the Reserve Bank review will report towards the middle of next year, and so I'll have those conversations behind the scenes and I'm not going to pre-empt any of those decisions.

SPEERS: Let's turn to the Budget. The monthly Finance Department figures show we're hitting for a significantly smaller deficit than was expected for this year. Are the books you've inherited as dire as you've been saying?

CHALMERS: There are a whole range of things going on in the Budget, David. That stronger than expected number in the monthly figures is partly a reflection of the really quite extraordinary prices we've been getting for our commodities. It's also a reflection of the relatively tight labour market and some other factors as well. Obviously, we want those numbers to come in strongly. But what they don't take into account is the volatility in our commodity prices. I think iron ore dropped twelve per cent last week, and that has implications for the Budget.

There are a range of pressures which weren't budgeted for or accounted for in the former government's most recent Budget, some of those around hospital spending during COVID, and some other issues as well. So we shouldn't assume that those Budget improvements are an ongoing feature of the Budget, we can't be complacent about it. There are a range of issues working in the other direction as well. One of those is the fact that if you consider this trillion dollars of Liberal debt that we've inherited,  as interest rates go higher and higher, the cost of servicing that debt goes up as well. So that's another pressure on the Budget. The Budget is in a pretty big structural deficit, when you consider the worthy and warranted spending that's in the Budget, and increased borrowing costs is one of those additional pressures. We're not complacent about the Budget, we do need to get a handle on spending. The best place to begin is to start to rein in the rorts and waste which have been a feature of that Budget for the best part of a decade.

SPEERS: Given that big structural deficit you talk about, I know you still want to stick with the stage three tax cuts. But can you, or will you, delay them, amend them, at all?

CHALMERS: Well, those tax cuts are legislated as you know David, and we don't intend to alter that. We've said our priority when it comes to tax reform is multinational taxes.

SPEERS: So no delay, no change, to how they plan to go?

CHALMERS: No, our priority is to reform multinational taxes, to start to rein in the rorts and waste which have been a feature of the Budget, and also to get the economy growing in a sustainable way. If you think about the task ahead for the Budget that I'll hand down in October - there'll be a cost of living package, there'll be the results of our audit of rorts and waste, and there will be the implementing of our commitments.

But what sits over the top of that, David - my highest priority for the October Budget - is I want a Budget and an economy which is as resilient and forward-looking as the Australian people. We've had a wasted decade of missed opportunities, which has made us more vulnerable to these economic shocks that we're confronting now. Our job and our responsibility, which we embrace, is to make our Budget and our economy more resilient, so that we can deal with these sorts of shocks and build the better future that people need and deserve.

SPEERS: Just a couple of things quickly. Peter Dutton wants to allow older Australians to earn more before losing their pension payments. What do you think of that idea?

CHALMERS: First of all, if they thought this was a good idea they would have done it in government. The truth is David, that both sides of the parliament were looking at this before the election. That's because one of the things that we do need to do is to build a bigger pool of available workers. We've got labour shortages and skill shortages. We need to weigh-up all of the different things that we could do on this front. When it comes to this issue, I've had good, productive conversations with National Seniors and others about whether or not we can do something here. The truth is, in a Budget which has got that trillion dollars in debt, we've got to weigh up all of these ideas and work out where we can get the best bang for buck. Because even an idea like this, which appears to be relatively modest, it still comes with a relatively hefty price tag.

SPEERS: So you're still open to it though, in the coming October Budget?

CHALMERS: I'd like to make this one of the things that's discussed at our Jobs Summit. Because if you think about our challenges in the labour market, there are issues around migration, there are issues around training, there are issues around participation , and child care is a big part of that. If there's room for an idea like this, I'd like to see it discussed when we bring people together at the Summit.

SPEERS: Just a final one, the crossbench. Why has the Prime Minister cut their staff allocations from four to one?

CHALMERS: I think it's been a surprise to a lot of people - it was a surprise to me, frankly - to learn that some backbenchers get twice as many staff as other backbenchers. It's not unprecedented and it's not surprising that Members of Parliament want to have more resources to help them do their job. What we've recognised with the crossbench is that there are some additional pressures on crossbench Members, and that's why they get extra staff resources. But I don't think it's reasonable, I don't think it's fair, for one backbench MP in one electorate to get twice as many staff as a backbench MP in the electorate next door, and that's what this common sense proposal reflects.

SPEERS: Do you accept though that as independents they don't have the support of a full party, like a Labor Party backbencher. When they scrutinise legislation, or draft legislation, they do need additional resources?

CHALMERS: That's what we've recognised, David. They get an extra quite senior staffer, which other backbenchers don't get. And that's in recognition of...

SPEERS: They're being told they'll get one. They're being told they'll get one. Are you saying they should have two?

CHALMERS: No, I'm saying one is more than other backbenchers get, and that's in recognition of their workload. We'll also be boosting investment in the Parliamentary Library to help with some of that workload as well. But what we don't want to see is to have a backbench MP - who happens to be Labor, Liberal of National - get half as many staff resources as other backbench MPs. We want to be reasonable about it, we've tried to be reasonable about it, within the constraints of common sense.

SPEERS: Treasurer Jim Chalmers, we'll have to leave it there. Thanks for joining us this morning.

CHALMERS: Thanks, David.