Interview with David Lipson, ABC PM
DAVID LIPSON:
Jim Chalmers, the eighth rate rise in a row today, but it's a quarter of a per cent, not half a per cent, so is the nation getting on top of this inflation problem?
JIM CHALMERS:
Good afternoon, David. I think this inflation challenge in our economy still has a little way to run. We expect it to peak at some point over the Australian summer but then to be a relatively persistent challenge for a little while after that. What the independent Reserve Bank has made clear today in coming to their decision is that we are seeing the beginnings of some softening in household spending but also equally, they have flagged that further increases might be necessary. And so they will try and strike that balance. For us in the government and in the Treasury forecasts that I included in the Budget in October, we expect consumption to soften a bit next year, we expect the economy to slow a bit next year and that will be a consequence of these interest rate rises, combined with a global slowdown.
LIPSON:
So what does that mean for households? When will things start getting easier for them on things like, you know - wages, interest rates, inflation?
CHALMERS:
They're all different components of this inflation challenge in our economy and some of the pressures have begun to ease whether it's shipping costs, for example, and some of the other drivers of the inflation that we've seen this year. But a bigger, unwelcome part of this challenge will be energy prices and that's why we're putting so much effort into working with states and territories and regulators and industries to see if we can make a meaningful, temporary and responsible intervention into the energy market. But more broadly – you asked about wages – we are seeing, I think, the beginnings of some welcome wages growth after a period of very stagnant wages over the last decade or so and so that's welcome. We want to make sure that that wages growth is strong and sustainable and that we make our workforces more productive as well. So there's a range of things going on in the economy but still the defining challenge is inflation. That's what the Reserve Bank was responding to today and that's what we've been responding to in our Budget.
LIPSON:
In October, your Budget forecast electricity would rise 56 per cent over the next year and a half or so, gas would go up 42 per cent. So will the interventions that you mentioned on gas and possibly coal improve that outlook for consumers? Will the sting not be as bad?
CHALMERS:
We are trying to take some of the sting out of these price rises, that's our objective and that's why we've been putting so much work into it. We're operating with a degree of urgency but also recognising there's a lot of complexity, a lot of moving parts, there are different regulatory and other levers at play here and different levels of government and that's why we're doing it in a considered way, but as urgently as we can. I think ideally, when we get to a landing point between now and Christmas, then what we will see in these markets, whether they be gas or coal, is price rises which aren't as big as were forecast in the Budget in October. I think those forecasts in the October Budget were in lots of ways – they created a responsibility on governments, plural, to act on this challenge and that's what we intend to do.
LIPSON:
So when can we expect those power and gas prices to fall for households?
CHALMERS:
Our objective here is to make a difference in 2023. Obviously, a lot of the price rises that are already feeding into people's electricity bills are a consequence of those price rises already happening which Angus Taylor tried to hide during the election campaign. And so our focus is on 2023. Ideally, if we can get to a landing point between now and Christmas which is temporary and responsible but also makes a meaningful impact, then people can expect that impact to be felt next year.
LIPSON:
So negotiations with the states is still going on on how you will achieve that. But do you think it's fair for the states to be fully compensated for any lost royalties as a result of the federal government interventions in the markets?
CHALMERS:
Obviously those conversations between the Prime Minister and his counterparts and the Energy Minister and his counterparts are ongoing. There's an energy ministers meeting on Thursday, there's a National Cabinet meeting on Friday. The Prime Minister - despite his COVID diagnosis - is working quite hard in the lead up to that meeting. I had a long conversation with him a couple of hours ago about this policy challenge and the economy more broadly as well and I don't want to pre-empt the outcomes of those conversations but clearly, when you're talking about some of these levers being held by the states and territories, clearly when there are a whole bunch of moving parts including the responsibilities of state governments, then we need to work with them in a respectful and constructive why and come to the table in good faith and that's what we're doing.
LIPSON:
That sounds like you're open to some sort of compensation.
CHALMERS:
We've made it clear that our first preference, our first port of call is a regulatory fix. We've said that we don't want to go down the path of a tax change if we can avoid it and we said we'd like to not mess with our international obligations if we can avoid that. And so what that leaves is a sensible conversation about how we facilitate a regulatory outcome and I've been pretty upfront privately and publicly and said that if there is a responsible Commonwealth contribution which recognises we don't have a blank cheque, we've got a trillion dollars in debt, we've got deficits as far as the eye can see that we inherited from our predecessors, so we need to be responsible about it but we also need to be reasonable about it and that's what we're doing.
LIPSON:
National Accounts figures are out tomorrow. If they point towards a Budget windfall, possibly even a Budget imbalance this year as Chris Richardson suggested might happen, does that make it harder for you to convince people that the Budget is in need of repair and tough decisions need to be made over the next few years?
CHALMERS:
I don't think so. Let me tell you why. First of all, the National Accounts tomorrow will be backward looking – they're for the September quarter. They will capture some of the uncertainty in the global economy but certainly not all of it. A lot of that uncertainty around the world is ahead of us for a combination of reasons that I've already run through today. And so there's a lot of uncertainty in the economy. We are getting good prices for our exports right now, particularly for thermal coal and gas for the obvious reasons that there's a war in Ukraine. So those higher prices are helping the Budget but absolutely smashing our industries and making life harder for Australians at the household level. And so that's why we're in the position where we need to act. The difference between some of the forecasts provided by Chris Richardson, who I have a lot of respect for and regard for, and the forecasts in the Treasury numbers released in the Budget, is we are deliberately really cautious about forecasting commodity prices. People assume wrongly that they only ever go one way – they can go in reverse and so we need to be careful and cautious and conservative about those forecasts. And Chris, obviously, and others don't have the same kinds of obligations that I do. Clearly, higher commodity prices help the Budget but there's an impact on the economy which flows through to the Budget as well. The best thing that I can do is what I did in the October Budget which was let the vast bulk of those revenue improvements from higher commodity prices flow through to the Budget because we've got an inflation problem, we need to rebuild our buffers, we need a more responsible Budget, a more resilient economy and we need to fight inflation and those are my priorities.
LIPSON:
Treasurer Jim Chalmers, great to talk to you. Thank you.
CHALMERS:
Appreciate it, David. Thank you
