Interview with David Speers, Insiders, ABC

DAVID SPEERS:

Let’s start with your thoughts on this by‑election result. No repeat of what we saw in Aston a few months ago for Labor. What do you put this result down to?

JIM CHALMERS:

First of all, congratulations to Cameron Caldwell, the new member for Fadden and I acknowledge him and the work of his team. And I also thank Letitia Del Fabbro, who was this wonderful local community champion who ran for us, and we're very grateful that she flew the flag for us there in Fadden in what has been historically very difficult territory for us. Now, we are neither surprised nor troubled by the outcome in Fadden. It was entirely what was expected. If anything, the LNP underperformed against the historical average, and that's after spending more than half a million dollars on the seat, which we think was probably at least 10 times what Labor spent on the seat. So unsurprising, untroubling, I congratulate the new member. This was entirely what we expected.

SPEERS:

But was there any message, do you think for the government on cost of living?

CHALMERS:

We already understood before this by‑election in Fadden that people are under the pump. That's why the primary focus of my two Budgets, the government's economic plan, the primary focus of the government is in providing some cost‑of‑living help so we can take some of the edge off these pressures without adding to inflation. That was true before Saturday. It's true after Saturday. It remains our focus. And similarly with the seat itself ‑ this was a safe, blue ribbon LNP seat with a double‑digit margin before Saturday. It will be all of those things after Saturday. We're aware of the pressures on people before the by‑election and that's why it's our primary focus.

SPEERS:

You could say Queensland generally is pretty safe LNP territory, a bit of a blue wall. Does Labor need to make better inroads in your home state?

CHALMERS:

Of course we do. It's been hard yards for us in Queensland for some time. And obviously, we need to do much better in Queensland than we have for the last decade or so. There are opportunities for Labor here in Queensland. I think Queenslanders do respond well to the type of leadership that Anthony provides. This was hardly Labor heartland, this seat on the northern Gold Coast, which has been very, very difficult for us for a really long time. But I think more broadly, there are opportunities for Labor in Queensland, we do need to perform much better here at the federal level, and obviously as a resident Queenslander, I'm very focused on that too.

SPEERS:

Let's turn to the Reserve Bank. Did your decision not to extend Philip Lowe's term as governor have anything to do with his handling of interest rates?

CHALMERS:

The decision we took to make this historic appointment of Michele Bullock to be the ninth Governor of the Reserve Bank was much more about how we take the bank forward into the future rather than any one decision or another that's been taken in the past. I cherish the Reserve Bank's independence. I'm looking to invest in that independence rather than undermine or diminish it. So this was never about one person or really any of the decisions taken in the recent past or any other commentary in the recent past. It's because Michele Bullock, I think has the best combination of attributes to take the bank forward. She's an outstanding economist, a respected leader, and I'm really proud of the appointment that we made on Friday.

SPEERS:

But we know after the last interest rate rise, you said yourself, Treasurer, that Australians would find it difficult to understand, difficult to cop. Are you saying it's wrong to interpret your decision to replace the Governor as any sort of reflection on his performance?

CHALMERS:

My decision which was announced on Friday, my recommendation to the Cabinet and the Cabinet's decision was all about how do we make the Reserve Bank the best version of itself, that's the motivation for the Reserve Bank Review, that’s the motivation for the appointment that we made. I've gone out of my way to say that I have a mountain of respect for Phil Lowe, and I mean it. I've worked closely with him. I've known him for a long time. He has carried himself with characteristic dignity and professionalism throughout, including by the way saying that Michele Bullock's appointment was a first‑rate appointment, and I appreciate that as well. This is more about the future than it is about the recent past, and Michele Bullock, as the outgoing governor has said, is a first‑rate appointment,

SPEERS:

You respect Philip Lowe, we hear that, did you respect his last interest rate decision, though?

CHALMERS:

The point that I made then, and I'm happy to stand by it, is that people who are under pressure want to understand why these decisions are being taken. And I know that my responsibility is to explain and sometimes defend the decisions that I take in the context of the government's economic plan and the budgets that I hand down as the treasurer. Similarly, the Reserve Bank has an important role to play to explain the decisions that they take, and that's the point I made at the time and I don't think that's an especially controversial point.

SPEERS:

Would you understand if Michele Bullock as governor were to lift rates?

CHALMERS:

Clearly the existing Reserve Bank Governor and the new Reserve Bank Governor when she takes up the position around the middle of September, they will take their decisions independently. They'll weigh up all of the evidence in the economy, they'll explain that decision, and sometimes they'll have to defend that decision and that won't change when the Governor of the Reserve Bank changes.

SPEERS:

Let's talk a bit more about Michele Bullock. Look, she hasn't given a lot of public speeches for those who are trying to get a better understanding of what approach she's likely to take. You've talked about her leadership qualities, her experience, what about when it comes to this core role of tackling inflation? What can we expect?

CHALMERS:

You can expect someone who is fiercely independent, who carries a lot of respect and regard. I mean, you rightly acknowledged in your introduction, David, that her appointment has been welcomed across the board: economists, business, the head of the union movement, the Opposition in the end, the outgoing Reserve Bank Governor all consider this to be a good appointment. And that's because Michele is an outstanding economist. She is a respected leader and I think that she will run the Reserve Bank in a really inclusive way. And she'll run it with gravitas and with heft, and drawing on that really quite substantial experience and expertise that she has accumulated over a long time.

SPEERS:

But you've spoken to her obviously, more than we've seen publicly as part of this decision. Did you talk to her about her approach on inflation?

CHALMERS:

I talk to all of the senior members of the bank at different times. Certainly, Governor Lowe and I have had a number of conversations about inflation and with the Deputy Governor Michele Bullock as well. I mean that's again part of my role as Treasurer is to confer with senior members of the Reserve Bank. That's been happening already, and it will continue to happen after this leadership change.

SPEERS:

So what can we expect? For homebuyers, the big question is, is anything going to change from the old governor to the new governor? You know better than the rest of us ‑ what can we expect?

CHALMERS:

I'll tell you what won't change is I won't all of a sudden because we're getting a new governor change the approach that I've established, which is to not pre‑empt decisions that they might take, not to second guess those decisions either. I'll continue with that approach. Governor Bullock when she takes up that role, and replaces Governor Lowe, she will be a person of immense experience and expertise and outstanding economist and leader. And she will lead a Reserve Bank that weighs up the economic conditions as they face them at each meeting.

SPEERS:

But can we expect a similar approach, a consistent approach on tackling inflation?

CHALMERS:

Again, I'm not going to sort of pre‑empt the decisions that Michele Bullock might recommend to the board. I think that's really important. Now, a long standing and cherished feature of the Reserve Bank is that it is independent. Michele Bullock is fiercely independent, and she will undertake this task with professionalism and diligence drawing on all of that experience and expertise that she has.

SPEERS:

In a speech she did give a few weeks ago, Michele Bullock said the economy would be closer to a sustainable balance point if the unemployment rate were at four and a half per cent. Do you agree?

CHALMERS:

There's obviously a debate amongst the economists what full employment is, whether it's around four and a half or a little bit lower than that. That's been a more or less a perennial feature of the economic conversation for as long as I can remember. The point that Michele Bullock was making in that speech, which again I think is relatively uncontroversial, is that as the Reserve Bank forecasts and the Treasury forecasts have inflation moderating over the coming months, they do have a tick up in unemployment as well. And I've been up‑front about that. The challenges in our economy are substantial ‑ global and domestic. The slowdown in our economy is expected in those forecasts to be significant, and that will have implications for the unemployment rate, which is the point that Michele Bullock was making.

SPEERS:

So do you agree the economy would be at a more sustainable point, with an unemployment rate of four and a half per cent?

CHALMERS:

I use different words to describe it, David. Our expectation in the Treasury forecasts is that unemployment will tick up. It's at 3.6, which is pretty remarkable. We've got an incredibly resilient labour market. It's one of the big strengths that we have going into this period of global economic uncertainty. There will be a debate amongst the economists about what full employment looks like in their definition. We're expecting it to tick up a bit as the economy slows as a consequence of higher interest rates and global economic uncertainty.

SPEERS:

Do you think it's possible to get inflation back down to the target zone without driving unemployment high?

CHALMERS:

That remains to be seen. Clearly, the Reserve Bank's twin objectives are price stability and full employment and that's deliberate. That's something that I'm very keen to maintain after we implement the recommendations of this review. And the government has a similar approach. We're taking the edge off these cost‑of‑living pressures without adding to inflation at the same time as we invest in the right kind of workforce into the future. And that's because whether you’re the Reserve Bank or the Albanese government, we want to see as many people in jobs as we can, but we've got to get on top of this inflation challenge, which is the primary challenge in our economy.

SPEERS:

The primary challenge, no doubt about it. For the government's part, we've heard you talk about what you've done in the Budget. Is there any more you think the government can or should do to put downward pressure on inflation or do you think you've done enough?

CHALMERS:

Obviously, at every budget, you make sure that you're aligning your plan and your policies with the economic conditions as you confront them. But what we have rolled out so far, David, has been textbook fiscal policy, in the circumstances: moderating inflation but higher than we'd like, global uncertainty. And we've done a range of things, which are very important. We've got the Budget in much better nick, not at the expense of providing cost‑of‑living help but in addition to doing that. Our cost‑of‑living help is targeted in areas like out‑of‑pocket health costs, electricity, rent, and some of the other particular pressure points. And we found $40 billion of savings over two budgets compared to $0 in savings in the last Liberal Budget. So all of those things are about getting the Budget in much better nick at the same time as we provide help for people to get them through a difficult period. And as Governor Lowe has acknowledged, our Budget is actually taking the edge off inflation rather than adding to it and that's important. If down the track, we need to do something differently, or we need to do something extra, of course we contemplate that down the track. But right now we are rolling out what people would consider to be a textbook fiscal policy in the circumstances we confront.

SPEERS:

So just on that, if inflation remains stubbornly high, isn't getting down fast enough, you are prepared to do more, rather than just leave it to the Reserve Bank?

CHALMERS:

We've always acknowledged, David, that we've got a role to play here. And that's why we've got the first surplus in 15 years, our predecessors were unable to do that. But we've done that because we've banked so much of the upward revisions to revenue, we found 40 billion in savings, we're still providing cost‑of‑living relief, all of those things are really important. If our economic plan and our next Budget in May needs to take into consideration a different set of economic conditions obviously we'll do that too.

SPEERS:

Now, you're traveling later today to India for a G20 finance ministers meeting. Philip Lowe is heading there as well. What are you hoping to achieve there, Treasurer?

CHALMERS:

A couple of things, David. This is an important opportunity in Gandhinagar in India to confer with my ministerial counterparts and also for Governor Lowe to confer with his central bank governor counterparts as well. Understanding what's happening in the global economy is absolutely central to making sure that our economic policies and plans are aligned with the sorts of conditions that we're talking about. And what's happening right now is the pressures that are coming at us from around the world are being felt around kitchen tables, and so we need to understand that. So a big part of it is understanding how we can best align our policies here with what's happening around the world. But also, we want to make progress on sustainable finance, when it comes to investing in the energy transformation. We want to make sure that the Pacific is front and centre in the world's considerations about climate change and about other issues. We want to make progress on multinational tax reform. All of these issues are really important and they'll be part of the discussions over the next couple of days in India.

SPEERS:

How worried are you about some of the weaker data coming out of China at the moment? It's critical for the Australian economy.

CHALMERS:

It has been a focus, David, I'm not going to pretend otherwise. There have been some developments out of China that we are monitoring incredibly closely. The global economy is in a pretty precarious place right now. The Americans are proving to be resilient, the Chinese economy has shown some worrying signs, Europe's in recession and others as well. And so as always, we're trying to take into consideration this really quite substantial global economic uncertainty. It is having implications here and combined with what we're seeing from the impact of these rate rises, it is one of the reasons why we do expect the Australian economy to slow considerably.

SPEERS:

Alright, Treasurer good luck with a trip. Thanks for joining us this morning.

CHALMERS:

Appreciate it, David. Thanks very much.