Interview with Haslinda Amin, Bloomberg

HASLINDA AMIN:

Treasurer, good to see you again, always a pleasure to have you on the show. We talk about how the RBA has moved about 400 basis points. It paused this month but inflation remains pretty sticky. What's your own assessment?

JIM CHALMERS:

Inflation is moderating in Australia in welcome ways but it will be higher than we'd like for longer than we'd like. And our inflation challenge is very similar to the inflation challenge faced by a lot of countries in the G20. In our case it peaked around Christmas time, and it's been moderating ever since but it still really is the defining challenge in our economy. And so what we need to do and what we are doing and what we're encouraging other countries to do is while we focus on this primary fight against inflation, which is obviously very important, we also need to be working out how do we invest in laying the foundations for future growth so that as we come out of this downturn in our economies, we've got more productive economies when it comes to the energy transformation and skills and technology, and all of the things that we know will be drivers of productivity and economic growth into the future.

AMIN:

So is it fair to say that the pause is not a pivot? More hikes may be needed?

CHALMERS:

In our system, I go out of my way to ensure that I don't pre‑empt decisions taken independently by the Reserve Bank or to second guess the decisions that they take.

AMIN:

But as it stands now, do you see more rate hikes are needed?

CHALMERS:

It remains to be seen. I'll focus on my job, which is to hand down Budgets which take some of the edge off these cost‑of‑living pressures that people are facing without adding to the inflation challenge. And the Reserve Bank has said that that's what our Budgets and our economic plan have been doing. Australia is actually a world leader in this respect. We found a way to provide cost‑of‑living help at the same time as we repair our Budget. Our Budget is improving really quite considerably ‑ the first surplus in 15 years in our Budget ‑ but not at the expense of providing some help when it comes to the cost of medicine, rent that we were talking about a moment ago, and some of these other cost‑of‑living pressures, which are making life harder for people as we deal with this inflation challenge.

AMIN:

You have CPI data coming out in just a couple of weeks. Are you upbeat, hopeful, perhaps? You could see a three handle because take a look at what happened in the US, it did just that?

CHALMERS:

I think we need to be careful about making assumptions about the pace of the moderation in the US and in Australia. The US peaked earlier than Australia and has been moderating for longer, and so we don't draw any direct comparisons. We welcome a moderation in inflation in the United States. We hope to see inflation moderate in the next data, and we expect that it will, but it can't moderate fast enough. People are under pressure. It will be a feature of our economy for some time, and that's why it's the primary focus of the government and our economic plan.

AMIN:

Growth is expected to slow down rapidly yet the RBA, the Treasury do not expect a recession. Why not?

CHALMERS:

You're right to say that both the Treasury and the Reserve Bank are forecasting the economy to continue to grow, but really quite slowly. The challenges in the global economy are substantial, as you know. We expect the slowdown in our own economy as a consequence of that to be significant. But both of those institutions are forecasting relatively flat growth but growth.

AMIN:

How closely are you watching China? The data out of the country has been pretty lacklustre, hugely disappointing. Might that have an impact on how you're viewing your own growth? Might you have to review the projections that you have?

CHALMERS:

It has a substantial impact on how we see prospects for the global economy, and we have been monitoring very closely ‑ as everybody here has ‑ some of that softer data out of China. Also we've been monitoring what's happening in Europe, we talked about the US. China is obviously a big piece of the puzzle for us and so when the data out of China is a bit softer, that is concerning to us. We haven't revised our forecasts for our economy, but we are monitoring developments in China very, very closely.

AMIN:

Some say that China is a red flag for the global economy. Might China, if the weakness persists, drive the Australian economy into recession? Is that a possibility at all?

CHALMERS:

I don't want to speculate about that. Clearly, the last couple of pieces of Chinese data have been softer than people anticipated and that is a cause for concern. I think for all of us, not just for Australia. But our economic relationship with China is incredibly important, and so we watch these things very closely. We haven't updated or revised our forecasts. We only released them a couple of months ago. If they need to be revised at some future point to take into consideration developments in China or the US, frankly, or Europe or anywhere in the global economy, then obviously we'll do that at the appropriate time.

AMIN:

There is currently a leadership change at the RBA. In terms of top priorities for new Governor Michele Bullock, what would they be?

CHALMERS:

First of all, I pay tribute to Governor Phil Lowe who finishes up in September after seven years at the helm, and he's here making an important contribution to these discussions. And so he goes with the government's respect and gratitude and he goes with dignity. And he has said that Michele Bullock is a first‑rate appointment to replace him and we appreciate that too. So Michele Bullock's task is obviously primarily to lead an organisation dedicated to this inflation fight but at the same time, as she leads our combined efforts to reform and renovate the Reserve Bank to make sure that we take it into the future with the best possible combinations of objectives and culture and institutional strength. The Reserve Bank has served us well for a long period of time in Australia. We did the Reserve Bank Review to take it forward into the future, and we very deliberately chose Michele Bullock as the person best placed to implement the recommendations.

AMIN:

Are you looking for better communication from the Reserve Bank of Australia?

CHALMERS:

That was a key consideration and a key recommendation from the Reserve Bank Review. It was done by three eminent people in Australia and overseas, and one of their key conclusions is how do we make the communication of Reserve Bank decisions clearer so that people can understand how these decisions have been arrived at. So a lot of the changes are around that. Michele Bullock is a very effective communicator, a very clear, blunt speaker and I think that will serve her well as well. But really Michele Bullock represents the best combination of experience and expertise, an outstanding economist but also a really well‑regarded and well‑respected leader, and we'll need that leadership as we reform the Reserve Bank and one of the ways we reform it is to make sure its communication is as clear as possible.

AMIN:

The Deputy Governor position will be vacant from September, how are you looking at it? How soon do you think that position will be filled? Are you looking inwards or outwards for a replacement?

CHALMERS:

We are considering that right now, and we've had conversations with Michele Bullock and also with Governor Lowe, with my Treasury colleagues and others. We'd like to fill that Deputy Governor spot as soon as we can. We're not in a rush to do it but we'd love to do it relatively swiftly.

AMIN:

Is there a time frame you can give us on when you’re likely to do that?

CHALMERS:

Ideally, not much different to the timeframe to Michele Bullock taking over in the middle of September, ideally, if we can do that. We will look overseas, we will look internally, we will look around Australia, and we'll find the best person. The best person in their own right, but also the best set of skills to complement the new governor as she takes up her role. And in addition to that, the Reserve Bank will also appoint a new Assistant Governor (Economic) and so that gives us an opportunity. We've gone for experience and expertise at the top. We've got an opportunity for renewal in the Deputy Governor spot and the Assistant Governor spot at the same time, and I think that's a good combination too.

AMIN:

And have you got a shortlist of candidates at this point in time or not?

CHALMERS:

Not yet a shortlist. I have some ideas in my mind, and people have no shortage of ideas. There's a number of wonderful people, frankly, that we’ll consider for both ‑ in my case for Deputy Governor in the bank's case for Assistant Governor. Some good well‑qualified people but there's not a formal shortlist yet, there will be before long.

AMIN:

Rising home prices are still a huge issue in Australia, and that is the basis of your high inflation. How are you looking at it? What are the options out there for you to counter that?

CHALMERS:

We're doing a whole bunch of things to try and make it easier for people to secure more affordable properties to live in. We've got a Housing Australia Future Fund that we're trying to get through our upper house of our parliament, which is about building tens of thousands of homes. We've got the Social Housing Accelerator ‑ $2 billion for public housing. We've got the biggest increase in rent assistance in 30 years in Australia, and we've got a whole bunch of other measures as well. So we've got a broad, ambitious housing reform agenda to try and make it easier for people to live in more affordable homes near where the jobs and opportunities are being created in our economy. It's a really central part of our economic plan. But inflation in Australia has a number of sources. We're taking some of the edge off electricity prices, a big part of it, rent we're talking about here, out‑of‑pocket health costs. And we've tried to really target our cost‑of‑living relief to where those pressure points are most acute.

AMIN:

We talk about inflation, and there is a dichotomy in the inflation picture. We have the US as well as Europe still struggling with fighting inflation, we have China on the cusp of deflation and with Asian economies pretty much in control of inflation, is that problematic? Is that picture problematic for you?

CHALMERS:

Obviously, it's a complex combination of challenges in the global economy, and people are in different parts of this inflation fight. You're right that the Chinese situation is quite remarkable, as was Japan's before it, and in other parts of the world. But overwhelmingly, the primary global economic challenge is still inflation even as it moderates from that high peak and so that needs to be our primary focus, but not our only focus. We need to be able to do two things at once, repair Budgets and provide cost‑of‑living help in our own domestic economies. In the global situation, we need to not take our eye off the fight against inflation. At the same time as we work out how can we collaborate and coordinate our efforts to make our economies more productive so that we can get that wages growth and that higher living standards that Governor Lowe and I were talking about yesterday in our contributions.

AMIN:

Jim Chalmers, we thank you for your insights today and of course for your time at the G20.