Interview with Haslinda Amin, Bloomberg Television

HASLINDA AMIN:

Treasurer, debt restructuring remains a key issue here. How much progress can be made when China maintains it does not want to take a haircut if the World Bank doesn't?

JIM CHALMERS:

This is one of the most important things that we need to grapple with here at the G20 in India, is how do we recognise that when borrowing costs are going through the roof, and some countries are especially vulnerable to higher levels of debt, then we do need to all come to the table and work out where we can help. Our Indian hosts have been very good in that regard and we need to see other countries take a similar approach.

AMIN:

How does it get unstuck? Do you need to tweak perhaps the Common Framework?

CHALMERS:

Obviously the Common Framework is one of the things that gets discussed at these meetings to make sure that it is fit for purpose. And I think at times like now where debt is such a prominent part of the things that we are concerned about in this downturn post‑COVID, then obviously it's something that needs to be addressed. And a lot of the contributions made around the conference table do go to the sustainability or otherwise of debt, particularly in vulnerable countries like Sri Lanka. And so we are all collectively urging all of the partners, all of the creditors to do whatever they can, to make a difficult situation a little bit easier.

AMIN:

There is a lot of doubt that there could be a communique from this G20 meeting, are you optimistic?

CHALMERS:

It remains to be seen, there are the obvious perennial sticking points - Ukraine and Russia is obviously one of those - and we stand with friends from right around the world in condemning the brutal Russian aggression of Ukraine. So much of what we're grappling with in the global economy is a consequence of Russia's invasion. The best thing that could happen for the global economy would be a Ukrainian victory in Europe. But beyond that, debt is a sticking point and there's no point pretending otherwise. And as we negotiate the communique, and hopefully release one before the end of today, hopefully we can make some progress on debt. But regardless, from an Australian point of view, this kind of engagement is always worth it. We give ourselves a much better chance of getting on top of our big global economic challenges if we engage in good faith with each other, and that's why I'm here.

AMIN:

You talked about how MDBs like the World Bank need to be fit for purpose. Of course, leadership is key to that. And of course, the US has suggested Ajay Banga as the nominee for the World Bank, what do you think?

CHALMERS:

We'll confer with our Korean partners in the World Bank and also with my colleagues back home. Obviously, the Americans have a history of putting forward people of quality. And obviously, we will engage with Secretary Yellen and others about this nomination. Our highest priority when it comes to the World Bank is making sure that it focuses on two things amidst all of its other important work - we do want it to have a focus on climate change and the energy transition. That's a crucial part of its work. And we also want to make sure that it is very focused and very alive to the challenges in the Pacific, amongst our friends in the Pacific. And we will consider the proposals that are put forward for the Bank's leadership in that light. And we will engage with the Americans and others as the process evolves.

AMIN:

Speaking of challenges, inflation remains pretty sticky. US inflation has eased, but still at 40 year highs. How worried are you about that, and what are the implications for Australia's own inflation?

CHALMERS:

Inflation will be higher than we'd like for longer than we'd like. And one of the key contributions I've been making in these discussions, including in the discussions behind closed doors, is that we cannot be complacent about this inflation challenge. It's important that we focus on multilateral institutions and the development banks and all of these sorts of things. But all of the challenges that we're dealing with in one way or another are a subset of the inflation challenge. We can't be complacent about it, just because the inflation peak is behind us rather than ahead of us, it is still the defining challenge in the global economy. It's still the defining challenge in the Australian economy. At some future point, the challenge will shift from inflation to growth but for the time being, inflation will continue to be the main thing that I'm concerned about.

AMIN:

Why are you still confident that inflation in Australia has peaked? When you take a look at the nominal rate for the Fed [Federal Reserve], for instance, is gone from below five per cent to five and a half, some suggesting even six to come.

CHALMERS:

We're obviously monitoring that very closely. We have had a familiar combination of challenges in the Australian economy - energy prices, shipping costs, labour shortages, and all of this together has created an inflation challenge, and that's pushed up interest rates in our economy. We think, our Treasury forecasters think, that the peak was in the December quarter, like a lot of countries here we think the peak is behind us, but nothing is assured, and we need to be vigilant. There's a job for central banks that they do independently, certainly in Australia, they do that independently. There's a job for governments as well. And we have a three point plan to address this inflation challenge. It's about relief for people doing it tough, it's about repairing our broken supply chains and it's about restraint in the budget. That's what we did in the October Budget, that's what I'll do in the May Budget. There are some similar challenges that we're still dealing with but not an entirely identical situation that we faced last year. We need to strike all of these balances in the global economy and in the domestic economy, and that's why we're here and why we're engaged.

AMIN:

A Bloomberg survey suggests that the probability of a recession in Australia is now higher than before. Are you confident you can avoid a recession?

CHALMERS:

It's our expectation that we will.

AMIN:

What might change that?

CHALMERS:

Obviously, the things that will slow our economy considerably are higher interest rates and a slowing global economy. And we've already seen some early indications that both of those things are biting in the Australian economy. We get our December quarter National Accounts and GDP figures on Wednesday of the coming week, and so we'll learn more about the December quarter when we get that data. But our expectation is that the Australian economy will slow considerably like most of the economies represented here at the G20. We're expecting to avoid a recession. We're optimistic about the future but we're realistic about, particularly, the impact of higher rates and a slowing global economy, on our own economy.

AMIN:

The world is banking on China's reopening to drive growth, but you've been pretty unsure about the impact it would have an Australia's economy and growth. Why is that? Are you just underestimating?

CHALMERS:

No, I think it's just in two phases. When the Chinese were going through that enormous COVID wave, my concern was for supply chains - Chinese supply chains and global supply chains, which are heavily influenced by what's happening in China. When we get out of the worst of that COVID wave in China, we are relatively upbeat about the Chinese economic story over the next couple of years. We think it will recover a bit quicker than people anticipated last year, and a bit stronger than people anticipated last year. That's obviously something that we need to see in the Australian economy. You asked me why I'm still optimistic, I'm optimistic about the future. We've got a lot of things going for us in the Australian economy. We've got good prices for our exports, we're seeing the beginnings of some decent wages growth after a decade of stagnation. We've got unemployment with a three in front of it, we're an incredibly attractive investment destination. All of those things are going for us but we've got a lot coming at us as well from around the world. We need to be realistic about that too.

AMIN:

Investment destination, because China wants greater collaboration when it comes to lithium. You say wait a minute, international investments into critical minerals need to be scrutinised further, are you then not looking forward to enhanced cooperation with China on lithium, at least?

CHALMERS:

I think the whole world is interested in our critical minerals, and in the opportunities, particularly in lithium, but also hydrogen. We get a lot of interest from right around the globe when it comes to those opportunities, and we're excited about them in Australia. We want to be a renewable energy superpower in Australia and so much of our policy agenda is about that cleaner, cheaper, more reliable, increasingly renewable energy.

AMIN:

How about collaboration with China in particular, how are you assessing that?

CHALMERS:

We want to collaborate with partners right around the world. And like any country, we have to work out what the best version of that is for us, and how we apply a sense of our national economic interest to all of these investments. But we've said multiple times, that when it comes to supply chains, we want to shore up those supply chains, not shut them down. We want to be a reliable supplier to the world. We've got tremendous advantages in Australia - a very stable, very profitable place for the world to invest. Increasingly, that will be about our energy advantages, whether they are traditional sources of economic strength, or some of these new opportunities - hydrogen, lithium batteries and the like. But we're excited about the future in that regard and I think the world is too when they look at Australia.

AMIN:

So what you're saying is that despite warming relations between Australia and China, you're looking to diversify your trading partners regardless?

CHALMERS:

I don't see that as an especially controversial strategy. I think everybody is trying to work out post‑COVID, what is the best version of our supply chains to make them more resilient, to make them more reliable at the same time as we don't over learn the lessons of COVID. We don't want to shut down and look completely inwards. We do want to make our supply chains more resilient. We do want to add more value in Australia, we do want to work out the optimal mix of domestic and foreign investment in some of these areas of immense economic opportunity. I think all of my colleagues and counterparts here the G20 are engaged in a similar conversation when it comes to their own advantages, and that's what we're doing in Australia.

AMIN:

I just want to quickly take a look at the upcoming Budget. Given that there are concerns about inflation, are you looking to fall back on fiscal stimulus? I mean, even pandemic stimulus, that's been pretty inflationary.

CHALMERS:

What we've tried to do really since we came to office in May last year - and this May Budget this year will be the second budget of the new Albanese Government - and one of the defining features of the first one and will be in the second one, is restraint, spending restraint. So we're getting an upward revision to revenue because our commodity prices are so strong and unemployment is so low, and what we tried to do is bank most of that so that we're not adding to the inflationary pressures in the economy. We did that in October, we banked 99 per cent of the revenue upgrade over two years, we banked into the Budget so that we could get that debt profile down a bit, so we can make the budget more responsible and so that we weren't adding to inflationary pressures. Now, on the other side of the inflation peak, we will have a similar objective but the balance is a little bit different. At some future point, as we've been saying here, the challenge will shift from inflation to growth and we need to factor that in too.

AMIN:

Treasurer, I thank you so much for your time.

CHALMERS:

Thanks for the opportunity.