Interview with Kieran Gilbert, Afternoon Agenda, Sky News
KIERAN GILBERT:
Do you have guidance that there will be more rate rises next year? It's some difficult news for a lot of people heading into Christmas.
JIM CHALMERS:
Very difficult news Kieran, I think this is the Christmas present that no Australian homeowner wanted. But the reality is we've now had eight consecutive interest rate rises, which began before the election in May. And so this will have a harsh and heavy impact on monthly repayments for a lot of Australians, something like $75 a month for every $500,000 that people owe. But I think perhaps the most interesting element of the statement released by the Independent Reserve Bank today was the point that they made about not just the trajectory of future rate rises, but also that they expect household spending to slow- but the magnitude of that slowdown and the timing of that slowdown is still uncertain. And so I think that is really the key consideration for us in the economy. We are hostage to a number of developments we don't control whether it's the war in Ukraine, China and COVID, US, UK and Europe, whether it's the impact of these rate rises, determined independently by the Reserve Bank, and whether it's harsh weather events and natural disasters. There's a lot that we can't control in our economy. So our job as the Government is to recognise we've got some things going for us- low unemployment, good prices for our exports, the beginnings of wages growth, and some pleasing developments in the budget. But at the same time we've got to focus on where we can make a meaningful difference. That's why the Budget was so important, a responsible Budget to make the economy more resilient and to fight inflation as the number one priority.
GILBERT:
With this increase of a quarter of a per cent as opposed to half a per cent, do you think the RBA is now seeing some tightening, which I think you alluded to in their statement? And is that tightening encouraging to the Government, that these rate rises are working?
CHALMERS:
I think we are seeing the beginnings of the economic impact of these rate rises. Australians with a mortgage and particularly those with a big mortgage are already feeling the impacts of these rate rises since before the election. But the economic impact is still to play out, still ahead of us. We will see in the National Accounts tomorrow some but not all of the uncertainty and pressure on the economy, because those September National Accounts are backward looking, and a lot of the uncertainty lies ahead. But I think we are seeing the beginnings of some of the economic consequences of higher interest rates. One of the reasons why the Treasury forecasts that I included in the October Budget forecast a big softening in consumption and a big softening in growth, partly about the global economy slowing down, but mostly about the impact of these rate rises. I don't second guess or pre-empt decisions taken by the Independent Reserve Bank, but they won't meet in January, they'll meet again in February and no doubt all of these considerations will be central to the next decision that they make next year.
GILBERT:
One thing that they have warned of is the risk of a wage price spiral. Is there a risk that the IR laws passed last week could add to any such spiral?
CHALMERS:
No, there frankly isn't Kieran. We've got an inflation problem in our economy because of a range of reasons and wages growth is not one of them. We've made it very clear, I think other independent observers, credible economists and others have pointed out that one of the problems in our economy for too long now for the best part of a decade, has been stagnant wages growth. We want to get wages growing again, we want that growth to be strong and sustainable, and to bring with it substantial improvements when it comes to productivity. But we don't have an inflation problem because wages are too high, we have an inflation problem because there are issues in our supply chains. We've got labour and skills shortages, we've got high energy prices as a consequence of the war in Ukraine and other factors. Wages are not one of the reasons why we've got this problem with inflation.
GILBERT:
With the ABS data yesterday suggesting that wages had been growing faster for the last quarter than company profits, have things turned around now? And is that legislation - the IR laws - are they necessary given wages are already moving?
CHALMERS:
First of all, you've got to be really careful about one measure at one point in time. Obviously, the trend over a much longer period of time has been wage stagnation, even as profits have grown considerably. There's been a bit of a decoupling in unwelcome ways between profit growth and wages growth and we are concerned about that - we've made that clear for some time. But we are seeing a whiff of wages growth in our economy, we want that to be strong and sustainable and based on productivity. But we do want to see those welcome improvements in wages, we want to see them in a more enduring way, a more sustainable way. It's become clear in the last couple of wages outcomes, including that one that you mentioned, that we're seeing the beginnings of wages growth, but if we want it to be an enduring feature of our economy, then we need to continue to work on our policies, which are about training people for higher wage opportunities, early childhood education reforms, so new parents can work and earn more if they want to. And we've got to fix this broken bargaining system, which has delivered wage stagnation for too long. And that's why what went through the parliament is so important.
GILBERT:
On the other big inflation question, in terms of inputs, the energy price shock, will there be a deal done this week with the states, particularly on capping the coal price?
CHALMERS:
First of all, Australians are paying a really hefty price for nine months of Russian aggression and nine years of Coalition incompetence when it comes to energy policy, that much is very clear. And we are working very hard, very closely with our regulators, with state and territory counterparts and with industries, to see if we can come up with a temporary but meaningful and responsible intervention in these markets so that we can take some of the sting out of these price rises, which do risk hollowing out our industrial base and putting extra unwelcome pressure on families at a time where things are already tough enough. And so the Prime Minister, I spoke to him at length a short time ago, about our work in this space. I've obviously had meetings in the last couple of days with Ministers Bowen, and King and Husic and others, to see if we can get to a sensible landing here. National Cabinet will discuss it on Friday afternoon, Chris Bowen will discuss it with his counterparts on Thursday as well. So there's a lot of work going on. We do want to try and take the sting out of these energy price rises if we can. They come courtesy of the war in Ukraine, but the consequences are being felt around the country. And so I think we've got a responsibility to act in a considered way, urgently, but recognising there's a lot of complexity here, a lot of moving parts and that we don't hold all of the levers.
GILBERT:
Finally, you mentioned the GDP number, it's out tomorrow. It is looking back, so it's dated to an extent, but do you think that our growth is holding up in the face of all those challenges?
CHALMERS:
We've got a lot going for us and we're in a better position than a number of our peers. But what we'll see in the National Accounts number - most likely - is some but not all of the uncertainty that we confront, particularly the consequences of a slowing global economy. And so it will be backward looking and a lot of the uncertainty lies ahead. We do have a lot going for us in the economy, but we've got a lot to trouble us as well. And so our job, whether it's energy, whether it's banking upward revisions in revenue from commodity price increases, whether it's taking a more responsible approach to the budget, and making our economy more resilient. All of these things are the best way that we can build our buffers against this international uncertainty. And that's what we've been trying to do.
GILBERT:
Treasurer Jim Chalmers live from Sydney. Thanks for your time.
CHALMERS:
Thanks, Kieran.
