Interview with Kieran Gilbert, Afternoon Agenda, Sky News

KIERAN GILBERT:

The Treasurer, Jim Chalmers, joined me a short time ago. I began by asking whether he still believes our economy can achieve a soft landing.

JIM CHALMERS:

The numbers that we've seen today, Kieran, do reflect the softening of growth in our economy in entirely expected ways. The numbers we see today are consistent with the Budget forecasts that I put out a month or so ago. And that's because it is unsurprising that with higher interest rates and cost‑of‑living pressures and global uncertainty, that we are seeing a slowing of momentum and a slowing of growth in our economy. It is still our expectation that we can manage our way through some of this global uncertainty and some of these cost‑of‑living pressures. But we've been upfront really for some time, and said that we do expect the economy to slow because of the combination of those factors. And that's why the Budget was so responsible and so focused on dealing with cost‑of‑living pressures, investing in productivity and growth, at the same time as we got the budget in much better nick.

GILBERT:

You mentioned earlier in the day that in these numbers there are further signs that inflation is moderating from its peak, is it your sense that last week's monthly inflation number might have been an anomaly?

CHALMERS:

Those monthly numbers are pretty volatile. They bounce around a bit, as the Treasury Secretary and others have pointed out, and there are specific reasons why that most recent monthly figure was higher than people expected. For example, the timing of the fuel excise changes had an impact on that number. So I think people will be particularly attentive to the quarterly numbers when it comes to inflation. We are confident and we got more evidence of it today in the National Accounts, that inflation peaked around Christmas time and it's been moderating ever since. It's not moderating as fast as we would like it to, inflation is more persistent than any of us want to see, it will be higher than we'd like for longer than we'd like. And that's why it's the primary focus of the government's economic plan and our Budget, and obviously, as well, the primary focus of the Reserve Bank.

GILBERT:

You mentioned yesterday that people will find it hard to cop the rate rise and would find it difficult to understand, and it's up to the RBA to explain the decision made - do you think the RBA Governor did that sufficiently earlier?

CHALMERS:

I think it's a good thing that he made himself available today, frankly, to explain the decision that the Reserve Bank Board took yesterday. If you look at the reforms that I'm proposing for the Reserve Bank, I want to make that a more institutionalised part of what they do - and they take a decision, explain it, defend it, if necessary. And that's what Governor Lowe did today and I think that's a good thing. The point that I was making about Australians more broadly, and I think it's self‑evident and therefore largely uncontroversial, is people are under the pump. And when interest rates go up, it does make life harder for people. And because of that, a lot of people I think, will find it hard to understand and definitely hard to cop. And so the more explanation we can get from the Governor and the Board about that, the better. That's the motivation behind the changes, or one of the motivations behind the changes I'm proposing when it comes to Reserve Bank reform.

GILBERT:

But you also see it as part of your own job, don't you? Because you've been talking about the inflationary backdrop for the Budget. It's all hands at the wheel isn't it, in terms of explaining why these measures are being undertaken?

CHALMERS:

Absolutely, and to some extent Australians understand the pressures that they are under. And the National Accounts today - really in a kind of data, numerical way - kind of back that in. People didn't really need the National Accounts today to tell them that they're under pressure. But we see that right through the numbers when it comes to household savings, when it comes to consumption - people are under the pump. And so I do think it's an important part of the Reserve Bank Governor's role, and also, frankly, an important part of my role to be as upfront as I can with people about the pressures that they are under, the causes and consequences of those pressures, but most importantly what the government is doing about them. And the Budget that I handed down about a month ago, really took inflation as its primary defining challenge. That's why we showed spending restraint and got the budget in better nick, the first surplus in 15 years. It's why we're investing in the supply side of the economy. It's also why we're making sure that when we provide cost‑of‑living relief, it takes the edge off inflation rather than add to it - a point that the Reserve Bank Governor has made today and last week as well. Our Budget is actually helping when it comes to the inflation challenge, not making it worse.

GILBERT:

He describes it as being, the words he used again today were 'broadly neutral' and obviously anyone that knows the cost‑of‑living crisis right now can see why government would want to show empathy and try and help where they can. But in hindsight, rather than broadly neutral, would you have gone tightening and restrictive, like monetary policies, because broadly neutral doesn't seem to fit where monetary policy is right now?

CHALMERS:

A couple of things about that. In addition to saying it was broadly neutral overall, over the life of the Budget, he said that it's actually taking pressure off inflation in the next year. And that was our objective, frankly, and I was pleased to see him acknowledge that today after the rate rise, but also last week, before it. The other important point to realise, this first surplus that we're forecasting in 15 years, means that the budget is tightest when the inflation challenge is its most pressing and that's really, really important as well. And in addition to that, some of the spending in the Budget is about making our economy more productive, dealing with busted supply chains, for example, and making us more productive when it comes to energy and technology and skills. These are other important ways that we deal with this inflation challenge, because we want to lift the speed limit on the economy, we want to grow out of this period of difficulty. And the best way to do that is to invest in people and their capacity, so we can have a more productive economy and we can have that growth with low inflation into the future. And so all of those things at once, are really the kind of textbook response to the inflationary challenges that we face right now. And I think in different ways, the Governor has acknowledged that.

GILBERT:

Treasurer, on the wages front, he did seem to indicate that that decision last week on the minimum wage factored into the RBA Board's thinking. This is a quote from his presentation today - he said it was higher than we had factored into our forecasts and it's a risk factor, when monitoring more broadly on wages - is what he said. Do you accept it is a risk factor?

CHALMERS:

The way I come at this, Kieran, is I think that the people on low and middle incomes are already bearing the brunt of these rate rises, and they shouldn't bear the blame as well. We've had a decade of wage stagnation in this country and it's important that we turn that around. And yes, we need to do that in a responsible, sustainable and methodical way, in a more productive economy at the same time. But one of the other points that the Governor made today was when it comes to people on the minimum wage, it's completely understandable that the Fair Work Commission would try and make sure that they can keep up with the cost of living. He made other points about wages more broadly, about needing to ensure that there is productivity growth, as well as wages growth, and that's largely the government's position, as well. And in the statement yesterday that they released after the Reserve Bank decision, they said that wages are within the parameters of the inflation targeting regime, and so that's important too. Clearly, when rates go up like they did yesterday, people are looking for explanations, for understandable reasons. The explanation is that inflation is a bit more persistent than any of us would like to see but it's not because of the Budget, it's not because people on the minimum wage are getting paid too much, there are other factors at play.

GILBERT:

Do you share his view though, that while it might not have been a driver at this point, that the risk is if it spreads - as he put it - across other parts of the labour market, so not just the minimum wage, but then becomes expectations - a quasi as he put it - a quasi benchmark for outcomes in private sector wages more broadly, do you share that concern?

CHALMERS:

I come at it a little bit differently, in saying that we need to make sure we get on top of inflation so that we get on top of inflation expectations and that's part of the point that he was making. But I think we need to be really careful here and not blame workers who've got a legitimate aspiration to earn more when they work more. We can't put all of the blame for these interest rate rises on the fact that people want to see some wages growth after a decade of stagnation. And where the Governor and I agree, I think, is that in seeking these strong and sustainable wage increases, that we've got to make sure that they're responsible, we've got to make sure that our economy is more productive at the same time. We all have an interest in getting on top of inflation, but also in making sure that people who work hard can earn enough to provide for their families. That hasn't been a feature of the economy for the best part of a decade, and we want to turn that around but we want to do it in a responsible and methodical way.

GILBERT:

On productivity, you said it's your target, your plan to boost that but we saw in the March quarter, it fell by point three per cent. Can you see any specific reason why that's the case?

CHALMERS:

We've had a productivity challenge in our economy for some years now, it hasn't just popped up during or after COVID, or even in these quarterly figures which have been released by the ABS today. It's been very clear for some time, that our productivity performance is not up to scratch. And a problem that has been building for that long, can't be turned around immediately. But we give ourselves the best chance to make our economy more productive, not by making people work longer for less, but by investing in their capacity to adapt and adopt technology, and to get our energy markets right, and all of these other things which have been identified by the PC and others. We need to make our economy more productive, that's self‑evident. There's a right way and a wrong way to go about that and we're investing in the right way.

GILBERT:

Finally, do you see a potential where a mild, short‑lived recession might be what we need, as opposed to a worst case scenario where we face a long, deep recession down the track?

CHALMERS:

I'm not playing out those scenarios in my head, Kieran. The expectation in the Treasury forecasts and the Reserve Bank forecasts and elsewhere, is that the Australian economy will slow but continue to grow, and that's still my expectation. Now, it's important to remember even though these growth numbers today were soft, they were soft in expected ways, in ways anticipated in the Budget, in the Treasury forecasts. And we've been saying for some time, we expect the economy to slow considerably over the course of the next 12 to 18 months. That's the inevitable consequence in lots of ways of higher interest rates and cost‑of‑living pressures and global uncertainty. And that's what we're seeing play out right now.

GILBERT:

Treasurer Jim Chalmers, appreciate your time as always.

CHALMERS:

Thanks, Kieran.