THE HON JIM CHALMERS MP
TREASURER
E&OE Transcript
RADIO INTERVIEW
ABC RN BREAKFAST
THURSDAY, 8 SEPTEMBER 2022
SUBJECTS: Reserve Bank of Australia, Australian Economy, October Budget, interest rate rise, cost-of-living relief
PATRICIA KARVELAS:
They weren’t exactly a beautiful set of numbers but yesterday’s GDP figures showing the economy grew almost one per cent in the June quarter were comfortably in line with forecasts. But in interest rate terms, June was a long time ago. The cash rate has risen by 150 basis points since then and inflation is still climbing. Federal Treasurer Jim Chalmers insists better times lie ahead but in the meantime, he’s warning households to brace for more pain and not to expect much in the way of help from the Federal Budget.
Jim Chalmers is the Federal Treasurer and he joins me in our Parliament House studio, in fact, right opposite me. I’m eyeballing him after the parliamentary ball too, so let’s see how we both go. Jim Chalmers, welcome.
JIM CHALMERS:
It’s nice to see you, Patricia. Thanks.
KARVELAS:
The June quarter GDP figures are a snapshot of where the economy was 3 months ago. It only covers the first 2 rate rises, so do you believe the economy is weaker now than it was in June?
CHALMERS:
I certainly think that our challenges are more acute now than they were in June. Now, we did get a pretty solid, pretty encouraging result, but as you rightly pointed out in your introduction, that’s a few months old now. That strength was driven by exports. There are some temporary factors there and it was driven by consumer spending, particularly people who are getting out and about in the services economy after that horror summer that we had earlier in the year. And so, some encouraging signs but certainly some growing challenges since then. Interest rate rises as you point out, but also the global situation has deteriorated. And the big challenge in our economy which people know at the supermarket and elsewhere is we’ve got these issues in our supply chains which are pushing up inflation as well and that’s a really key focus for us.
KARVELAS:
June quarter data shows households are dipping into their savings to spend on things like clothes, travel and dining out. Is that trend moderating now because of interest rates hitting?
CHALMERS:
We expect it to at some point, but we’ve had some pretty strong retail numbers since that June quarter and people are still saving but they’re saving less than they were. There’s a relatively significant drop in how much people are saving. I think most Australians know that these interest rate rises will bite, and particularly we’ve had five in a row now. The Reserve Bank Governor is up later today providing some of the context for those decisions and he said earlier in the week that people should expect there to be more before interest rates stop rising. So I think most people are bracing for the impact of that.
My job really is to level with the Australian people about the complex combination of challenges in our economy, and one of those challenges is - how do we provide cost‑of‑living relief in a responsible way that delivers an economic dividend and doesn’t make life harder for the independent Reserve Bank as they try to make these decisions about people’s interest rates? Because the last thing we want to do is provide that cost‑of‑living relief in a way that’s counterproductive and just costs people more in the end.
KARVELAS:
When will the RBA have access to monthly inflation data and is its decision‑making ability being compromised by the fact that inflation data is still quarterly?
CHALMERS:
The Australian Bureau of Statistics to their great credit under David Gruen’s leadership is moving to a monthly model for the inflation numbers which is long overdue particularly when you consider how consequential these decisions are about interest rates. There’s a lot of measures in the economy. We’re getting better at being quicker at understanding changes in the economy and the ABS will do their bit with a monthly read on inflation. But also, there’s a heap of data out there in the private sector too. What it all tells us - and it’s no surprise to any of your listeners, Patricia - is that the cost of living is going through the roof, wages aren’t keeping up. That’s a key concern for us as well. So, our job in the Budget which I’ll hand down next month - responsible cost‑of‑living relief, invest in some of the issues in the supply chains, get wages moving again, but also try to make sure we’re getting value for money in the Budget by cracking down on rorts and waste.
KARVELAS:
Some economists are warning that if rate rises are too aggressive, the RBA will tip the economy into a recession. Others argue the tight labour market makes that more unlikely. What’s your view?
CHALMERS:
It’s not my expectation that we would head down that path but one of the things about the global situation which everybody is monitoring very, very closely is the prospect of that happening in the United States and the United Kingdom. That essentially describes the situation in some of our big trading partners. You add that to the issues with Russia and Ukraine and in China, and you can see that the global situation is tricky at best. And so, people are keeping an eye on the impact of those interest rate rises on our economy, but not currently our expectation that they will lead to a downturn.
KARVELAS:
If you’re just tuning in, this is Radio National Breakfast and my guest is the Treasurer, Jim Chalmers.
Treasurer, is it your view that any cost‑of‑living relief delivered in the Budget needs to be targeted at people on low incomes through things like the energy supplement and the reduction of the co‑payment for prescriptions - that it has to be very targeted? And are you willing to look at more of those measures?
CHALMERS:
Obviously, we’ll always try and do the right thing by people within the constraints of this Budget which is heaving with a trillion dollars in debt that we’ve inherited from our predecessors. And so, we need to be upfront about that as well. But if you think about our priority in wages, for example, that’s been at the low‑paid end. That’s why we’re so proud to have played a role in encouraging the Fair Work Commission to give that decent increase in the minimum wage. It’s why that indexation of pensions is going to be so important this month to give people a little bit of extra help trying to keep up with the cost of living. So, inevitably, our efforts, particularly the Labor Government, are directed at the most vulnerable. But really, right across the board we’re providing cost‑of‑living relief in medicines and childcare and in other areas and in ways that will deliver an economic dividend.
KARVELAS:
Okay. But people on fixed incomes are the most vulnerable to these price rises. People are in dire positions right now, particularly people on these lower incomes or fixed incomes, pensions or, you know, income support payments. You are signalling today that you’re not going to go any further - as far as I understand it - than what you’ve already promised on cost‑of‑living pressures. Have I got that right?
CHALMERS:
Well, we’re putting the Budget together and we’ve got another 6 or 7 weeks to do that –
KARVELAS:
And in that 6 or 7 weeks, are you prepared to look at more measures that are targeted to ensure that those people really, really struggling right now, you’re able to help them?
CHALMERS:
I think you’re right to assume that our priority is the cost‑of‑living relief that we’ve already announced and it’s difficult enough, frankly, to make room in a Budget with a trillion dollars of debt for those commitments including around $5 billion in cost‑of‑living relief in childcare plus what we announced in medicines and in all of these other areas. So, in levelling with people, we are being upfront with them about the challenges in the Budget.
Obviously, we’ll always try and do the best for people and the Budget is not finished. It’s not printed. There’s a lot of work still to do on the Budget and we’ve always got an open mind to doing the right thing by people. We’ve got these budget constraints. We’ve got these other pressures in the economy. And we’re not going to sort of tiptoe around them or pretend they don’t exist.
KARVELAS:
Pain, pain, pain is sort of the message and cuts also to the Budget. The Prime Minister says all the previous Government’s spending commitments are now under review. What do you mean by that? How extensive is the look that you’re giving to this? I mean, you’ve obviously talked about – and some of these words, sorry, are quite politicised, “rorts and waste”. Beyond that, structurally, what are you looking at here?
CHALMERS:
We’ve been working really closely with Katy Gallagher, the Finance Minister and with the Expenditure Review Committee and with Ministers to see where there’s either unallocated spending in some of these big buckets of money that our predecessors put together in the Budget. We’re looking to see where we’re not getting value for money in spending in the Budget. That $18 million grant that was proposed by our predecessors is a good example of something which we don’t feel passes muster. And so, we won’t be making that $18 million payment. You’ll see the fruits of those efforts in the Budget and I don’t want to pre‑empt those. But I think people understand that when you’ve got a Budget in as bad a condition as the one that we inherited, then our responsibility - which we embrace - is to go through it line by line and to make sure that we’re getting value for money. That hasn’t been the case for the best part of 10 years and we want to change that.
I just want to pick up something else you said, Patricia, because I think it’s important. I actually have a more optimistic view about the future of our economy. Yes, there will be pain as you describe it in the near‑term, but I’m still confident, I’m still optimistic about the future of our economy. We’ve got some very tricky terrain to navigate over the next 6 to 12 weeks.
KARVELAS:
So, when does that optimism hit? It looks to me like even around Christmas people will really be struggling still if you look at the forecasts. When are these kinds of sunny, happy days coming?
CHALMERS:
Inflation will start to moderate next year and we’re realistic about that, how long it will take to come from these really quite extraordinary highs in inflation. We expect it to peak, or Treasury expects it to peak, at the end of the year and start to moderate. But there is genuine reason to be optimistic about the future of our economy. But I think there’s an appetite for some real talk about these challenges in the near‑term. I’ve tried not to sugar‑coat them, but I don’t want your listeners to think that I have some kind of downbeat view about the prospects for our economy and for our country. I don’t. But it is going to be tricky for the next 6 or 12 months and I think people understand that.
KARVELAS:
And in terms of changes to the Budget and structural change, rather than one‑off or looking at pots of money as it’s been described, are there any structural saves that require legislation that you’re looking at?
CHALMERS:
We’ll make that clear in the lead‑up to the Budget –
KARVELAS:
I know, but give me a sense of – I just want your sort of macro looking at this Budget. What kind of reform are you prepared to make?
CHALMERS:
First of all, I think the best way for your listeners to understand how we go about this is we don’t see one Budget in isolation. There will be another Budget in May most likely, and that’s not far away either. And so, I am personally taking a bit of a two‑Budget view to this task. The task in October - pretty soon after an election, unusual to have one in October - is to crack down on this waste that we’ve identified. It’s to implement our election commitments, deal with cost‑of‑living, invest in the supply chains. That will be the task for October. That doesn’t mean that the savings task or looking for the structural improvements in the Budget just end in October. There’s another Budget in May. And ideally this task of Budget repair, which will take a long time given the magnitude of the fiscal pressures that we have, the pressures that we have in the Budget, then I’d encourage you and your listeners not just to see the October Budget in isolation. We’ve got some very clear objectives there and some jobs to do but we’ve got another Budget in May as well.
KARVELAS:
Okay. And will you start building a case for some bigger reforms, as I say, that will require legislation, structural reforms to the Budget to shift some of these things in the conversation leading up to May? Put floating ideas, really big changes to actually change the Budget, because clearly we’re in a structural deficit?
CHALMERS:
I think that’s a good way to think of it, Patricia, frankly, and we’ve got a structural problem in the Budget. And we release these things called intergenerational reports which you talk about with your listeners and what that shows is that the Budget situation doesn’t improve markedly over the next 40 years and so we do need to think differently. We need to engage the Australian people in a big conversation. Think about it this way - the 5 biggest, fastest‑growing areas of spending are the things that we really value – NDIS, aged care, hospitals, defence, and now servicing the interest costs on this debt. And so, we need to work out if we value that, and we do, then how do we make room for that in a structural sense in the Budget into the longer‑term? And I think that is a conversation that the Australian people need to have and I’m happy to lead that conversation, but I’d encourage people not to think that October is the only opportunity to do that.
KARVELAS:
Interesting point made. Thank you, Treasurer.
CHALMERS:
Thanks, Patricia.
KARVELAS:
Federal Treasurer Jim Chalmers joining us this morning and you’re listening to ABC RN Breakfast.
