Interview with Patricia Karvelas, RN Breakfast, ABC
PATRICIA KARVELAS:
Good morning, The Treasurer is Jim Chalmers and he's our guest this morning. Treasurer, welcome.
JIM CHALMERS:
Thanks very much, Patricia.
KARVELAS:
Let's just start on this issue because it's sort of the issue of the moment, isn't it? Has the Government resolved to cap the wholesale coal price at $125 and the gas price at $13 a gigajoule?
CHALMERS:
No, there hasn't been a concluded view reached yet, Patricia, and that's because as you rightly recognised in your introduction, this is a challenge of such complexity and such consequence for industry and for Australians around the country that it needs to be a genuine partnership between governments. And that requires all sides to come to the table in a reasonable and constructive way, which recognises that one level of government can't fix this all on its own. And that's why the conversations that have been happening, not just with the states - as important as that is - but with the regulators, with various parts of Australian industry have been really productive. There will be more conversations through the course of today and tomorrow, and we're still aiming to land something before Christmas.
KARVELAS:
If you don't land something before Christmas, what are the ramifications?
CHALMERS:
Obviously, we are very concerned that the prospects of higher energy prices, which began before the election and are continuing now and we expect to intensify in the coming months, that does put extra pressure on Australians who are already under the pump. And when it comes to high gas prices, it risks hollowing out important parts of our industrial base, particularly manufacturing, but not just manufacturing. And so we've said over the course of the last few weeks, as we consulted widely - with parts of the economy, with states and other levels of government, with regulators, with experts - is we think that there is a case here for temporary, responsible, sensible, but meaningful interventions in the markets to see if we can take some of the sting out of these high energy prices.
KARVELAS:
Is it enough to cap the wholesale price of coal and gas or will you also need to find a mechanism to ensure retailers aren't also price gouging?
CHALMERS:
Obviously, there's lots of different interactions here. And from time to time, you'll hear people including the Opposition say that we should have cleaned up the mess of the last 10 years already. But we need to recognise that, including those ones that you just mentioned, there are lots of different interactions here. It's not a simple system. There are two commodities involved here. There are different levels, different companies are involved in different parts of this chain. So there's a lot of complexity. That's why we are acting with urgency, and we have been. But we also need to make sure that we consider all of those interactions, all of those complexities, and do what we can to get it right.
KARVELAS:
Have the states been provided with financial modelling on how this agreement will impact their coal royalty payments?
CHALMERS:
Obviously, in the course of the conversation between the Commonwealth Government and the states, but also with other parts of the system, obviously we try to work out what the impacts of various options would be. We haven't come to a settled view from a Commonwealth point of view, and there hasn't been an agreement reached yet on the role of the states in this, but as we inform that conversation, of course, what we're focused on is what would be the impact on energy prices, first and foremost, and related to that, what would be the different impacts on different parts of the system.
KARVELAS:
Okay, so you are prepared, as you've said I think you said a couple of days ago, to provide compensation. But you've also said it's not a bottomless pit. It looks though that it might be in the in the realm of billions of dollars - is that how much you're going to end up having to pay from the Commonwealth kitty, if you like?
CHALMERS:
We're prepared to be reasonable and we need the states to be reasonable as well. I'm confident that that's the spirit with which they are approaching these conversations and these negotiations -
KARVELAS:
Can you define - I don't mean to be rude and interrupt although I am - but let me just get a definition on reasonable?
CHALMERS:
We've said that we want to try and find a regulatory outcome here, and in the course of finding that outcome if there are other steps that we need to take then we're prepared to consider them and the reason I don't have a number for you in terms of the possible cost to the states or the possible cost to the Commonwealth is because those negotiations are still happening.
KARVELAS:
New South Wales, Queensland and now South Australia are all facing multibillion dollar costs from flooding this year. Why should they forego revenue for a political promise that's been made at the Commonwealth level?
CHALMERS:
Because we're all in the same situation here, Patricia, the people that we represent and the industries that we rely on to generate jobs and prosperity are under pressure here. And it's the same Australians that we represent at the Commonwealth and at the state level, and so we've all got an interest here in trying to get to a good, responsible, reasonable landing point. And that is the spirit with which they're coming to the table. It's certainly the spirit with which we're coming to the table.
KARVELAS:
Okay, just a final one on this before we move on. In terms of energy prices, you've said you can expect your energy prices to increase next year, but you're hoping by not as much - what does 'not as much' mean? And level with people, does that mean they're not going to see any genuine relief until the second half of next year?
CHALMERS:
It depends on the model that we settle. But you're right to say that the expected increases which are facing us as a consequence largely of the war in Ukraine, but not just that, also a consequence of a decade of energy policy chaos here at home. What we are trying to do here is to take the edge off those price rises, there's not a policy currently before us, which would see immediate cutting of these bills, but we do want to try and slow the pace of these increases. That's the realistic and reasonable way to confront it. And that's how we're coming at it.
KARVELAS:
So second half of next year realistically?
CHALMERS:
It depends on the model -
KARVELAS:
Well you want to choose the best model where it happens the quickest, right?
CHALMERS:
Of course, we need to try and act with some urgency, but we need to be realistic about that as well. Some of these increases that you're referring to that were contained in my Budget were already flowing. These were the increases that Angus Taylor hid from the Australian people in the election campaign. So some of those increases are already flowing. Our intention is to try and take some of the sting out of these price rises next year.
KARVELAS:
I want to move on to another issue. And that's the Reserve Bank review. In July this year, you announced a review into the Reserve Bank, and that review is due to report back in March. The Reserve Bank Governor Phil Lowe's term is due to end in September, when will you decide whether he will be reappointed?
CHALMERS:
First of all, Patricia, on the RBA review, I think later today they'll be releasing a number of the submissions that were made to that review. And I've been incredibly heartened by the response that people have shown, there's been a lot of thought, a lot of considered work go into that RBA review. And we've got a terrific panel already doing good work, that have been engaging with myself, they've been engaging with the Opposition and others, to try and get to a good set of recommendations here. There's been a lot of interest in the composition of the board, the relevant expertise at the Bank, the inflation targeting regime, how they balance the various objectives of full employment, the inflation target and all the rest of it. So it's been already a really worthwhile process and I'm looking forward to that report that I'll get in March. I obviously have a really good working relationship with Governor Lowe and I respect his independence - I think that's an important part of the system. I recognise the hard job that he has, and I think he understands my very different role and the economic challenges facing the Government. You're right that his term comes to a conclusion in September. His current term ends in September of next year, we would ordinarily come to a view on that around the middle of next year. I'd consult the Prime Minister and the Cabinet in the usual way. And obviously the Reserve Bank review in March will be relevant to those considerations and will feed into our thinking. And not because we've asked for some kind of performance review of the Governor but because we want to learn from best practice and give the RBA the best structures and institutional settings we can, for the decisions that they'll make into the future.
KARVELAS:
Okay, so you've confirmed in the middle of next year, you'll be making a decision about whether Phil Lowe will be reappointed, and your review will guide the kind of Governor you want to appoint, right? Is that what you're saying, that the kind of outcomes of that review will guide the appointment of the next Governor?
CHALMERS:
It will obviously guide the kind of Reserve Bank that we want, and the personnel, the leadership of the Bank will clearly feed into those kinds of considerations. But in the normal course of events, when a big appointment like this is up in September of any year, you'd be thinking about consulting and concluding a view around the middle of the year - that's not unusual that we would do that. And because we've got this really detailed RBA review underway, of course the conclusions that they hand to me in March - which we'll respond to, at some point in the first half of next year - would be relevant to all of that.
KARVELAS:
And you want someone presumably who you think is fit for purpose for the kind of RBA that you think is fit for the times. Does that mean Philip Lowe's days might be numbered?
CHALMERS:
Oh no, that's not what I'm trying to say, Patricia. You asked me when his term would ordinarily be up - at September. You asked me when we might come to a view on that, and the normal course of events would be around the middle of the year on consultation with my colleagues. But we do have this really important review being handed to me in March and responded to some point. After that it would be strange, I think, not to factor in some of those conclusions in whatever we decide about the role of the Governor.
KARVELAS:
Fair enough. Let's move on to yesterday's economic news, that slowing we're starting to see could help curb inflation into the new year but it also shows households are struggling. How much worse will the economic situation in Australia be next year?
CHALMERS:
I think you're right, obviously Australians are struggling. We've got this inflation problem in our economy, which the Budget is designed to address. There was some really pleasing aspects in yesterday's National Accounts, we saw some wages growth after a decade of wage stagnation. But it was backward looking and it only captures some of the pressures that we're confronting, not all of the pressures that we're confronting, particularly when it comes to the global economy. So we had a good robust outcome but we need to be realistic about it - these global economic challenges aren't behind us, they're ahead of us. And our prospects next year will be largely determined by some combination of the war in Ukraine, the Chinese economy, what happens in the US, the UK and Europe. When these interest rate rises bite in our economy, because they hit repayments immediately but they hit the economy sometime after. And also we've got to be conscious about the prospects for the weather and natural disasters as well. And so the Treasury forecasts in the Budget I released in October, do expect a big softening of the economy next year, partly as a consequence of these rate rises, but also because the global economy is slowing considerably as well.
KARVELAS:
Just on China, China has given its strongest sign yet of opening up and moving away from its COVID‑zero policy, after loosening restrictions around quarantine. What kind of impact could that have on our economy?
CHALMERS:
I thought that was a huge development this week. As you know, I think we've talked about it before, Patricia, China's been pursuing a version of COVID‑zero for some time. And that's meant that their economy has already slowed considerably to about half their target as a consequence partly of those policies, and now they're going through their biggest wave yet. And so what their equivalent of their Cabinet decided during the course of this week is that they would relax some of their COVID management policies, which is huge news in the global economy, and will have big consequences for their economy and for our economy as well. And so, these are big developments that we are monitoring closely. We have been very concerned about the slowdown in the Chinese economy. We have been very concerned about this big COVID wave that they're going through right now, and how they manage that will be absolutely key to our own prospects here in Australia.
KARVELAS:
Treasurer. Thanks so much for joining us.
CHALMERS:
Thanks, Patricia.
