Interview with Patricia Karvelas, RN Breakfast, ABC

PATRICIA KARVELAS:

Yesterday's decision by the Reserve Bank to lift interest rates was expected. But what wasn't anticipated was the clear statement by the central bank that more are coming. And more multiple. That news is no doubt leaving many of you wondering how to make ends meet. There's a lot of stress around the community today. Jim Chalmers is the Federal Treasurer and he joins me in the Parliament House studio, where we're broadcasting from this week. Treasurer, welcome back to Breakfast.

JIM CHALMERS:

Thanks very much, Patricia.

KARVELAS:

Do you accept the Reserve Bank's statement that more interest rate rises will be needed - multiple - to cool inflation?

CHALMERS:

Well, obviously as we've said before, I don't pre-empt or second guess the decisions taken by the independent Reserve Bank. Their job is to get on top of this inflation challenge in our economy without crunching our economy. My job is to do what we can to take some of the pressure off people around the country who are doing it tough and that's why we do have a three point plan to address this inflation challenge in our economy, provide responsible cost of living relief without adding to inflation, deal with the issues in our supply chains including the workforce issues and skill shortages and show spending restraint in the Budget. We did all three of those things in the October Budget and there'll be more of that sort of approach in the Budget in May as well.

KARVELAS:

You said without crunching the economy. How much further can the Reserve Bank increase rates before we fall into recession and your warning "crunching the economy" actually becomes a reality?

CHALMERS:

First of all, the government's forecasts from the Treasury anticipated this rate rise that we saw yesterday. And so the current expectation of the people who put together the government's forecasts for the economy is that our economy will slow considerably as a consequence of a combination of higher interest rates but also these really difficult global conditions which are impacting our economy as well. And so the expectation of the Treasury forecasters is higher interest rates combined with difficult global conditions will slow our economy considerably but they don't expect at this point a recession here in Australia.

KARVELAS:

Hasn't that changed after yesterday's statement? Or hasn't the risk of recession escalated?

CHALMERS:

The decision taken yesterday was factored into the Budget - first point. Second point - it remains to be seen what the future trajectory of interest rates is in this country. Obviously, a lot of people are focused on the language in the Reserve Bank board's statement yesterday, that happens after every rate decision.

KARVELAS:

And it was really clear that language - multiple - we're going to see interest rates rise, not just yesterday, but multiple times.

CHALMERS:

It remains to be seen.

KARVELAS:

Isn't that what it said?

CHALMERS:

The decisions for the future haven't yet been taken. I accept that the board's language yesterday was pretty straightforward in that regard. But again, I'm not going to predict or pre-empt, I'm not going to second guess - they have an important job to do as we talked about at the start to try and get on top of this inflation challenge without crashing the economy. There are signs that inflation has begun to moderate in our economy. There is of course, as the Governor acknowledged in the statement yesterday, the fact that when interest rates go up, people with a mortgage feel it immediately but the impact on the economy takes a little while to flow through. They will weigh that up, as they always do and they will weigh that up against some of the turbulence in the global economy as well. They will make their decisions independently. I've got a job to do. We've got a three point plan to address this inflation challenge in our economy and that's my focus.

KARVELAS:

Is it your wish that there aren't multiple interest rate rises now? That you think that the economy is at a point where that's too big a risk?

CHALMERS:

I'm obviously not going to give free advice to the Reserve Bank. Treasurers of either political persuasion, for good reason have cherished the independence of the Reserve Bank, and I do.

KARVELAS:

Okay but at the same time, right now, the people you represent across the country, you're the Treasurer, are saying and are expressing - I've got it all over my text line - that they are feeling like... how are they going to get through this year?

CHALMERS:

I understand that. I genuinely understand that when rates go up, it puts extra pressure on people and it puts extra pressure on our economy, I think that is self-evident. The inflation challenge in our economy which is making some of these interest rate rises necessary is the government's major focus and that's why we're showing spending restraint, we're providing cost of living relief, we're dealing with these issues in the supply chain including in the workforce because this is our defining challenge right now. High inflation and rising interest rates is the defining challenge in the economy right now, we need to get on top of inflation and that's why the government's economic plan is as it is.

KARVELAS:

The Greens are calling for you to intervene and reverse the rate rise. They're also calling for the Governor to resign. Should he resign?

CHALMERS:

Look, I'm not proposing to mess with the independence of the Reserve Bank. And frankly, respectfully, I don't take my economic advice from the Greens. I don't want to mess with the independence of the Reserve Bank, I do want to reform the Reserve Bank as you and I have talked about on a number of occasions. We've got an opportunity with this Reserve Bank review which reports to me next month to reform the bank and make it the best version of itself. But as part of that, I don't intend to mess with the independence of the Reserve Bank - I think that's an important feature of the system and I think that's a bipartisan approach -

KARVELAS:

Did yesterday's statement indicate that it needs reforming and that it's out of touch?

CHALMERS:

I thought before yesterday’s statement that there was a case to have a look at the Reserve Bank and that's why I initiated the review for all the reasons that we've talked about. And not because I want to take shots at the bank, not because I want to second guess one decision or another but because I want it to be world's best and I want it to have the right structures of advice and decision making to get the right outcomes for the Australian people. That's what the review is about but it's not about messing with the bank's independence.

KARVELAS:

Philip Lowe's term as Reserve Bank Governor ends this year. He wants to stay. Do you want him to do another term?

CHALMERS:

Governor Lowe's term doesn't end until September and in the normal course of events - and I see no reason to change that - the government would consider that closer to the middle of the year. I would consult with my colleagues including my Cabinet colleagues. Everybody's got a view on this at the moment, of course.

KARVELAS:

And a lot of your Cabinet colleagues don't want him to stay on, do they?

CHALMERS:

I'll have conversations with my Cabinet colleagues.

KARVELAS:

But that’s right, isn't it - what I'm saying?

CHALMERS:

I don't know that that's right, no. Nobody has come and said to me that that's the outcome that they're seeking. My colleagues understand I think that it's a decision for later in the year. I will do it the usual way at the usual time.

KARVELAS:

Okay. Let's turn to the retail banks now. New South Wales Premier Dominic Perrottet says they shouldn't pass on the latest rate rise in full. Do you agree that the banks should give home loan customers a break?

CHALMERS:

Obviously these sorts of decisions are taken by the banks and not by governments. It's an easy thing for Premier Perrottet to say. My focus is actually on the fact that when rates go up, they're passed on immediately to mortgage holders and there's often a lag for some savings accounts. I think there's a role for the regulator to get to the bottom of that and that's why I've asked the ACCC to investigate why. And it's a source of some anger, you probably get it on your text line -

KARVELAS:

A lot.

CHALMERS:

If you're relying on your savings and interest rates go up, it typically takes longer for the benefits to be passed through than it takes for the interest rate rise to be passed through to mortgage holders. That's my focus. I've got the ACCC on the case.

KARVELAS:

Okay. But you don't agree with Dominic Perrottet's call that the banks shouldn't pass on the interest rate hike?

CHALMERS:

I think they should pass it on to savers. That's my priority. Obviously, we want people to get the best deal they can in their mortgages. We want them to have mortgages that they can afford to repay and we want savers to get the benefit of these rate hikes - that should be the sort of silver lining in all of this and that's my focus.

KARVELAS:

It's only February but you're already planning the May Budget. What additional support will you offer all of these people who are clearly under enormous stress now?

CHALMERS:

The main focus in that regard is for assistance with electricity bills and I'm working with the states and territories to deliver that. It'll be a different way to deliver that depending on the state and territory where you live. I worked over the summer on this and we're continuing to work on it. I'm meeting with my state and territory colleagues on Friday about it and that'll make, I think, a meaningful difference to people - about one and a half billion dollars in cost of living relief in the May Budget for people. This is the household assistance that the Opposition voted against, but we think people need. And when you combine that with cheaper medicines which came in from January, cheaper early childhood education from July, that's what responsible cost of living relief looks like without adding to inflation.

KARVELAS:

The Prime Minister Anthony Albanese promised that by next month National Cabinet would have signed off on a plan to provide energy relief. You've indicated you'll miss the deadline - why?

CHALMERS:

It's become clear in the conversations with the states that governments want it to flow closer to the middle of the year. And there are a series of implementation issues because the eligibility is different in each state, because we've all got our priorities about who should get it and when. The best way to do that is to land it with the states to make it a central feature of the May Budget and to have it flow soon after that.

KARVELAS:

Treasurer, you've been criticised for spending your summer penning an essay in The Monthly about your economic vision. The Shadow Treasurer yesterday told me - Angus Taylor was in the studio and he said to me that your one priority, every living moment should be spent on this inflation challenge, and that you've got your eye off the ball as you do that, is he right?

CHALMERS:

Of course, he's not. I mean, these are the sorts of petty little observations that Angus Taylor makes from time to time. This is the sort of unthinking rubbish that people rejected last May at the election. I think people understand that my firm, overwhelming major focus is on the inflation challenge in the economy. The idea that writing an essay after I put the kids to bed over the Christmas break somehow conflicts with that is frankly ridiculous. And Angus Taylor is a big reason why we've got this inflation challenge in our economy. He stuffed up the energy market, made us vulnerable to these international shocks, and if he cared about it, he would have voted for the household assistance for energy bills that we want to put in the Budget.

KARVELAS:

You're a supporter of the Voice to Parliament, and now the economy looks like it's struggling, Treasurer. Some people have texted in over the last couple of weeks saying the economy is the story but the government is just talking about the Voice. Is it going to be harder to land a yes vote with the economy going in this direction?

CHALMERS:

I don't take an outcome in the yes vote for granted - that's for sure. But I believe that we can strengthen our economy and strengthen our society at the same time. I think those objectives are complementary, not at odds. An important part of strengthening our economy is dealing with entrenched disadvantaged in communities. And the Voice is about giving people a say in the issues that affect their communities and making a tangible difference to their lives. So I see it in the broadest possible terms - our country has no shortage of challenges and no shortage of chances, and focusing on one need not come at the expense of focusing on the other.

KARVELAS:

We're out of time. How often do you put all three kids to bed?

CHALMERS:

A couple of nights a week.

KARVELAS:

Okay, good to know Jim Chalmers. Thank you.

CHALMERS:

Thanks, Patricia. Jim Chalmers is the Federal Treasurer.