Interview with Rafael Epstein, ABC Drive, Melbourne

RAFAEL EPSTEIN:

The Federal Treasurer, part of Anthony Albanese's government, thanks for joining us.

JIM CHALMERS:

Thanks very much, Raf.

EPSTEIN:

What do you think is the biggest driver of inflation? Is it wages or prices?

CHALMERS:

So far it's been a combination of factors - energy is a big part of the story, rent, out‑of‑pocket health costs and issues in our supply chains for some time now. And so that's why those big drivers of inflation are the primary focus in our budget, where we've tried to provide a bit of relief from those inflationary pressures without adding to the inflation in our economy. And that's why the Reserve Bank Governor has said a couple of times now that the Budget is not adding to inflation, if anything, it's taking some of the pressure off inflation.

EPSTEIN:

You haven't directly addressed though, and it's okay - do you not want to say if it's wages or prices that's bigger?

CHALMERS:

I'm talking about the price for energy, the price for out‑of‑pocket health costs, obviously rent has been a big part of the story as well. But really since COVID, we've had pressure on our supply chains and we've had the war in Ukraine, which has pushed up energy prices around the world - so prices.

EPSTEIN:

Is it supermarkets and banks overcharging that's also contributing to inflation or not?

CHALMERS:

Well, I haven't seen the evidence for that, obviously, that is part of the public conversation. People, I think, wrongly want to blame either that or wages, and I think it's those price pressures that we've been talking about. And I think the thing that I'm clearest about is we don't have an inflation problem in our economy because people on the minimum wage in particular are being paid too much. And I think that's a point that the Reserve Bank Governor has acknowledged as well.

EPSTEIN:

I wanted to play you something Treasurer, I don't know if you heard it. The head of the Chamber of Commerce and Industry was on with Virginia Trioli this morning, when he says in this little bit of audio that both people are believing their own propaganda. He's talking about your government and the Fair Work Commission ignoring the risks of wages - if I can just play that for everyone to hear, including you:

“Look, these guys have got to be careful about believing their own propaganda, the Fair Work Commission and the government. It is going to build the pressure and the Reserve Bank is calling that out. They called it out yesterday and unfortunately it means that for many people, any wage increase they get in in the future has already been clawed back.”

EPSTEIN:

What do you say if he says you're believing your own propaganda that wages aren't really the issue?

CHALMERS:

Obviously, that's not the case. And I understand from time to time business groups will look for any opportunity to say that wages should be lower, and for the best part of a decade, we have had wage stagnation and deliberate wage suppression. And one of the things that I think is unfortunate about this understandable public debate we're having about interest rates and inflation is that people on low and middle incomes are already bearing the brunt of these inflationary pressures. They shouldn't bear the blame as well. We shouldn't be blaming people for their legitimate aspirations to earn more when they work more. And that's the government's objective too. We need to get wages moving again in this country, but we need to do it in a responsible way, in a sustainable way, and we need to make our economy more productive at the same time. And so I think our time is better spent, rather than taking shots at each other - different parts of the labour capital divide taking shots at each other - is working out how do we get that responsible, sustainable wages growth in a more productive economy, and that's the government's focus.

EPSTEIN:

I don't know if I've got time to get on to productivity only because Treasurer I'm very conscious that some of the conversation is about people like you and me. We've got great jobs. We're at the top of the tree. And I guess I want to make sure that we're talking about the people who are really impacted by this. If I can play something else, Aaron called earlier from Footscray and I guess this goes directly to a lot of the calls and texts that people just don't know what they are supposed to do. Here's Aaron who called earlier, just worried about that he might have to sell his house under the feet of his young family:

CALLER:

I couldn't tell you the last time we went out to dinner. We will really watch where we shop. There's no subscriptions of any streaming services. I don't know what else I can cut.

EPSTEIN:

Are you going to sell the place you own. Do you think you'll have to sell the place you've got the mortgage on?

CALLER:

I think so yes, I'm going to start defaulting. I can't physically get the money together.

EPSTEIN:

So he's not going to be able to make his mortgage, Treasurer. What do you say to someone like him?

CHALMERS:

A couple of things about that. Unfortunately, Aaron's story is not a unique one. It's a relatively common one. People are under the pump, we understand that. That's why the Budget was all about providing some cost‑of‑living help without adding to inflation. But more specifically in Aaron's case and in cases like it, I spoke to the CEOs of the major banks today to make sure that for people like Aaron who are at risk of defaulting on their mortgage that the banks have a process for being a bit accommodating. So my advice to Aaron, and anyone in Aaron's situation is to not leave it any longer, but to speak to the banks as soon as you can. I am confident having spoken to them about it today that people in Aaron's situation will be entitled to and eligible for a bit of relief. The banks have put some work into it today and before today in making sure that where there are people who are especially under the pump and at risk of losing their home that there are arrangements that can be made. So Aaron, get in touch with your bank and ask to speak about the various hardship provisions that are being provided because in some cases people get a bit longer to pay it back, in some cases, they get refinanced or a different interest rate or some other arrangement. But I know having spoken to them today about this very specifically that banks are ready to have that conversation with Aaron and people who are especially under the pump as a consequence of these rate rises.

EPSTEIN:

How long do you think you've got because that's a short‑term thing? And I don't want to denigrate anything you offered in the Budget, I'm sure every dollar that someone gets to help with their rent assistance or something makes a difference. But a bit of mercy from the bank and a bit of help from the Federal Government isn't going to solve the major problem.

CHALMERS:

I'm not pretending that there's any one switch that we can flick, Raf, to be upfront with your listeners to make all of these inflationary pressures go away. But there is help available via the banks, there is help available in the Budget. And we need to work together to get on top of this inflation challenge in our economy. I mean so much of what drives our economic plan and our budget and our approach is trying to get on top of this inflation because it is absolutely smashing household budgets, we understand that. And the interest rate rise made life even harder for Aaron and for people in Aaron's situation. So we've got to get on top of inflation. We're working hard to do that. In the meantime, we're providing relief where we can.

EPSTEIN:

Philip Lowe says things like you might have to have more people living in your house, you might have to get more hours at work, not everyone can have their wage rise to meet inflation, that's terrible. Do you think he's truth telling? Or do you think he doesn't understand?

CHALMERS:

What I try and do and I know that you won't love this, Raf, but what I try and do when it comes to the Reserve Bank Governor who's independent is to try not to parse his language or second guess the decisions that they take independently. My job is to focus on what I can do, what I can influence. He can explain and defend his own language.

EPSTEIN:

Is he fundamentally right that if everybody gets a wage rise that meets inflation, it's just more trouble?

CHALMERS:

Well, I think the point that he's making is if we want sustainable wages growth, we need to make sure we're also working to make the economy more productive. I think that's a defensible position to take. And also in his defence, Raf, he specifically said today, particularly when it came to people on the minimum wage, that it's perfectly understandable for the lowest paid workers to be compensated for inflation. And so he's making a nuanced argument. Not everybody loves that argument. But my view, as I said before, is we shouldn't blame people on low and middle incomes for this inflation challenge. They already bear the brunt of it. My job is to get that decent wages growth in the economy, to do it in the right and responsible way, at the same time, as we're taking some of the pressure off these other cost‑of‑living price pressures in the economy, which is smashing household budgets.

EPSTEIN:

And as the Treasurer, Jim Chalmers, do you think the levers we've got actually work anymore. It seems if you look at a lot of economic indicators, including the growth figure today, the economy is slowing down, retail spending is slowing down. The one thing that is going up - rents are at record levels. Rents are a major driver of inflation. Inflation keeps going up, interest rates keep going up - it seems like a nasty, vicious and not very productive cycle. Are the levers we've got, especially interest rates, is that still working?

CHALMERS:

When it comes to interest rates, we are seeing in the numbers today that interest rates are biting and they're not biting in comfortable ways, they're biting household budgets and that's slowing the economy. The one sentence summary of all the new data we got today was that a combination of what's happening in the world and what's happening with interest rates is slowing our economy quite substantially. So to the extent that interest rate rises are supposed to take some of the edge off the economy, obviously that is happening. And more specifically, when it comes to government policy, we put in place some price caps in the energy market, which are taking a substantial amount of pressure off the upward price movements, and so they are working.

EPSTEIN:

Can I ask you about price controls, Treasurer? I'm sorry to interrupt - my time is short. The Greens want rent controls. You're clearly open to some limited price controls when it comes to energy. Will you be pushing at all for any rent controls? I know you don't control what the states do but will you be pushing for any rent controls?

CHALMERS:

We have our National Cabinet trying to show some national leadership. But you're right. I think you just identified that these are state laws but what Anthony Albanese has done as part of this welcome debate about how we build more houses in our economy and in our society, and how we make them more affordable, is he's tried to show national leadership at the National Cabinet level. Some states are doing more than others, we want our states to do what they can at the same time as we increase rent assistance, we try and build more houses. There are new tax breaks in the Budget to build more affordable properties near jobs. We've got a Housing Australia Future Fund we're trying to get through the parliament. So we've got a pretty broad agenda when it comes to housing, but rents are really one of the more troubling aspects of the price pressures that people are under. We need to help them in the near term. That's what rent assistance is and we need to build more homes in the medium and longer term. And that's what the Housing Australia Future Fund, and the tax breaks are all about.

EPSTEIN:

Do you think the stage three tax cuts are inflationary?

CHALMERS:

Not necessarily. It kind of depends what the economy looks like when those tax cuts come into being more than a year away. I think it's important that we give particularly people on low and middle incomes some relief and we return some of that bracket creep. But I know that those tax cuts are contentious, we haven't changed our view on them but I know that you will be an ongoing feature of the conversation with people like yourself.

EPSTEIN:

Your answer to me was that they are not necessarily inflationary. So they could be?

CHALMERS:

It depends what else is happening in the economy and what else is happening in the Budget. You look at budgets in their entirety, the last budget was certainly not inflationary, according to the Reserve Bank Governor and that's because you look at it across the board. Those tax cuts come in, in more than a year. We've got to make sure that our policies across the board in the next budget are as aligned with the economic conditions as the last couple have been. That's our task. That's our responsibility.

EPSTEIN:

And final question, I think you're getting on a plane to New Zealand soon. These financial payments that you are going to look at, realise it's complex and cheques are going in 2030 etcetera. I think for most small businesses they want an assurance from you that the fees they pay to the credit cards, the fees they pay to the banks, when I swipe my phone or my credit card are going to be cheaper. Can you guarantee that they're going to pay less for transactions?

CHALMERS:

In the jargon, it's called the least cost routing, and that is part of what I announced today that if the Reserve Bank doesn't make sufficient progress in the work that they're doing - they are making some progress on this by the way - but if that progress isn't sufficient in - I think it was 2024 - that we are prepared to intervene harder. This has been a feature of the Reserve Bank's efforts in the payment system for some time. We think it's beginning to work but if it's not working fast enough, then we'll do more down the track.

EPSTEIN:

Thank you for your time. I appreciate it.

CHALMERS:

Appreciate your time, Raf, all the best.