Interview with Ross Greenwood, Business Weekend, Sky News

ROSS GREENWOOD:

One person who can directly influence the economic outcomes is Treasurer Jim Chalmers who joins me now. Treasurer, many thanks for your time. Can I just go back ‑ when you said that the September quarter inflation rate didn't represent a material change in the outlook, that the RBA looks for material changes, you've got to admit it was a pretty big hint to the Reserve Bank Board to keep the rates on hold, wasn't it?

JIM CHALMERS:

First of all, thanks for having me back on your show, Ross. I don't share that characterisation of it. I think it would be unusual if the Treasurer of the country can't talk about the Treasury's own forecasts for inflation. I think that's a pretty normal thing for a Treasurer to do, and the point that I was making was that when we got this new inflation data, it didn't materially change the forecast that Treasury has for when inflation is expected to come back within the target band. But I made it very clear at the time, I've made it clear since, and I'm happy to make it clear again today ‑ these are things for the Reserve Bank to come to their own view on independently. I said at the time that they will analyse these inflation figures and see what it means for their own expectations, they will take a decision on Tuesday independently, and they'll explain that decision once they have and that's appropriate. But my job is to focus on what I can do, which is to take some of the edge off these cost‑of‑living pressures, get the Budget in much better nick, invest in housing and energy and skills, all of the things which are important parts of the government's economic plan. That's my job, I'll leave the Reserve Bank's job to them.

GREENWOOD:

Okay, I recognise that but then is there evidence that Australia's economy does need to cool more only because you do see these house prices starting to rise, you see retail sales strong, you do see the fact that inflation is higher than had been forecast by most. Now, whether it be the Reserve Bank or whether it be you the government who needs to do something to try and cool it, does something need to be done?

CHALMERS:

Well, a couple of things about that and apologies in advance Ross if it takes me a sec to walk through the different parts of your question. I think first of all, there is substantial evidence that the economy is slowing, and slowing quite considerably. You mentioned rightly in your introduction whether it's savings but also consumption, the retail volumes numbers that we got just on Friday showed a pretty substantial weakening as well. So there's lots of evidence that the economy is already weakening, that's partly a consequence of China slowing, it's partly because of this global economic uncertainty, it's partly because of the rate rises which are already in the system and it's partly about this inflation challenge that we have, that we recognise and that we're dealing with.

Now, when it comes to the government it's important to remember, whether it's the IMF which said that the government's budget policy is helping rather than hampering the fight against inflation ‑ fiscal and monetary policy working together in their estimation, whether it's what Governor Bullock said in estimates which was that the government's fiscal policy is “good” and “enough”, or whether it's the Australian Bureau of Stats which pointed to at least three ways that our combination of cost‑of‑living relief is actually taking the edge off these inflation numbers ‑ by the estimation of the ABS inflation would have been half a per centage point higher in those numbers that we received recently were it not for what we're doing on electricity and childcare and rent in particular. So the government is very focused on getting the Budget in better nick, rolling out this cost‑of‑living help and investing in the drivers of growth and productivity in our economy, whether it's the Governor of the Reserve Bank, whether it's the IMF, whether it's the Australian Bureau of Statistics, there is some evidence that we are helping rather than hampering this really important fight against inflation.

GREENWOOD:

Okay, now I recognise that Michele Bullock as the Governor of the Reserve Bank is independent, as is the Board of the Reserve Bank. Now, you only gave Michele Bullock ‑ she stepped into the job about two months or so ago, you say you speak to her regularly, but what I'm thinking here is, is a part of this you would expect her to be highly independent, even if the decision of the Reserve Bank Board this Tuesday is to raise interest rates. Is that what you would expect? Is that the brief?

CHALMERS:

I would expect the Governor of the Reserve Bank, no matter who it is, whether it's Michele Bullock or her predecessor or indeed her successors, to be independent ‑ that's what we ask of Governors of the Reserve Bank. I cherish and respect that independence, that's one of the reasons why we're spending so much time together at the moment is because we're working out how to implement the recommendations of the Reserve Bank Review and one of the key themes of that Reserve Bank Review is how do we strengthen the independence of the Bank. So that's been my approach to this, I respect that independence, I acknowledge it and I'm seeking to strengthen it by putting in place the recommendations of the Review.

GREENWOOD:

Okay, so you repeatedly say that we inherited inflation from overseas but you've got to admit right now, that much of the inflation we're starting to see now, the sticky inflation is homegrown, especially from the services industry which Michele Bullock herself has acknowledged.

CHALMERS:

Well, first of all, we can't get around the fact that the key driver of inflation in that most recent data is petrol and because in the September quarter decisions taken on the other side of the world by the oil producing nations to wind back on supply, that meant that we had a spike in the petrol price – and there's no use pretending otherwise. There are other important lessons from that inflation data that you are referring to but first and foremost, the biggest driver was petrol and that's why I said that the world is inflicting price pain on Australians and we're doing what we can to ease it – I stand by that.

If your point is that there are other drivers of inflation than petrol, of course that's the case, we've seen that for the last couple of years, ever since that quarterly peak before the election last year when it comes to inflation and on services in particular, we saw in through‑the‑year terms services inflation eased but obviously, there are price pressures there as well.

I think one of the really important conclusions from that inflation data was the fact that in a couple of those areas, what we're doing to roll out this cost‑of‑living relief is actually meaning that inflation would have been much worse without our efforts, it would have been much worse in child care without us, it would have been much worse in rent without us and it would have been much worse in electricity as well outside the services calculation and so the point that I'm making there Ross in acknowledging there are price pressures elsewhere in the economy, primarily petrol in that most recent data, and when it comes to services, it's easing through the year and it would be worse without our efforts.

GREENWOOD:

Okay, so you could because you're in surplus, you've got a bit of cash there, go and cut the fuel excise. If you would reintroduce that which you took away previously, is there any chance of that?

CHALMERS:

Well, first of all Ross, I'm sure you understand that the surplus that you're referring to was from last year and we can no more spend out of last year's Budget than we can from Budgets 20 years ago in Peter Costello's time. So that surplus was for 22‑23.

The second point is the relief there in the last Budget of the former government was not ended by us, it was timed to end after a certain period and it ended and we didn't restart it, and one of the reasons for that ‑ and it has been vindicated by the ABS stats ‑ is when we're rolling out this $23 billion in cost‑of‑living relief, we're looking for other ways where we can make the biggest difference. We've made a big difference in childcare, we're taking some of the edge off electricity, we're taking some of the edge off rents and that's been a deliberate part of our strategy and some of that cost‑of‑living relief is still rolling out right now, it hasn't ended, so we've put a lot of effort into that.

We know that price pressures are the biggest concern around kitchen tables and that's why they are the biggest concern around the Cabinet table, that's why we're rolling out literally tens of billions of dollars in relief and the ABS has shown that that is helping take some of the edge off these inflationary pressures.

GREENWOOD:

Okay, but the bottom line which Reserve Bank Governors current and past have said is Australia needs to get its productivity moving, you've said this yourself but that involves strong policy, that does carry often political risk. But after the Voice what I wonder is whether this government has the heart to take that necessary political risk?

CHALMERS:

Of course we do, Ross and we've made it clear for some time ‑ I made it clear in the course of last week that when it comes to productivity, our efforts are directed towards the energy transformation, human capital in ways described in the Employment White Paper I released not that long ago, and also making sure that we can best adapt and adopt technology. One of the reasons why I'll be releasing for the first time ever a Statement of Expectations for the Productivity Commission is because we recognise that the productivity challenge is changing, we need to take a broader approach to it ‑ energy, human capital, technology and in other ways ‑ competition policy, and we are prepared to do what's necessary and we mean that and that's why I think in contentious areas like the energy transformation, were prepared to do what we can to make our economy more productive, more dynamic, more competitive, because that's how we lift living standards in the long run.

GREENWOOD:

I'll take you to another contentious area and that's industrial relations legislation. Business groups say that'll make productivity go backwards. Do you agree with that?

CHALMERS:

I don't Ross, but also I acknowledge that there are peak business groups who are not enthusiastic supporters of some of our agenda, we acknowledge that, that's self‑evident but I know from my perch as Treasurer that we are working so closely on energy, on skills and universities, on technology, on international relations, across a whole bunch of areas. There's actually more that we are working together in a collaborative way in quite a consistent way with the business community to make our economy more productive, dynamic and competitive. That doesn't mean that we expect on all occasions that there will be unanimity about things that we're looking to do, but by closing some of these loopholes, we want to get wages growth moving again. Wages were too stagnant for too long, you and I have talked about that on other occasions. We want to get wages moving in a responsible way, we want to boost productivity, we think if you look right across our agenda, we are giving ourselves the best chance to do that but it will take a little while to turn around.

GREENWOOD:

Treasurer Jim Chalmers, always good to have you on the program. Many thanks for your time today.

CHALMERS:

Appreciate it, Ross. All the best.