Interview with Sarah Ferguson, 7.30, ABC
SARAH FERGUSON:
So was the RBA right to raise rates today?
JIM CHALMERS:
Well, as you know Sarah, I don't second guess decisions taken independently by the Reserve Bank Board. It's got a job to do and I've got my own job to do, and I take responsibility for doing it. I've been rolling out cost‑of‑living relief in a way that takes some of the edge off these inflationary pressures without adding to them, I've been getting the budget in much better nick, and I've been investing in housing and skills and energy. And across all of these areas, the evidence from the IMF, the Reserve Bank Governor's own comments, the Australian Bureau of Statistics shows that what we're doing is right for the times, but we acknowledge that today's decision is incredibly difficult for a lot of people.
FERGUSON:
I'll come to that decision in just a moment but I notice you say it all the time, you say independent Reserve Bank – is your assessment of the economic outlook in Australia fundamentally different to theirs?
CHALMERS:
I think we've got a common view about inflation being the primary challenge in our economy, and I've said that in my own way on a number of occasions. Inflation is the biggest concern around the kitchen tables, just as it's the major concern around the Cabinet table and of course the Reserve Bank Board table –
FERGUSON:
I guess we know what the problem is. The question is really about the diagnosis, what you should do about it, and whether you share the same outlook, the same view on how you should deal with it?
CHALMERS:
We have different jobs to do and that's why I don't second guess – I don't predict or pre‑empt decisions, and I don't second guess them after they've been taken. I don't just acknowledge, I cherish the Reserve Bank's independence. I respect Michele Bullock and her independence. In fact, one of the key objectives of the Reserve Bank Review that I'm trying to implement is about strengthening the independence of the Reserve Bank, not diminishing it. So you won't hear me second guessing decisions taken independently by the Bank, you will hear me taking responsibility for what I have control over: cost‑of‑living relief, getting the budget in better nick and investing in the drivers of growth in our economy.
FERGUSON:
Let me ask you this – there was an increase in the quarterly inflation figures, not a very big one: [1.2 per cent]. The biggest component of that increase was fuel. Can you explain to our viewers why decisions taken by OPEC and other oil producers should have an impact on how much Australians pay for their mortgage?
CHALMERS:
A lot of your viewers Sarah would understand that particularly in that three‑month period – July, August, September – there were wild fluctuations in the petrol price that people were paying at the bowser. And that's because some of the big oil producing countries on the other side of the world took a decision to wind back on supply and that pushed prices up. And so a big part – indeed, as you rightly point out, the biggest part of the most recent inflation data – was the fact that we had a spike in that petrol price. Now, the Reserve Bank analyses the inflation data just like the government does and they've come to this decision today. I think it's important to recognise, as Treasury officials did at Senate Estimates not that long ago, that higher petrol prices actually have the same impact that higher interest rates do. Not many people can substitute out how much they spend on fuel. And so that will also I believe, when petrol prices are high, slow our economy too. And in that regard, it will have a similar impact as these interest rate rises, which began before the election and continued after.
FERGUSON:
You just talked about the Treasury officials before Senate Estimates, and indeed, of course, the Governor was before Senate Estimates. She said then – as she said again today – that the most significant cause here, the thing that she was most focused on was persistent services inflation being fed by electricity, rent and wages. How will higher interest rates change that?
CHALMERS:
In lots of ways, these are appropriate questions for the Reserve Bank and for the Governor and the Board. What I would say about that, what I'd be prepared to say about that, is some of those areas where there have been price pressures, our cost‑of‑living relief is deliberately and carefully calibrated to take some of the sting out of that. So if you think about the rent inflation, the ABS has said without our efforts, it would have been two and a half per cent, instead, it was 2.2 per cent. Childcare costs would have gone up, instead they went down in that quarter because of our efforts. Electricity would have gone up 18 per cent, instead it went up 4 per cent – still too much. We all want inflation to moderate further and faster, but there is substantial evidence from the ABS and from other places that the cost‑of‑living relief that we're rolling out is helping to take some of the edge off these pressures, including some of those that you just rightly identified.
FERGUSON:
Now you've pointed the finger of blame at large infrastructure projects as well, especially those put in place by the previous government. But isn't infrastructure central to shifting productivity, how do you get the balance right between the demands of productivity and not overheating the economy with too much new infrastructure build?
CHALMERS:
What we've said consistently is that we intend to deliver an infrastructure pipeline of $120 billion over the 10‑year period. But we can't ignore these costs blowouts, which we think are something like $33 billion and could get even worse, we can't just pretend that those blowouts aren't there. And so we need to build the infrastructure to boost productivity in our economy, but we need to actually deliver it and that's the difference between our approach and our predecessors. They announced something like 800 projects, the costs blew out, they had no chance of delivering them, and we take a more responsible, more methodical approach to that: deliver that pipeline, continue with projects which have already begun but there will be instances where we might need to re‑sequence some of these commitments so that we can actually build them and actually deliver them in an environment where the costs are blowing out.
FERGUSON:
I just want to ask you a question on behalf of all viewers and all people trying to understand what's happening today, and bearing in mind that your predecessor Paul Keating was the great explainer in chief, does it matter how long it takes for inflation to come down? Does it matter if it takes a little bit longer? Is it worth the pain that is being inflicted?
CHALMERS:
I think the higher interest rates obviously inflict more pain on people, but so does entrenched inflation and this is the question that the Reserve Bank weighs up in the same way that the government weighs it up when it comes to our own responsibilities, and I've gone through them. And so we want to get on top of this inflation challenge as soon as we can.
FERGUSON:
But it's not an exact science, is it? The prediction of what entrenchment means what happens when inflation becomes entrenched.
CHALMERS:
It requires a series of fine judgments. The Reserve Bank comes to its set of judgments on its own. The government, on my advice, comes to a set of decisions about the budget position and how we roll out cost of living. Inevitably, when it comes to difficult decisions like the one we've seen today, like those we've seen in the first two budgets that Katy Gallagher and I have handed down, there are a series of fine judgments. We don't want inflation to be entrenched, we want to make sure we can get on top of this inflation challenge without crunching the economy. In that, we are aligned with the objectives of the Reserve Bank. They've got their part to play in this, we've got our part to play in it, I take responsibility for what we are doing as a government.
FERGUSON:
Well, let me ask you about that. How does today's increase and indeed the possibility that there may be more to come, impact your government's plans to roll out spending in areas like social housing, for example? Will you have to slow down the rollout of some of those programs?
CHALMERS:
We think that a substantial part of the inflation challenge is that there's not enough housing. And so we see housing as part of the solution rather than as part of the problem, a bit like the way we were thinking about infrastructure a moment ago. So long as we can afford it and sequence it and get it built and actually deliver it – that's the most important thing. And so housing is a key part of our plans to relieve some of these cost‑of‑living pressures. We're very committed to rolling it out and that's why we've committed billions of dollars to it. But in every budget, Sarah – to go to your broader question – in every single budget, we try to make sure that we've got our economic settings right and our budget settings right to match the economic conditions. The IMF has endorsed our approach. The Reserve Bank Governor has said it's very positive and very helpful. And as I said before, the Bureau of Statistics has said that our policies are taking some of the edge off this inflation rather than adding to it. So, on all three fronts that we are operating on, we are making a positive difference. We all want inflation to moderate further and faster – the Bank does, the government does – we are doing our bit and the Bank will take its decisions independent from us.
FERGUSON:
Nonetheless, it's inevitable that people will blame the government for today's rate rise. Are you prepared to take new measures in the next Budget to ease this burden, measures not currently in the budget?
CHALMERS:
Well, first of all, and I think this is what you're alluding to – we've got a big program of cost‑of‑living relief that we're focused on rolling out right now. And we've made $40 billion of savings as part of getting the budget into surplus, not instead of cost‑of‑living relief but in addition to cost‑of‑living relief. And people should expect us to take a similar approach in our third budget in May. We find savings where we can, we bank upward revisions to revenue where we can – not all of it but most of it – and we make sure that our budget settings match the economic conditions. And as I said before, whether it's the Reserve Bank Governor, the IMF, the ABS or others, our responsible economic management is the right approach for what we acknowledge are really difficult times for a lot of people.
FERGUSON:
Yeah, and you've talked about that today, and you've talked about the pain that people suffer, I just want to come back to that question – what would you consider in terms of easing the pain and especially if we're going to see a second or even a third rate rise into next year?
CHALMERS:
Well, I think what we've demonstrated is an ability to target cost‑of‑living relief to those areas where the pain is most acute – out of pocket health costs, rent, electricity bills, child care. These are the sorts of priorities that we've had and what we've decided to do, is to work out where our cost‑of‑living assistance will put downward pressure, not upward pressure on inflation. That's why we've gone for those ways of delivering help, rather than sending cheques to people. And so we've shown the way that we come at this challenge. Obviously, as we get closer to May, we'll make sure that our budget settings match the conditions that exist around them. But for the time being, our focus is on rolling out the cost‑of‑living help that we've already budgeted for.
FERGUSON:
Our economy is still relying on savings that people accumulated during COVID. What happens when those savings finally run out?
CHALMERS:
Well, I think these rate rises are tightening the screws on people's household budgets. I don't think that's a controversial statement, I think that's self‑evident. And we are seeing in those last National Accounts, the savings rate did come down substantially, consumption took a fairly substantial hit in that quarter. And so we're seeing the impact of these higher interest rates on people's household budgets, there is a commentary about when more and more people will find it too hard to cope with these higher interest rates. The banks and others have had views about that in recent times. We acknowledge people are under really, really serious pressure. Another interest rate rise today will make things harder. We've got to get on top of this inflation problem together, that's why we are doing our bit as the government, and it's why the Reserve Bank took the decision that it took today. They did that independently, but recognising that the Bank and the government have the same objective to get on top of inflation, we've just got different jobs to do. I'm prepared to explain my part of it and they will explain their part of it.
FERGUSON:
Treasurer, thank you very much indeed for joining us this evening. I appreciate it.
CHALMERS:
Thank you, Sarah.
