Interview with Sarah Ferguson, 7.30, ABC

SARAH FERGUSON:

Treasurer, welcome to the program.

JIM CHALMERS:

Thanks Sarah.

FERGUSON:

We're hearing some very blunt warnings that the major economies are heading into recession. Are you hearing any optimism that a global recession can be avoided?

CHALMERS:

I think there's a real sense of foreboding here, Sarah, at the meetings of the G20, the IMF and the World Bank. I think there's a pretty broad recognition that the global economy is on the edge, once again. For the third time in a decade and a half, the world does face the prospect of a global recession. There's still a little bit to play out yet, but I think already something like a third of the economy, according to the IMF is heading for a recession and so that is sobering enough. And it's something that can't be ignored as we put together our own Budget in less than two weeks’ time.

FERGUSON:

Under a Labor Government, during the GFC, Australia was able to avoid recession, do you think you can do it again?

CHALMERS:

I think so and that's the Treasury's current estimation is that we will avoid recession. We've got a lot going for us whether it's low unemployment, the high prices we're getting for our exports, we've had relatively solid growth in recent months. We're in better nick than a lot of our peers, but we need to be in better nick still. And that's why the Budget that I hand down in less than two weeks will really be about building resilience. It will be the building blocks of a more resilient economy, because our best defence against all of this global uncertainty is a solid and responsible Budget, not a fancy or flashy Budget, but one that gets the job done.

FERGUSON:

Now, back then, of course, we didn't have a significant debt weighing down the economy. What's the IMF’s assessment about Australia's chances of riding out a recession this time?

CHALMERS:

The IMF and the OECD and others have downgraded Australia's growth prospects, but nobody is currently forecasting a recession for Australia and that's obviously good news. We are optimistic that we can get through this period into a better future for our people and for their economy. But we do have to navigate what is becoming an increasingly narrower and more perilous path in the global economy. I think that's broadly understood around the world and in Australia, as well. You mentioned that historical parallel with the global financial crisis. If you think about these three downturns in a decade and a half, the first one was a big financial shock, that brought about issues with demand. The second one was a big health shock, which became more or less a supply shock. This one's a little bit different. It's an inflation shock, which has invited a blunt and brutal response by the world's central banks, and that risks are hard landing. And so how we respond to this is different to how we responded to the first two of those global economic downturns.

The premium now is on what's responsible and affordable and sustainable and targeted. We can't have money spraying around in an excessive way or in an untargeted way. We need to make sure that any assistance we provide to Australians or that other countries provide to their citizens is sufficiently targeted with an economic dividend, so we don't make this inflation problem even worse, and make interest rates go up more than they would otherwise.

FERGUSON:

Ahead of your meeting with Jerome Powell, you've said you're going to talk to him about the consequences of blunt and brutal interest rate rises. What alternative do they have with their own inflation running at above eight per cent?

CHALMERS:

Well, I'm sure how that's how they see it, Sarah, to be frank. The conversations we've already had here in Washington, DC, the central bank, governors from around the world have made it very clear that inflation is public enemy number one, it's the biggest risk to our economies. It's come courtesy of the war in Ukraine and issues in supply chains brought about by the pandemic, and some domestic factors as well. So whether it's Jerome Powell or other central bank governors, they are obviously very willing to do whatever is necessary to try and deal with this inflation, which has got out of control around the world. And in some of the bigger economies that we monitor most closely, so this is the actually the steepest synchronised tightening of monetary policy that we've seen in the inflation targeting era - that obviously has consequences. Not just for inflation, but for growth and unemployment as well. And that's why in the Budget that I hand down, we will downgrade our forecasts for global growth. And that will have consequences for the forecast for growth in our own economy and for unemployment as well.

FERGUSON:

As a major energy exporter, of course, Australia's been a big beneficiary of the spike in prices since the invasion of Ukraine, are you going to be banking that windfall rather than spending it in your Budget?

CHALMERS:

First of all, the increase in energy prices also has a downside for Australia, in what it means for our industries, and particularly for our manufacturers when it comes to gas. And obviously, electricity prices are an ongoing concern. That's one of the reasons why we will have inflation higher for longer unfortunately. It's something that we're very attentive to and attuned to, but you're right there, we're getting high prices for what we sell the world. It's come off a little bit since the middle of the year, but still high by the standards of the budget and a will make a contribution to the Budget. But that contribution won't be anywhere near making up for the persistent structural pressures that we have on the budget in areas like health and aged care and disability care and defence. And also remembering that as interest rates go up, the cost of servicing that trillion dollars in debt that we inherited in the budget goes up as well.

FERGUSON:

Just on the energy prices there looks like there's some disagreement amongst your colleagues about how to handle those gas prices. Do you have any sympathy with Ed Husic’s argument that the deal the Government has struck with gas exporters is a dud and won't lower prices?

CHALMERS:

All of the ministers that I deal with on this issue quite regularly, they understand that we've got a big problem with gas prices in the domestic market. And so I'll work with Minister King, Minister Husic, Minister Bowen, the Prime Minister, and others in our Cabinet and beyond, to make sure that if there's more that we can do in the gas market, to make it work for Australians rather than against them, then we should be exploring that. I'm prepared to do some work on that front because I think some of the concerns raised by our industries, and by unions like the Australian workers union are valid, we need to try and find the most responsible way to take into consideration those views that they've raised, but also the views of the companies themselves, and see if we can come to some kind of landing in the interest of Australians and their economy.

FERGUSON:

Jim Chalmers, thank you very much indeed for joining us.

CHALMERS:

Much appreciated Sarah, thank you.