THE HON JIM CHALMERS MP
PARLIAMENT HOUSE, CANBERRA
WEDNESDAY, 1 JUNE 2022
SUBJECTS: National Accounts; Energy Prices; Ministerial Statement; Minimum Wage
JIM CHALMERS, TREASURER: I’m going to try and skip through this today relatively briefly, relatively swiftly, given we’ve got the first Cabinet meeting of the new Government in 24 minutes, and that seems to me to be not a good one to miss. So let me be relatively brief. I want to touch on the National Accounts, obviously. I want to say something about gas and the minimum wage, and just give you a bit of an update on where our consultations are up to.
The economy was weaker in the March quarter than was forecast at election time and a number of the challenges that we see in the numbers today have become even more difficult since. We do have solid demand. We’ve got a tight labour market. There are some pleasing elements of today’s National Accounts, but we also have a snapshot of the really serious constraints and challenges that we have in our economy. That’s why what we see in the March National Accounts is a weaker set of figures than our predecessors and the Treasury anticipated at Budget time and at the time of the pre‑election update. Growth at 0.8 per cent was driven by household consumption, inventories and new public final demand. But it was still much weaker than what was expected for the corresponding period in the Pre-Election Fiscal Outlook. Consumption, dwelling investment, new business investment, exports and nominal GDP were all weaker in the March quarter than was anticipated by our predecessors in the Budget, and then by the Departments, at PEFO.
These National Accounts are a glimpse of the mess that the former Government left behind for us to clean up. You can see in these figures - even where the number on the surface looks relatively robust - is much lower in many instances than what the Government was relying on in their forecasts in the Budget. That, for me, is really a defining takeout of the numbers that we see today. Obviously, we want the economy to recover strongly. Obviously, we want household consumption and other key elements of the National Accounts to be as strong as possible. But even when on the surface they might look stronger than they have been during the worst of Covid, they are still short of what the Government was hoping for. And, of course, the National Accounts are notoriously backward-looking. So, if you think about what’s happened in our economy since the end of March: inflation is higher; we’ve had an interest rate hike; petrol prices are up 12 per cent since the end of April; wholesale electricity prices are up 237 per cent since the end of March; gas more than 300 per cent higher than the average of the last couple of years. We do have labour shortages. We do still have COVID absenteeism. And the international environment has become more challenging as well.
The summary of the National Accounts: robust in parts, resilient in parts but much weaker than what our predecessors were counting on in their Budget forecast. So, consistent with what I’ve been telling you, really for some weeks now, there is no point tip-toeing around these serious economic challenges. There’s no point mincing words about the sorts of conditions that we have inherited. We’ve inherited high and rising inflation and rising interest rates. We’ve inherited falling real wages. And we’ve inherited a trillion dollars in debt with nowhere near enough to show for it.
On energy in particular, this is an incredibly challenging set of circumstances, particularly for Australian industry, when you consider this spike in gas prices which goes hand in hand with a spike in the price of liquid fuels, and a spike in the price of electricity as well. This is, unfortunately, a perfect storm of conditions and challenges in our energy market.
These are the costs and consequences of almost a decade of a government with twenty-two different energy policies failing to land the necessary certainty to improve the resilience of our energy markets. This is the chickens coming home to roost, when it comes to almost a decade now off climate change and energy policy failure from our predecessors. Our first responsibility in times like these is to implement our Powering Australia plan that can boost renewables and boost storage, but most of all boost certainty, so that we can get the investment flowing that we desperately need to make our energy markets more predictable, more resilient, and so we can get more cleaner and cheaper energy into the system. This perfect storm of energy price spikes is doing enormous damage to our employers, to our households and to our national economy. I will be discussing this with the newly sworn in Minister for Climate Change and Energy - but also the Minister for Resources, and no doubt in time with the various regulators as well - to make sure that we are staying abreast of these serious challenges in our energy market. I’ve already been briefed by the Treasury on what is going on here. Also, we’ve seen AEMO coming in with the price cap. And we’ve seen other players in the energy market make a contribution here. Chris Bowen and I will be consulting closely with the various players in the energy market about these very, very concerning developments.
I wanted to touch briefly on the minimum wage. The lowest paid workers in our economy shouldn’t be going backwards in this cost of living crisis, it’s as simple as that. The submission that myself and Anthony Albanese and Tony Burke will be making to the Fair Work Commission, very soon, after consultation with our Cabinet colleagues, will reflect the objective that we have laid out for some time now. Minimum-wage workers were, in many cases the heroes of the pandemic. They shouldn’t be going backwards in this cost of living crisis. It’s now more important than ever that we get an outcome out of the Fair Work Commission which goes to the fact that people on the lowest wages in this country are facing skyrocketing cost of living, and they shouldn’t be falling further and further behind.
One of the defining characteristics of almost a decade now of economic mismanagement, has been that no matter how hard people work they just can’t get ahead. They’re falling further and further behind. I’ve been upfront with you, and with Australians broadly, and said there is no switch that we can flick to make a trillion dollars of debt disappear, or to fix the real wages issues in this economy, or to deal immediately with this cost of living crisis. But we need to begin. A good place to begin when it comes to real wages falling is our lowest paid workers, and we hope to be making a submission to the Fair Work Commission before long.
The last point I’d make is this. I’ve now spoken with the Treasurers of every State and Territory. I’ve spoken to all of the regulators. I’ve spoken to all the business peak groups. I’ve spoken to the ACTU. And I’ve started my international consultations as well, with Sri Mulyani from Indonesia, and they are, of course, hosting the G20 meetings this year.
There is a genuine appetite in this country to work together to deal with these serious economic challenges that the new Government has inherited from the old Government. There is an appetite right around Australia - and certainly in my consultations so far - to see if we can find common ground. The situation that we’ve inherited is serious, in some instances it is dire. We can only deal with these economic challenges if we work together – state, federal, local governments, business, employers, employees – everybody working together to see if we can make some progress. These challenges won’t be addressed overnight, but it’s important we work hard together to address them. The Cabinet will be meeting today to begin that hard work.
JOURNALIST: There’s concerns about the US economy going to recession as the Fed tries to fight inflation. Do you fear that we might suffer the same consequence?
CHALMERS: I’m not going to get into that kind of speculation when it comes to our domestic economy. I’ve outlined the challenges as I see them – high and rising inflation flowing through to higher interest rates that the Reserve Bank has flagged, falling real wages, and not having enough to show for that Budget which is absolutely heaving with Liberal debt. Those are our challenges. But the international environment is difficult, too, and becoming more so. I think a lot of people are watching very closely the impact of tightening of monetary policy in the US. And there’s a lot of commentators – and you’d be reading them, Colin, as well – who have fears for the American economy, on the basis of its reaction to that tightening of monetary policy. So, that is obviously a risk in our outlook as well – the US economy. That’s similar in other major economies, like the UK. I think the other big concern in the international environment is the Chinese management of COVID. We’ve all watched in the last few weeks in particular, as China does its best to try and manage COVID outbreaks - in some cases affecting large parts of the population - that their approach to COVID does pose a risk as well to our domestic economy. Those are the challenges as we see them around the world. They are substantial and we will obviously be monitoring all of those developments.
JOURNALIST: Treasurer, you said at this podium about a week ago that the Budget you’d been handed by the previous Government contained unexpected pressures. You said they were not disclosed or booked. Are you able to be upfront with Australians today about what are these problems?
CHALMERS: I’d like to outline in some detail the problems that we inherited when I give a Ministerial Statement to the Parliament but as I have indicated in different conversations I’ve had with some of you over the last little while, there are substantial health cost pressures still from COVID which we’re concerned about.
JOURNALIST: Were they hidden in the Budget, is that what you’re saying?
CHALMERS: There are issues with debt interest costs as interest rates rise. There are issues around things like the productivity assumption in the Budget, which Pat and others have written about in this room. There are a lot of pressures which were not talked about by the Government before the election. We hope to be able to detail them as we go about making sure that the Budget that we hand down in October is a genuine reflection of the economic challenges that we’ve inherited.
JOURNALIST: You were speaking of your Budget in October. I mean, you’ve painted a very dire picture of the Australian economy. Things like inflation are happening now. Low growth is happening now. Cost of living is going up now. Is October too late for you to lay out your response to this? Are you intending any more immediate reaction to arrest some of the major challenges?
CHALMERS: First of all, when it comes to my characterisation of the economy, I’ve tried to say that there are elements of strong demand and tight labour market. There are some pleasing elements of the National Accounts, but there are far more troubling aspects in our economy. And it’s not just me saying it. Skyrocketing inflation is a big challenge. Falling real wages is a big challenge. The impact of interest rate rises that the Reserve Bank Governor has flagged is a big challenge. Anybody who’s looked at our Budget understands that we can get more bang for buck for all of that debt that we’ve got in the Budget. I think those challenges are broadly accepted across the Australian community and certainly amongst people who think about the economy as much as we all do. So those are the challenges.
The main story that I want you to take out from this National Accounts briefing today, is even if you consider GDP growth - 0.8 per cent - the Pre-election Fiscal Outlook anticipated 1.8 per cent, right? Household consumption at one and a half per cent; the PEFO anticipated 1.9 per cent. Dwelling investment was negative 1 per cent in the March National Accounts, PEFO anticipated 3 per cent. New business investment 1.4 per cent, we were expecting and hoping for 2.7 per cent. Exports was negative 0.9 per cent; the PEFO anticipated positive 4.2 per cent.
This just gives you a bit of an indication of even where some of these numbers on the surface might be pleasing compared to some of the diabolical numbers we’ve had over the last couple of years, they’re still short of what the former Government was hoping for in their Budget. And I just want to be upfront with you about those challenges.
JOURNALIST: Going back to gas prices again, you talked about your Powering Australia plan. This is more a kind of a medium-term vision. There’s immediate pain now on the east coast for businesses and households. What can you do now to help these businesses and households? Would an Albanese Government be prepared to intervene directly in the gas market and what could you potentially do?
CHALMERS: Well, there’s no simple mechanism that would immediately take this pressure off the gas price. This spike in the gas price has a number of causes and it doesn’t have a single solution. If there was one, then somebody would have already reached for it.
JOURNALIST: What about the domestic gas trigger?
CHALMERS: It’s a combination. Even when you think about the so-called trigger, there is a whole process involved in that, and I wouldn’t want to pre-empt any of those discussions that I’ll have with Chris Bowen and I’ll have with the regulators. There is no single solution. Whether it’s liquid fuels, whether it’s the gas price, the electricity price - each of these are incredibly concerning on their own, but together potentially extremely challenging for the Australian economy. I’ll discuss it with the regulators, and with Chris Bowen, and with Madeleine King in Resources, to make sure that we’re managing this the best that we can and that we’re monitoring developments.
JOURNALIST: I want to ask you about your waste audit. Has it started yet? Have you found anything? Will you be publicly releasing the finding from that audit? And will any identified waste go back into the Budget in October?
CHALMERS: The work has begun with Treasury, and Finance, and with Katy Gallagher. We hope that the fruits of that effort will be in the October Budget, so that’s the most conspicuous way that it will be public. If there are other ways that we can disclose progress as we go, we’ll obviously consider that and come back to you on that. What you should expect is that the effort to go through the Budget line by line has already begun. It began last week. And the fruits of that effort will be in the October Budget. Ideally, depending on how that audit develops, that will be an opportunity for us to find funding to fund our priorities. Because across all of these challenges that we’ve been talking about, it’s more important than ever that we implement an economic plan that is all about growing the economy without adding to inflation, getting certainty, and renewables, and storage into the energy market. All of the things that we’ve been talking about for some time are more important now than ever. The rorts and waste audit will be an opportunity for us to direct money from unproductive political purposes into more productive economic purposes.
JOURNALIST: A couple of years ago, you gave a speech about the Budget and you signalled the idea of a Wellbeing Budget that would take into account life expectancy, modelled something like New Zealand. Have you talked to Treasury about progressing that? And also, in the same speech, you talked about overhauling the IGR. I think you used the term “resuscitate the Report” and doing that in the mid-term. Also, tax expenditure report. Have you had those conversations?
CHALMERS: That’s three questions.
JOURNALIST: Yeah, well, I’m trying to get through them. Will we see a Wellbeing Budget in October, an IGR and tax expenditure?
CHALMERS: I have had discussions with the Treasury on each of those three developments. I think it’s really important that we measure what matters in our economy, in addition to all of the traditional measures - not instead of, but in addition to. I do want to have better ways to measure progress, and to measure the intergenerational consequences of our policies, and to give people a more accurate sense of the cost to the Budget of various tax measures. This is something I’m personally very keen on. I’ve had a number of conversations already with the Treasury about them and you should expect to hear more about them - certainly this year - but over course of this term.
JOURNALIST: [Indistinct] has long been an argument and the industry’s been calling for more – the development of more gas fields. The Greens are opposed to any more gas exploration, and making it a condition of their support for your climate policy. Your predecessors - the Morrison Government - wanted to develop the Beetaloo and Narrabri. Where do you sit philosophically? Are you opposed to getting more gas out of the ground to increase supply and push down domestic prices?
CHALMERS: Well, it’s not philosophy for me – it’s science. Where it’s safe to do it, and it makes sense, and where the experts have considered the environmental impact, then of course we want to develop our resources where we can. That’s my position. It’s based on science and evidence. There are obviously a range of views in the community about gas developments. I thought what happened in the Northern Territory was a good template, where the Gunner Government, when Gunner was Chief Minister, recognised community concern about some of those developments, and had a proper look at all of the considerations and came to a conclusion. I thought that was good.
JOURNALIST: A couple of questions. Firstly, on gas. I take it you’re not ruling out pulling the trigger on gas, if you’d just expand on that? And secondly, just with regards to the minimum wage, if you are to push for recognition of inflation, which measure of inflation? Is it the 5.1 of the March quarter, or is it what the RBA’s anticipating would be for the coming financial year, which I think is in the mid-4s?
CHALMERS: Thanks for that. On the question of the trigger, I’m just not going to pre-empt conversations with Chris and Madeleine about those issues and the regulators.
JOURNALIST: So that’s a maybe?
CHALMERS: Thank you. And on the minimum wage, we’ve made it really clear that with inflation at 5.1 per cent, low-wage workers deserve a pay rise that keeps up with that. Anthony has made that incredibly clear - before the election and after the election - and our submission will make that clear as well.
JOURNALIST: Would you nominate a number?
CHALMERS: Well, the number is nominated by the fact that it’s 5.1 per cent inflation in the economy right now. Anthony was asked by your colleagues should the pay rise reflect that number, and we said yes, absolutely, and our submission will reflect that.
JOURNALIST: He said the number won’t be included, Jim. He said on radio on Friday the number explicitly won’t be in the FWC.
CHALMERS: The number – the inflation number - is already public, it’s 5.1 per cent. And our argument throughout - including at that press conference, including subsequently - is that low-wage workers in our economy need a wage rise that keeps up with that inflation.
JOURNALIST: Treasurer, is it now Treasury’s view that the four and a quarter GDP growth forecast for this financial year is not going to happen, it’s not possible? And, secondly, are you expecting to attend CEFR later this month? And in terms of those spending pressures you’ve been talking about, is the extension of the COVID-19 partnership with the states beyond September part of that pressure?
CHALMERS: What was your first question again, Ron?
JOURNALIST: The four and a half and a quarter per cent this financial year?
CHALMERS: Right. We’ll update our forecasts in the usual way, working closely with Treasury. Clearly, I’ll do that in the Budget, and if I can give you an indication of that in the Ministerial Statement, I’ll do that too. The point I’m making today, is that in the March quarter even some of these numbers - which in other times might look encouraging - are short of what the Budget is relying on in current forecasts. We’ll update the forecasts in the usual way. When it comes to conversations with my state colleagues, as I said, I’ve now spoken to all of them, and they’ve raised a range of issues. The pressure on health costs is one of the things that a number of them have raised and we’ve recognised that for some time. So, clearly, that will be part of the conversation going forward.
JOURNALIST: [Indistinct] have you talked to the resource companies directly, to push some pressure on them, to do something?
CHALMERS: Well, it’s a fact that the trigger can’t be implemented immediately. There is a whole process associated with it, and that’s self-evident. In terms of the resource companies, we’ve had general conversations with the resource companies, but not about that specifically. And, really, I just don’t want to pre-empt a conversation with other Ministers and with other interested parties, including the regulators. I’m not proposing to go down that path here today. I’m just trying to be very careful not to pre-empt any conversations that might happen from here. Obviously, as you know and everyone here knows, the spike in the gas price is a serious challenge to our economy. It requires careful monitoring by all of our regulators and proper consultation and collaboration about all of our options, and that’s what we intend to engage in. Thanks very much.