Press conference, Blue Room, Canberra
JIM CHALMERS:
Obviously I wanted to cover off on the interest rate decision this afternoon but then also to give you a bit of a sense of the week ahead. Today's decision takes the cash rate to 4.10 per cent. This will make life much harder for people with a mortgage. The Reserve Bank takes these decisions independently, and ‑ as you know ‑ I do my best not to second guess them. I do expect that there will be a lot of Australians who will find this decision difficult to understand and difficult to cop. The Reserve Bank's job is to squash inflation without crunching the economy. And they will have lots of opportunities of course to explain and defend the decision that they've taken today. My job is different. I take responsibility for my part of managing the economy and that's why the Budget, and our economic plan takes as its central focus, taking some of the edge off these cost‑of‑living pressures without adding to inflation. The Budget was carefully calibrated to address pressure, where it has been the most acute, whether it's out‑of‑pocket health costs, whether it is the increasing rents that we're seeing in our economy or also persistently high energy prices as well. We've also gone out of our way to ensure that we've made the biggest improvements to the Budget at a time when inflation is at its worst, at the same time, as we've been dealing with the supply side issues in the economy, which have been neglected for too long. Because dealing with those supply side issues will make our economy more productive, and will help it grow the right way out of all of this uncertainty.
Now, the Governor has made it really clear ‑ even in the last week ‑ that this rate rise is not because of the Budget. He's been incredibly clear about this, and he said and I quote: `I don't think that the Budget is adding to inflation, it's actually reducing inflation.' That's what Governor Lowe said in this building last week. He also said around the same time, and I'm quoting again: `the Budget didn't change our outlook for interest rates'. He was incredibly clear. And whether it's the Reserve Bank, or the Treasury Secretary or the Fair Work Commission, they've also made it clear that they don't see a wage‑price spiral in the economy. So this rate rise today is not because of the Budget and it's not because people on the minimum wage are being paid too much. And we should be really clear about that. This rate rise today is because inflation is more persistent in our economy than any of us would like, particularly in those areas that the Budget has been carefully calibrated to address ‑ whether it's rent, whether it's energy, whether it's out‑of‑pocket health costs. We have acted decisively in the Budget around a month ago to address the cost‑of‑living pressures in our economy without adding to inflation. Reserve Bank Governor has made it really clear that our Budget is taking the pressure off inflation, rather than adding to it. But this is a difficult day for Australians regardless. This is the key reason why fighting inflation is still the primary focus of the Government, the primary focus of the Budget and the primary focus of our economic plan.
Now before I take your questions, I wanted to very quickly preview the rest of the week. I wanted to let you know that tomorrow, I'll be releasing our Strategic Plan for the Payments System. I'll be doing that in Sydney. I see this as an opportunity in the payments system not just to catch up and patch up where we need to, but to really try and see modernising payments as central features of our plans for competition and productivity, innovation and growth. Also tomorrow, you'd be aware that we get the National Accounts for March. There is every chance that the combination of higher interest rates combined with global uncertainty weighed on growth in the March quarter. Most analysts are expecting a softening or moderating of growth in the economy. We'll know tomorrow morning whether that's the case or not.
I'll also be joining my New Zealand counterparts in this second half of the week in Wellington and Auckland. I'll be taking the opportunity to strengthen our ties with our Kiwi counterparts, trying to ensure that the next 40 years of Closer Economic Relations are as fruitful as the first 40 that we celebrate this year. I'm looking forward to meeting with my counterpart, my friend, Grant Robertson, the New Zealand Finance Minister. There will be a focus on climate, there will be a meeting with the New Zealand Reserve Bank and with investors and the Chamber of Commerce as well as others.
Finally, I congratulate Roger Cook on his elevation to Premier of the great state of WA and also Rita Saffioti. I've had a bit to do with Rita over the years. Obviously, we are all sad to see Mark McGowan retire from that role. We are looking forward to working with Roger and Rita and the new cabinet when it's sworn in so that we can continue to deliver for the people of the great state of WA and the nation beyond. We might start on this side and move across.
JOURNALIST:
Are we close to falling off the narrow path that the RBA was talking about?
CHALMERS:
Our expectation in the Treasury forecasts and in the Reserve Bank forecasts is that the economy will continue to grow. The job that the independent Reserve Bank has is to try and get on top of this inflation challenge in our economy without crunching our economy. And we've known for some time that that is a difficult path to tread. And we see in some of the commentary today in the statement issued by the Reserve Bank that there are a number of factors weighing heavily on our economy. In the last little while alone, we've seen a couple of weak retail figures, quite a weak construction figure, unemployment ticked up a bit ‑ even though is still has a `three' in front of it, which is a good thing overall. And we'll find out much more about the state of our economy in the March quarter when we get the National Accounts tomorrow. We have been anticipating and we've been up‑front that we expect a substantial slowing in the economy over the next 12 to 18 months. It's in our forecasts. And that is the inevitable consequence, I think of higher interest rates tightening at the same time as the global economy is a precarious place.
JOURNALIST:
Treasurer, you talk about the impact of previous wage decisions not having an impact on this outcome but today's statement does cast a weather eye on future wages costs in its language. In the absence of a productivity increase that the Government's been warned of in the last week or two, would you like to see restraint going forward with wage claims? Given in light of the Fair Work decision last week, would you like to see the unions lower their ambitions a bit with making wage claims or not try and match this five, six, seven per cent?
CHALMERS:
Let me make a few points about that. The first point is this ‑ ordinary working people are already bearing the brunt of these interest rate rises, they shouldn't also bear the blame. That's the first point. The second point is we want to see strong, sustainable, responsible wages growth in our economy, the absence of which for the best part of a decade, has been a sign of weakness in our economy, not a sign of strength. We want to see wages growing strongly in a responsible and sustainable way in a more productive economy and the point that you rightly identify, Phil, in your question is that the Governor of the Reserve Bank says today and the Board said today in their statement, wages growth is still consistent with the inflation target. And they say we need to see productivity growth pick up and that's the position of the Government too ‑ we want to see a more productive economy. Indeed, some of the things that I'll be announcing tomorrow, about modernising our payment systems, about making our economy more efficient, more productive, more competitive, more innovative and to grow in the right way. Now we've had the absence of productivity growth and the absence of wages growth for the best part of a decade, we'd like to see both.
JOURNALIST:
Labour productivity, to go back to what you were just saying hasn't grown at all in three years, you've been critical of inaction by the Coalition government, but what are the economic forces that you think are contributing to woeful productivity outcomes and what specifically are you doing to turn that around?
CHALMERS:
Well, we've got a productivity agenda, which was central to the Budget and our view of productivity is that you get the best productivity outcomes, if you invest in people and their capacity to adapt and adopt new technology and if we get the energy mix right, after a decade of stuffing around. And so central to the Budget, there was the cost‑of‑living package, which is about taking the edge of some of these cost‑of‑living pressures without adding to inflation. But a big part of the Budget was our productivity and growth agenda focused on technology, on energy, and on skills and those are the sorts of investments which can turn around our subpar productivity performance over the best part of the last decade. And our productivity challenges are not unique to us but some of the neglect that we've seen in some of these key areas is unique to us. And so one of the Government's missions really, is to invest in a more productive economy, not by trying to make sure people work longer for less, but to work out ways that we can be more productive by adapting adopting technology, doing the right thing in our energy markets and making sure people have the right skills to prosper.
JOURNALIST:
True but not everyone's got a mortgage. What do you say to landlords who might see today as another opportunity to jack up renting?
CHALMERS:
Well, renters are doing it tough enough as it is, without landlords making it harder. It wasn't that long ago in this country that we recognised during the worst of the pandemic, that we're all in this together and what was true of the pandemic is true of this inflation challenge as well. That's why I don't want to see working people, for example, who've been denied decent wages growth for the best part of the decade, bear the blame for this interest rate increase today. That's one of the reasons for that. That's why we don't want to see people profiteering. We don't want to see people gouging. People are under enough pressure as it is, without landlords or others doing the wrong thing by them.
JOURNALIST:
This has been the most aggressive rate hike cycle we've seen since the late 1980s. You know, that ended with what Paul Keating said was the recession we have to have, what are the chances that there's a miscalculation this time, and that's where we go and will Phil Lowe be to blame if we head into recession?
CHALMERS:
Well that's not our expectation, it's not the Treasury forecast, it's not the Reserve Bank forecast. I'm not aware of private sector organisations forecasting that outcome, and when it comes to the independent Reserve Bank, I would rather focus on my part of my job, which is a Budget which is designed to address these inflationary pressures that are pushing up interest rates and I take responsibility for that. Others can apportion blame where they like.
JOURNALIST:
Treasurer, we're facing another challenging winter. There's this risk of blackouts but also prices are still way too high how can you ensure that people won't be forced to choose or to turn the lights or even the heaters off this winter?
CHALMERS:
This is a key motivation for our energy bill relief, which was a central feature of the cost‑of‑living package in the Budget. And one of the things that we are proudest of when it comes to the impact of our policies, is we were staring at a 36 per cent increase in electricity prices next year, from July we managed to turn that into 10 per cent, because of the decisive action we took in this parliament. No thanks to the Opposition in December, and that has taken and will take some of the edge off these high electricity prices, which are putting people under such pressure. At the same time as we've worked with the states and territories to provide electricity bill rebates for their winter bills. We are obviously aware that in parts of Australia, the cost‑of‑living pressures are more acute in winter and that's one of the motivations behind the bill relief that we put as a central feature of the Budget.
JOURNALIST:
Treasurer, at the start you said it would be very difficult for many of us Australians to understand why the RBA lifted rates today. Do you understand why they did it?
CHALMERS:
Well, as you know, Shane, I go out of my way to cherish and respect the independence of the Reserve Bank and indeed the Reserve Bank Review that you and others in this room have written a lot about over the course of the last year, and a bit has been about enhancing its independence and not undermining it. What I'm acknowledging is that this interest rate rise will put more pressure on people who are already under the pump. It's for the Reserve Bank and its Board in the usual way to explain and defend the decisions that it takes independently. But I think out there in the community, people who are under pressure will find this decision hard to cop and they will need help understanding it. We don't need it explained to us as a Government, that we've had an inflation challenge in our economy that began before the election and continued after. Interest rates began rising before the election and continued after. The worst quarterly outcome for inflation was the March quarter last year. So this inflation challenge has been with us for a while. We understand it. We understand what it does particularly to people on low and middle incomes, and fixed incomes and we've tried to ease some of that pain where we can because we do understand that. Beyond that, the Reserve Bank Governor and the Board as an institution has other opportunities to explain how and why they've come to this decision. I've got a different job and I've explained how I'm going about it.
JOURNALIST:
You've said that the RBA, which sees the Budget as being broadly neutral, it's impact on inflation hasn't changed the forecasts. You say you take responsibility for your part of the economy. So with the mortgage burden on households now reaching a greater share of their take home pay in history, at least going back to the early 1980s, do you think at this point the Government needs to do more? Needs to take more responsibility for reducing inflation, which looks like as the Governor said today has more upside to it, and risks us getting back to where we need to be in two years?
CHALMERS:
Well, we're taking responsibility on three fronts. On the supply side of the economy, trying to make our economy more productive, and to try and fix busted supply chains, which have been neglected for too long. Showing restraint which would be absolutely unrecognisable to our predecessors, forecasting the first surplus in 15 years, finding $40 billion in savings over two budgets. Banking a huge proportion of upward revisions to revenue. These are things that were not features of budgets, before we rocked up a couple of budgets ago and that's because we recognise that we need to get the budget in much better nick, we need to get better value for money and we need to make the biggest improvements in the budget when the inflation challenge is at its most serious. And we've done all of those things in the Budget at the same time as we've provided cost‑of‑living relief, without adding to inflation and dealt with some of these other objectives that we've been talking about today. We will always try and make the best decisions in the economic environment that we confront. We did that in October, we did it again in May, and we'll do that in the future. And inflation is still the primary challenge in our economy. The war against inflation is far from won and that's why we see this decision today. It's why you see a Budget which took as its primary influence, trying to take some of the edge off these cost‑of‑living pressures, which are absolutely punishing people right around the country.
JOURNALIST:
Treasurer, I just want to get your response to two comments that have been made, first by Premier Andrews in Victoria who says these interest rate rises aren't smashing inflation, they're smashing families. In your view, are they smashing special inflation? Are they smashing families or both? The second comment by the Governor who in his evidence at Senate estimates said that if he wasn't to continue to increase interest rates or be on the path that he's on, then you would have to increase taxes and inflation would bring greater damage on families. So, is this increase today the lesser of the available evils.
CHALMERS:
I think the answer to both of your questions, Mark, goes to me understanding what my job is, and what Phil's job is and what Dan's job is and I use my own words to describe the situation that we confront. Families are under the pump and this interest rate rise will make life harder ‑ that's I think the point that Dan is making. When it comes to the point that the Governor was making during those two appearances, I think, last week, before the parliament, is that he sees his job as to try and get on top of this primary challenge that we have in our economy, which is inflation and in the absence of that, if we don’t get on top of inflation, there are other consequences for people in our community, particularly for the most vulnerable and that's why I come back to the point that I made in response to Phil's question. The most vulnerable people in our country and people on low and middle incomes and fixed incomes ‑ they bear a disproportionate share of these interest rate rises ‑ I don't want to see them blamed for it and I don't want to see the pain prolonged any longer than is necessary. I do understand that people are really seriously under the pump because of a range of different pressures that they feel and the job that I take responsibility for is to try and take some of the edge off that, I'm pleased that we were able to do that in the budget and I'm pleased that we were able to do that in a way that makes the job of the independent Reserve Bank easier rather than harder.
JOURNALIST:
Thanks Treasurer, just on productivity ‑ it has been weak for a few years. What's Treasury's advice about what are the main factors causing that? And how confident are you and they that it can be actually turned around and revived?
CHALMERS:
Well obviously the productivity challenge has been building for some time, and you can't click your fingers and make it turn around overnight ‑ I think that's self‑evident. And I think as I said around the time that the Productivity Commission report was released earlier in the year, is that I think that the way forward is relatively clear. If you're not in the cart for what I described at the time as scorched earth industrial relations, then the agenda becomes pretty clear ‑ you invest in technology, you invest in energy, and you invest in people and that gives us the best chance to turn things around.
JOURNALIST:
Treasurer, unions are asking for a 25 per cent pay rise for childcare workers. If the sector can't cover that, that cost will be borne by parents. When will you be able to tell the parties in this negotiation if the government will be funding any of that pay rise and why no money allotted for it in the budget?
CHALMERS:
Because the process has got a ways to run yet and as I understand it, and correct me if I'm wrong, but I think Tony Burke covered this in some detail, I think this morning. We changed the bargaining arrangements to make it easier for workforces like that in the care economy, and make it easier for them to bargain for better outcomes. One of the concerns that we've had for some time, is that the big care economy workforces, particularly dominated by women aren't getting the kind of pay outcomes that you would expect and that you would want. This process has a ways to run. At some future point, we will be involved in it, but not immediately and we'll obviously keep you and your colleagues updated as all of that develops. But beyond that, I'm pretty sure Tony covered that in some detail today.
JOURNALIST:
You talked about making the right decision for the economic times. If this 12th rate rise and an expected 13th and 14th rate rise doesn't bring inflation down as much as you expect, is that going to be a trigger to have a conversation about the government doing more by perhaps higher taxes and revisiting stage three?
CHALMERS:
That's not something we've been contemplating in response to this interest rate rise or even in anticipation of movements in interest rates. We had a budget last month which I'm pretty confident did all of the things that you would do in the inflationary environment that we find ourselves in, particularly the fact that we've focused most intently on those areas, which are causing people the most grief ‑ out of pocket health costs, rent, energy ‑ they were the main focuses of the cost of living package at the same time as we invested in the supply side, and got the budget in much better nick, those are the things that you do in circumstances like this and those are the things that we are doing.
JOURNALIST:
Thanks Treasurer. The consulting services inquiry is continuing tomorrow. How confident are you that the PwC incident is an isolated one, and there's not a broader cultural problem at play here?
CHALMERS:
Well, that remains to be seen. Certainly, our focus is on PwC because that's where we've seen this egregious behaviour. And I commend the work of the committee and the work of others who have brought this to light. And I've explained in this room and elsewhere why I think Australians have got every right to be furious about what's happened here. More broadly, when it comes to the system, Katy Gallagher and I have made it clear, really for some time, for some years actually that our intention is to rebalance a bit away from this over reliance on contractors and consultants and external labour hire and to try to rebuild capacity in the public service and that's what Katy is doing with my support as the Minister.
JOURNALIST:
You've mentioned a few times this afternoon about taking the edge off energy prices, but there are reports it's going to take years before power bills are back to pre‑pandemic levels. Does the energy bill relief plan actually go far enough and make even a dent on household bills?
CHALMERS:
Well, you can see in the Treasury's forecast for energy prices in the coming year, that our energy price relief plan is having a substantial impact and that's even before you get to up to $500 in relief from your winter bills and so, we are confident that we are doing what we can to take some of the edge off those high power bills, we do understand that that's a big part of the pressure that people are under and that's why we're dealing with it in such a decisive way ‑ with the price caps which are taking the edge off inflation next year and also, when it comes to the bill relief itself. We understand whether it's rent, energy, out of pocket health costs, there is a role for government to take some of the sting out of those price pressures and that's what we're doing and we're doing it as the Governor says, in a way that doesn't add to inflation, but actually makes his job easier when it comes to managing this inflation challenge that we have in our economy. Thanks very much.
JOURNALIST:
[inaudible] about Phil Lowe’s future, Treasurer.
CHALMERS:
Look, I've made it clear that the government will come to a decision on that around the middle of the year. I don't have an updated view for you on that ‑ our position hasn't evolved or changed since the last time one of you asked me about it. And I also want to be really clear as well that the appointment or reappointment of Phil Lowe or otherwise does not depend on any one decision or any set of decisions. Our goal there is to find the best person to take the Reserve Bank into the future along the path that has been proposed by the RBA review team. That remains our view, and when I've got something to say about all of that, I'll make sure I let you know. Thanks very much.
