Press conference, Sydney
JIM CHALMERS:
I'll begin by wishing the Prime Minister all the best for a speedy recovery from this bout of COVID. I was able to have a good conversation with him a little while ago about energy policy, about the economy and about issues more broadly. He's in really good spirits. He's doing as the doctors advise us to when we get COVID. He is obviously isolating at home. He is doing some work. And I have had that opportunity to speak to him before and I wish him a speedy recovery.
Today, we've got news that the Independent Reserve Bank has lifted interest rates once again. This is the eighth consecutive interest rate rise since before the election in May. It means that the cash rate is now 3.1 per cent. This is another $75 a month that Australian homeowners need to find for every $500,000 that they've borrowed. These interest rate rises are already having harsh and heavy consequences on a lot of household budgets and on a lot of mortgage repayments. But the full impact of these rate rises is still to be felt in the economy. So already having a harsh and heavy impact on repayments but as the RBA has made clear today, we expect that the full impact of these rate rises will be felt down the track. Now this is a key reason why the Treasury in the forecasts that they provided for the October Budget expects our economy to soften next year. Our economy is expected to soften next year and growth is expected to slow as a consequence of higher interest rates, as well as the downturn in the global economy. That's driving a softening of consumption in our forecasts and that's feeding through into a lower growth forecast as well. And the Reserve Bank statement today makes it quite clear that they also expect household spending to slow over the period ahead, although the timing and extent of this slowdown is uncertain. And so that's one of the key conclusions in a statement provided by the Independent Reserve Bank today.
We will get the National Accounts for September tomorrow. The September National Accounts will obviously be backward looking and they won't capture all of the uncertainty that lies ahead in the global and domestic economy. The National Accounts that we see tomorrow will capture some of the uncertainty but not all of the uncertainty that we're seeing in the global economy. And here in Australia, we have a lot going for us in our economy, we've got very low unemployment, we've seen the beginnings now of some welcome wages growth. And we're getting very high prices for a number of our commodities, which is feeding through to the Budget as well. And so we have a number of things going for us but we are hostage to a number of developments over which we have no control. Obviously, the war in Ukraine is causing havoc on global energy markets. The COVID situation in China is something that we're monitoring closely given the obvious consequences for our economy. There are some welcome signals out of the US but we're still expecting a substantial tightening of monetary policy there. The UK is obviously in a very difficult position, as is Europe. The full impact of these interest rate rises from our own independent central bank are obviously still to be felt. And the magnitude of that impact and the timing of that impact is still in many ways uncertain. And of course, as always, as we approach the Christmas season, the festive season, obviously harsh weather events and natural disasters have the capacity to have a substantial impact on our economy and on our budget.
And so when there are a number of things in our economy that we can't control, the Government's job is to focus on where we can make a meaningful difference and that's what the Budget in October was all about. Our economic plan is about making the Budget more responsible, the economy more resilient, and fighting inflation as our number one priority in economic policy. And that's what the Budget was all about.
Now, when it comes to inflation, obviously, high energy prices are a bigger and bigger part of the inflation problem that we confront in our economy. Australians are paying a hefty price for 9 months of Russian aggression, and 9 years of Coalition incompetence when it comes to energy. We have made it very clear that one of the most troubling aspects of the forecasts in the Budget are the high and rising energy costs for our employers, but also for households right around Australia. And so we've made it clear that we intend to intervene in that market in a temporary, responsible and meaningful way. A lot of the work that's happening now is directed towards that end. High prices for our commodities are helping the Budget a bit, but they're hurting the economy a lot. They're helping the Budget a bit, but they are hurting our industries, they're hurting our families and households right around Australia, and so we have a responsibility to act. And that's why we are doing so much work with the states, with the regulators with the various industries to try and land a temporary and meaningful and responsible and sensible response to what we're seeing with high and rising prices in our energy markets, caused by the war in Ukraine. We need to take the sting out of these energy price rises on behalf of industries and Australians right around the country - that remains our objective. We're doing a lot of work on this front, with the regulators, with the states, with industry and with others to see if we can act in a meaningful, temporary and responsible way in this area. We intend to make our position clear and our plans clear in this area by Christmas, obviously with the Prime Minister laid up as he is with COVID is still working very hard to get to this outcome, as is Chris Bowen, Ed Husic, Madeleine King, myself, the Cabinet and others, to make sure that we can make our position clear on a responsible and temporary and meaningful intervention in the energy markets between now and Christmas.
JOURNALIST:
Is the Government open to compensating the states for any intervention in the energy market?
CHALMERS:
We've made it very clear that we are prepared to negotiate with the states in good faith to see if we can come to an agreed position on these high and rising energy prices. Every Australian has an interest in a meaningful and effective and temporary response to these energy price hikes and there have been important, constructive discussions between the Prime Minister and his counterparts, the various state governments in the lead up to National Cabinet on Friday. We welcome the spirit with which the various states are engaging with us on this really complex and difficult public policy question. We've made it clear that all options are on the table. We would prefer, where possible, a regulatory response here but we've said that we are prepared to consider other options as well, including, if there's a case for some responsible contribution from the Commonwealth, then obviously, that will be part of the conversation.
JOURNALIST:
We've seen estimates of billions of dollars, is that in the ballpark?
CHALMERS:
It depends on the outcome and there are two different commodities in the mix here. We've made it clear in gas, for example, that there are some existing levers around the code of conduct. We're obviously working closely with the ACCC and others to see if there is a regulatory outcome in gas which would make a difference and be worthwhile and be responsible and temporary at the same time. Obviously, when it comes to coal, there's a greater role for the states when it comes to the regulatory and other levers and so we're engaging with them in good faith. We're engaging with the states in a respectful and constructive way and they are engaging with us in the same manner and that's because we recognise we've got a big problem in our economy here – high and rising energy prices risk hollowing out our industries and smashing Australians right around the country, but particularly in the national energy market. And so we will continue to work closely with them - with the states, with the industries, with the regulators and others – everyone who has an interest in getting a good outcome here.
JOURNALIST:
If that's too hard would you go down the path of windfall profits taxes?
CHALMERS:
That's not our preference. Our preference is not to go down the tax path if we can avoid it. We've made it clear publicly and privately to a number of the companies and peak organisations involved here that our preference is not to go down the path of a windfall tax, our preference is a regulatory outcome. If that requires the Commonwealth to come to the table with a sensible contribution to that outcome, then obviously we're prepared to discuss that but we'd like to do that without resorting to some of the tax proposals which have been put forward in the public conversation.
JOURNALIST:
How soon after the intervention would you expect power prices to start moderating?
CHALMERS:
It depends on the nature of the intervention and the magnitude of the intervention but clearly what we're most focused on is the price rises forecast in the Budget for next year. If you could just flick a switch and make this challenge go away, then somebody would have already done it by now. There's a lot of complexity involved here, a lot of negotiations, a lot of moving parts and one of the reasons why we're doing this as urgently as we can, but in the most considered way that we can, is because we want to make sure that any intervention in the market works and that we've factored in a whole range of considerations. And so our target, our objective, is to take some of the sting out of these price rises next year. That's been our objective all along and it's on that basis that we've been engaging with so many different stakeholders in these markets.
JOURNALIST:
Why is the prospect of a cap on coal prices proving more difficult than a cap on gas?
CHALMERS:
There are different levers depending on the commodity and in the gas market, the ACCC already has a substantial role. There is already a code of conduct which we've said previously we'd like to explore making mandatory. And there are other levers in gas markets which are different to the levers available in coal markets. What we would like to do if we can is to protect our reputation as a good international partner when it comes to supplying some of these commodities to the world. We would like to avoid a tax outcome if we can and so that means the focus lies – whether it's in gas and/or coal – in a regulatory solution. And again, if there is a role to play for the Commonwealth Budget in a limited way, but in a consequential way, then obviously we'll consider that too.
JOURNALIST:
And where are negotiations at with the states?
CHALMERS:
The Prime Minister has had a number of important conversations with his colleagues in the states. Chris Bowen has an opportunity on Thursday, I believe, to meet with his ministerial counterparts, the energy ministers from the states and territories in the lead up to the National Cabinet meeting on Friday afternoon. And so there's a lot of engagement going on. There's a lot of constructive and I hope productive conversations going on. The Prime Minister is still working hard towards an outcome, despite being at home with COVID. And those conversations, no doubt will continue. But we bring to the table in these negotiations a respectful approach, we want to be constructive about it. We recognise the pressures on the states, just like they are on the Commonwealth. And what we would like to do is to try and get to an outcome which serves the interests of Australians, Australian industry and the Australian economy. And I would have thought everybody's got a stake in making that work. Thanks very much.
