Press conference, Sydney
JIM CHALMERS:
The National Accounts for September were released today. There are some very pleasing aspects with today's numbers, but they only capture some and not all of the substantial global uncertainty that we're seeing in our economy. These are a backward looking measure. They capture July, August and September of this year, and obviously a lot has happened since then, whether it's subsequent interest rate rises or further developments in the global economy. This is a really solid outcome in the circumstances. This paints a picture of an economy which is relatively robust, despite the substantial challenges being thrown at it from around the world. These National Accounts show an economy performing solidly, withstanding the challenges facing it so far, but with substantial challenges still to come. The Australian economy grew by 0.6 per cent in the September quarter to be 5.9 per cent higher through the year. This is a robust result in the face of pretty serious headwinds coming at us from around the world, as well as the considerable and compounding cost-of-living pressures on Australian households and businesses.
There are some welcome signs in today's figures, and I wanted to begin there. We are very pleased to see the beginnings of some wages growth in our economy. Average compensation per hour grew by 2.8 per cent in the quarter. We want to see wages growth in our economy, and we're pleased to see the beginnings of some of that wages growth in the September quarter. There are also some tentative early signs of an easing in some of the supply constraints, which have been a big challenge in our economy. Dwelling investment grew for the first time since June 2021. We also saw strong growth in imports of goods, suggesting global supply chain constraints are easing as well. And again, that is a good development. We also saw discretionary spending continue to recover from the impacts of COVID, with Australians spending more on travel and services, and overall household consumption rose by 1.1 per cent in the quarter. And household consumption is a big part of the story that we're seeing in these National Accounts, making a big contribution to growth in the quarter. But we also know that cost-of-living pressures and rising interest rates are taking a toll on household budgets that's being felt right now and it will be felt increasingly in the economy in the months ahead. Now we can see the beginnings of this again in the numbers that we have for the September quarter. If you look at the measure of prices in the National Accounts that rose rapidly in the quarter and you can also see in the household savings ratio, that Australians are saving less out of their income now than they were before and we're back down to 6.9 per cent in the quarter, which is lower than it was in the June quarter, and it's now at the sorts of levels that we saw pre COVID. And since the end of that September quarter, we've seen three more interest rate hikes. We've also seen flooding and natural disasters which will hit food prices and agricultural exports in the coming months and the coming quarters as well and that's a significant factor.
The National Accounts are obviously backward looking, they are not forward looking. The challenges in our economy are not behind us, they are ahead of us. Certainly the challenges in the global economy are not behind us, they are ahead of us as well. The ongoing impact of the global energy shock caused by Russia's invasion of Ukraine is having a big impact. There are troubling reports out of China in recent days where there's been a huge spike in COVID cases, the biggest outbreak in that country so far, and we've got heightened uncertainty in the global economy and the promise of further tightening from central banks right around the world - obviously that will have implications for our economy as well. And on the domestic, we've unfortunately come to expect some pretty volatile weather conditions, particularly over the Australian summer and we need to factor that in as well. We think these sorts of factors - global and domestic - will increasingly weigh on Australia's economic growth over the next year. And that's why the Budget forecasts that Treasury provided in October were for a softening in the Australian economy, a softening in consumption, because of higher interest rates, a softening in growth because of the combination of that, and the softening in the global economy as well. So we need to be realistic about our prospects in the months ahead as well. That's why our Budget was so geared to these sorts of challenges that we're seeing in the global economy and the domestic economy. Our economic plan is all about making the Budget more responsible and our economy more resilient, and our highest priority is this fight against inflation in our economy. Inflation is the biggest challenge that we have in our economy and that's why our budget settings and our economic plan are all about dealing with these cost of living pressures, which are doing such damage to household budgets. So our economic plan is obviously to provide responsible cost of living relief in a way that doesn't add to inflation. It's about targeted investments in a stronger, more resilient and more modern economy, particularly by dealing with issues in our supply chains, and particularly the labour and skills shortages, which have been holding our economy and our employers back. And I think most importantly of all in that Budget we did show substantial restraint when it comes to spending, making sure that the revenue upgrades that we've seen from higher commodity prices are flowing through to the Budget, rebuilding our buffers against this global uncertainty at the same time as we're not adding to the inflation pressures, which are doing such damage to household budgets and businesses as well. And our plans were endorsed by a credit rating agency Fitch over the weekend, when they affirmed our triple A credit rating. They show that the Budget settings are absolutely right for the conditions that we confront, the sorts of things that are highlighted in these National Accounts today.
But we know that there is obviously more to do to make our economy more resilient and to deal with some of these price pressures in our economy. That's why we are working so hard on a responsible, reasonable, meaningful, temporary response to these price spikes in energy markets, which are brought about by the war in Ukraine. We're obviously working closely with the states, with the regulators, with the impacted industries to do what we can to take the sting out of some of these price rises when it comes to energy. Energy prices are a bigger, and bigger, part of the biggest challenge in our economy, that inflation challenge, we recognise that, we are prepared to act in a temporary, meaningful, responsible and sensible way. But in order to do that, we need to work closely with the states, the regulators and the affected industries. And that's what we're doing right now. We've already begun work on the next Budget in May. The Expenditure Review Committee has been meeting through the course of this week, to get those settings right, to continue to get those settings right for these conditions that we confront, part of which have been captured in the September National Accounts. We are pretty clear eyed about the challenges in the global economy and what that means for our own economy. We are pleased with some of the strength that has been shown particularly in wages in these National Accounts but we know that the difficult economic conditions, particularly in the global economy are not behind us, they are ahead of us. That's why we're doing so much work focused on where we can meaningfully make a difference in the context of high inflation and rising interest rates and global uncertainty to do what we can not just to batten down the hatches against these global conditions, but to build a better future that Australians need and deserve as well.
JOURNALIST:
Jim, household savings are down, spending is up and you say the worst is ahead of us. How concerned are you about what households will go through in this next 6 months? And is that message getting to Australian households?
CHALMERS:
We're under no illusions about the pressures that Australians are under right now. We've got big pressure on energy prices from the war in Ukraine. We've got rising interest rates. At the same time as people were already confronting some difficulties in our own economy brought about by all of this global uncertainty. So our message to Australians is we understand the pressure that you are under, we will do what we can to take some of the sting out of these high energy prices in particular. We will continue to manage the economy in a responsible way and make our Budget more responsible, our economy more resilient and do what we can to fight this inflation challenge that so many people are confronting. We have always tried to be upfront with people about the nature and the magnitude of these challenges. There are some pleasing aspects of the National Accounts but obviously there are some troubling elements in our economy and inflation is the number one challenge that we are confronting together. And we will continue to do what we reasonably and responsibly can to deal with the pressures that people are facing.
JOURNALIST:
Just a couple of questions on Taiwan treasurer: What's your response to the Chinese foreign ministry's accusation that the backbench delegation, including Labor MPs, is sending the wrong signal about Taiwan?
CHALMERS:
My focus has been on energy prices and interest rates and the National Accounts. I'll leave the bulk of the commentary on those sorts of matters to Penny Wong and others. Clearly, what we want to see in our region is the continuation of the status quo. We want to see a more stable relationship, a stabilised relationship with China and we've made some important steps in that direction in recent weeks. Beyond that, I'll leave the commentary on those matters to Penny Wong.
JOURNALIST:
Should the RBA take note of the slowdown? This GDP growth is lower than what was forecast. Do you think they will be seeing that at Martin Place as well?
CHALMERS:
I'm not going to give free advice to the independent Reserve Bank. The independent Reserve Bank takes these decisions without political interference or political pressure from governments of either political persuasion, that's a long standing convention that I value and that I respect. The Reserve Bank will take into consideration when it next meets in February all of these developments in the economy. We are seeing the beginnings of some softening when it comes to the behaviour of consumers, we are seeing the household savings rate come down, we are seeing some other important developments, no doubt they will weigh all of that up when they come to their decision independently. My focus is on, first of all, in the Budget, not making this inflation challenge worse. And secondly, do what we reasonably and responsibly can to take some of the sting out of higher energy prices, working closely with Chris Bowen, the Prime Minister, the states, the regulators, the industries, and others, to see what we can do there. The Reserve Bank will take their decisions independently. I've got a job to do in the Budget and more broadly and that's what I'm focused on.
JOURNALIST:
On energy, have you had a response from the states at all on the initial talks?
CHALMERS:
There has been an ongoing conversation with the states - so the Prime Minister is engaged with his counterparts, the Energy Minister is engaged with his counterparts as well, and we come to those discussions in a constructive and respectful way. We've all got an interest in doing what we reasonably can to ease the pressure in the energy markets, we are all contemplating steps that we may not have contemplated in years gone by and that's in recognition that the war in Ukraine is causing havoc on global energy markets. So we will continue to engage with the states in a respectful, constructive and meaningful way. We will try and land an outcome that everyone is happy with because at the end of the day we all represent the same Australians in one way or another. Australians are doing it really tough with higher energy prices, there are forecast to be more to come and that's why we're working so hard and so closely and constructively with everyone who has got a role to play here.
JOURNALIST:
Have they given you a figure when it comes to compensation potentially for capping coal prices in particular?
CHALMERS:
The Prime Minister is having those discussions largely. But obviously, we're working closely at our end to see what might be possible in the broader response. I've said many times over the course of the last few weeks that I think the best way to deal with some of these issues is via regulation. We will be reasonable though when it comes to trying to land an outcome. The Prime Minister has had a number of conversations with his counterparts, the Energy Minister will meet with his counterparts tomorrow in advance of National Cabinet on Friday. Those conversations have been constructive and we will do what we reasonably and responsibly can to get to an outcome in the interests of the Australian people and also Australian industry.
JOURNALIST:
The price of coal is quite high at the moment. Could the royalties coming in from the export of coal go back to some of those states from the Commonwealth?
CHALMERS:
High commodity prices are helpful to the budget and harmful to industry and Australians when it comes to energy markets. And we've said that these prices have been incredibly volatile. It's the right approach to take a pretty cautious view of these high commodity prices, because they bounce around a lot. Our preference is to deal with these challenges via regulation but we've said we're prepared to be reasonable when it comes to the Commonwealth Budget as well. But the Commonwealth Budget is not a bottomless pit of cash and we need to be responsible there as well. We inherited a trillion dollars in debt and deficits as far as the eye can see, we've made some good progress when it comes to budget repair, getting that debt down over the next couple of years in particular. We need to be careful and responsible about Commonwealth funds. Our emphasis is still on the regulatory side but we will be reasonable in these discussions.
JOURNALIST:
You mentioned wage growth. Are you concerned given this wage growth - the highest in 15 years - has come before the industrial relations laws came in, that they will fuel inflation in the future?
CHALMERS:
No. And the reason I'm not is because this inflation challenge that we have is not because wages growth has been too strong. The inflation challenge that we have in our economy is a consequence of issues in our supply chains, the war in Ukraine, a whole range of other factors, but wages are not one of the reasons why we have inflation in our economy. We welcome stronger wages growth. We want to see wages growth, which is strong and sustainable, and we want to see productivity come up at the same time. There are some really pleasing aspects of these National Accounts when it comes to wages. This is the wages growth that has been absent for much of the past decade and that's because our predecessors pursued stagnant wages as a deliberate design feature of their economic policy. We take a different approach. We want to see wages growing again, we are heartened by this evidence that that has begun to occur, and that's a good thing.
JOURNALIST:
There are Australians planning Christmas budgets now, buying presents, planning the Christmas lunch. What do you say to them given what's still to come in the next 6 months?
CHALMERS:
I think Australians are the best judges of their own financial circumstances. We understand that Australians are under the pump right now and an interest rate rise is not what homeowners wanted for Christmas. When they've got price pressures throughout the economy, but particularly when it comes to electricity, and servicing the mortgage, we understand that people are doing it tough, and that a lot of people are making difficult decisions about what they substitute out in their own family budgets in order to accommodate higher mortgage repayments and higher energy costs brought about by the war in Ukraine. We are providing responsible cost-of-living relief in a way that doesn't add to inflation. We are doing what we can in energy to see if we can take some of the sting out of these higher prices, which are doing such damage to household budgets and also to Australian industry. That is our job and that's what we take responsibility for.
JOURNALIST:
Apologies if you've been asked about this already, but can I ask what the Australian Government's view is about the changes to Indonesian law and whether or not Australians should be concerned going over to Indonesia?
CHALMERS:
I haven't been focused on this at all. I've been focused on energy prices, interest rates, the National Accounts and some of the big challenges in the global economy. I can understand that this has been a source of some anxiety when it comes to Australians traveling there, but I'll leave the commentary on this, like some of the other questions, to our foreign facing colleagues.
