Press conference, Sydney
JIM CHALMERS:
A combination of global uncertainty, cost‑of‑living pressures and higher interest rates are weighing on our economy and slowing growth. These National Accounts today confirm what a lot of Australians already know, and that is higher interest rates and cost‑of‑living pressures are squeezing household budgets and slowing our economy at the same time. These numbers today are unsurprising and they are consistent with our expectation for a moderation in growth in our economy. Because of what's happening around the world and because of what's happening around the kitchen tables of this country, we have expected and we see in these numbers today that growth, momentum in the Australian economy is moderating as we expected and you see that in the detail. The economy grew 0.2 per cent in the three months to March and 2.3 per cent through the year. Again, they're not surprising numbers. These are the sorts of numbers that we anticipated when it came to our budget forecasts because of that combination of global uncertainty, higher interest rates and cost‑of‑living pressures as well. And we've seen a reminder of the global uncertainty in the World Bank figures, which show that global growth is slowing considerably and the risks are tilted to the downside ‑ and in the National Accounts figures today as well of course.
The rise in interest rates is clearly biting. We see that in the numbers because households are pulling back on spending, they're saving less and they are paying more in interest. Household consumption eased for the third quarter in a row. It grew by just 0.2 per cent in the quarter, and that's because households pulled back on discretionary spending to make room for the essentials in their household budget. The saving ratio fell to 3.7 per cent and that's the lowest since 2008. Mortgage interest expenses have doubled over the course of the last year and dwelling investment and activity in the housing market declined in the quarter as well. And those are all indicators which show the impact of higher interest rates ‑ as well as these cost‑of‑living pressures more broadly ‑ squeezing household budgets and weighing on economic growth in the economy more broadly. And with so many Australians under the pump, one of the pleasing aspects of these numbers is that household incomes grew solidly in the quarter, at the same time as price pressures in the economy were moderating. If you look at the wages and salaries number, it rose by 2.4 per cent in the quarter and 10.8 per cent over the year, and that's because more Australians are in jobs and earning more. This is the fastest growth since the June quarter of 2007. Disposable incomes also rose, which helped to offset some of the pressures on household budgets, which are still nonetheless considerable.
The data also confirms a view that we've had for some time, which is inflation is moderating from its peak ‑ not as fast as we would like. It will hang around for higher than we'd like for longer than we'd like but there is more evidence in this data today that inflation is moderating from its peak of around Christmas time. The National Accounts measure of consumer prices rose by six and a half per cent over the year to March. That's down from 6.9 per cent over the year to December. Obviously, we want these price pressures to moderate quicker than that but we are seeing more evidence in these numbers that prices moderating since their peak at the end of last year. We're also seeing some really welcome signs that business investment is picking up as the impacts of global supply shocks recede as well. New business investment grew 2.9 per cent in the quarter. That's partly a consequence of the easing of some of these supply chain pressures, which have meant that more businesses have been able to get more capital in place in their businesses.
We also saw some significant activity in renewable and electricity projects on the east coast, something that we support and we welcome. And while we've seen commodity prices come off a little bit, we are still getting really good prices for the things that we sell the rest of the world ‑ you can see that in the numbers. So we knew that this was going to be a difficult year given the challenges coming at us from abroad and here at home as well. And today's result really confirms those two things ‑ that people are under pressure and the global economic conditions are not helping either. This is why it's so important that the Budget a month ago put such a premium on what is responsible, helping to take some of the edge off these cost‑of‑living pressures without adding to inflation, at the same time as we invested in productivity and laid the foundations for future growth. And at the same time, as we showed considerable spending restraint, forecasting a surplus for the first time in 15 years, improving the Budget the most when the price pressures are the most acute. These are all parts of our strategy and this is why the Reserve Bank Governor has made it abundantly clear last week before the rate rise, today after the rate rise, that the Budget is not adding to inflation, and particularly next year, it's reducing inflation. This is a really important factor when we consider the causes of this rate rise yesterday. Rates went up yesterday not because of the Budget, not because people on the minimum wage are getting paid too much, but because these inflationary pressures in our economy are more persistent than we would like. We see that again in the National Accounts figures and in all of the ways, particularly that households are responding to the price pressures that they are under.
Now before I take your questions, I wanted to briefly touch on the announcements we made today about the payments system and also give you a sense of a trip to New Zealand that I'll be taking tonight for the next couple of days. So first of all, when it comes to the payments system, our objective when it comes to payments is to modernise our payments system so that it can be part of a more productive, more innovative, more competitive economy. We want our payments to be safe and accessible, we want them to be efficient, and we want to make sure that they are keeping up with developments in technology. The announcements that I made today when it comes to payments are more than catching up or patching up a system and regulations which have become out of date. It's about recognising the absolutely central opportunity of a more modern payments system in a more modern, productive, competitive and innovative economy as well. That's why we have released today a substantial reform agenda when it comes to modernising our payments, so that they can be part of a more modern economy as well ‑ central to our plans for growth in the economy.
Lastly, tonight I'll be leaving for Wellington, for two days across Wellington and Auckland. I'll be meeting with my wonderful counterpart, the New Zealand Finance Minister Grant Robertson. A big focus of the meetings will be climate change, and for part of the engagements I'll be there with Chris Bowen and his counterpart. I'll be meeting with the central bank of New Zealand, the Reserve Bank of New Zealand, I'll be meeting with economists and experts, the chamber of commerce and giving a speech in Auckland as well. This is a really important opportunity to make sure that the next 40 years of Closer Economic Relations are even more productive than the first 40 years that we mark and celebrate today. I'm looking forward to engaging with Kiwi counterparts across the ditch. It's an important way of making sure that our economic objectives are aligned in the interests of the people of New Zealand and the people of Australia simultaneously. Over to you.
JOURNALIST:
Treasurer, given that you say these numbers this morning show that the interest rate rises are starting to bite, given that those numbers are not a surprise, was it therefore in your view, a mistake for the RBA to increase rates yesterday?
CHALMERS:
Obviously, as the Treasurer, I don't pre‑empt and I don't second guess decisions taken independently by the Reserve Bank and its board. The Reserve Bank's got a job to do and I've got a different job to do. And you see in the Budget how I'm going about that job. The point that I made yesterday and the point that I'm happy to make again today, is when Australians are under the pump, I think many people will find it difficult to understand and difficult to cop the decision that was taken independently yesterday. And as we saw today, the Governor has opportunities - as he took today and that's a good thing - to explain and defend the decisions that the Board takes independently. So that's important. I also wanted to make clear yesterday, and I want to make clear again today, that ordinary working people in this country are already bearing the brunt of these rate rises, they shouldn't also bear the blame for them. And I was pleased to see, frankly, the Reserve Bank Governor acknowledged today that the important increase to the minimum wage is not what is pushing up interest rates in his estimation, nor is it in my estimation. We don't have an inflation problem in our economy because people on the minimum wage are getting paid too much, I think that's important as well. And I think it's self‑evident, frankly, that another interest rate rise yesterday will make life harder for people who are already under the pump. Beyond that, I cherish and respect the independence of the Reserve Bank, not just in my words but in my deeds. The reforms to the Reserve Bank that I want to put through the parliament are actually about making the Reserve Bank more independent, not less, because I think it's an important feature of our system. That's why I don't pre‑empt or second guess decisions that they take. The points that I'm making about the decision taken yesterday, I think, are thoroughly uncontroversial.
JOURNALIST:
How committed are you to bring inflation back to that two to three per cent band by the end of 2025, as is the RBA's aim?
CHALMERS:
Inflation was the defining influence on the Budget and it's the primary focus of our economic plan, in at least three ways. The spending restraint that we showed in the Budget would be unrecognisable to our predecessors. Banking 87 per cent over two budgets of the upward revision to revenue, finding $40 billion in savings, and trying to keep spending to where it was providing some cost‑of‑living relief without adding to inflation, and investing in productivity and growth into the future. And so a very responsible Budget, I think, more responsible than any of the budgets handed down by our predecessors in the circumstances, is a demonstration of our bona fides when it comes to fighting inflation and addressing the inflation challenge in our economy. And this is why the Reserve Bank Governor said last week and again today that the Budget is not adding to inflation, it's taking pressure off inflation, and that's been our objective.
JOURNALIST:
[Inaudible] do you think that there could be some wriggle room in that end of 2025 aim that the RBA's pushing for?
CHALMERS:
What do you mean by wriggle room?
JOURNALIST:
Would you be supportive of them potentially extending that, taking it into 2026 to bring inflation back into that band?
CHALMERS:
Again, I don't second guess the decisions taken by the Reserve Bank. Clearly, we have the same objective when it comes to getting on top of this inflation challenge as soon as we can. I think the Reserve Bank Governor acknowledged that as well. We all want to see inflation moderate as quickly as it can. And we need to balance that against all of our other objectives at the same time. This inflation is more persistent than any of us would like. This inflation will hang around higher than we'd like for longer than we'd like. That's why fighting inflation was a central feature of the Budget and the central feature of our economic plan more broadly.
JOURNALIST:
Treasurer, aren't you being a bit fancy with your words here? A bit tricky with your words here, because whilst you're not offering any criticism yourself of the RBA's decision yesterday, you're absolutely validating other people's criticism by saying many people will find it difficult to cop and you're saying that the Reserve Bank needs to defend its decision. So are you implying that it was a mistake without saying it was a mistake.
CHALMERS:
No, I think you're reading too much into that and let me tell you why. I think it's self‑evident that people are under the pump. You walk down the main street of any of our cities, towns, or suburbs or out in the bush and you understand that a lot of people are doing it tough, and we see that in the National Accounts figures today as well - I think that's self‑evident and therefore uncontroversial to point out that when interest rates go up, it makes life harder for people - I think that's a fact. When it comes to explaining the decisions that they take independently as a Reserve Bank Board - I think that's a key feature of the system as well - I think it's a good thing, frankly, that Governor Lowe made himself available today for some public commentary about the decision that he took yesterday and if you look at the Reserve Bank Review, a big part of the conclusions of that review, which I support is that the Reserve Bank Governor and their Board need to do that, so that people understand where they're coming from. That's an important feature of the system as well. I recognise that the Reserve Bank Governor's got a job to do, my job is different. My job is to try and address this inflation challenge in other ways by showing spending restraint, by making sure cost‑of‑living relief doesn't add to inflation, by investing in the supply side of the economy - I take responsibility for all of that, as I have over two budgets now. The Reserve Bank Governor has got a different job to do and he has the capacity and the opportunity to explain and defend how he goes about it.
JOURNALIST:
Just on productivity, to what extent do you think working from home is contributing to this productivity [Inaudible]?
CHALMERS:
I'm not sure about that. I haven't seen any kind of convincing or compelling data about that.
JOURNALIST:
You can't tell people to get back to work?
CHALMERS:
I think a lot of people would feel like they're more productive at home. Certainly there have been times during the last couple of years where I've felt that and I'm sure others have as well, if they've got the capacity to work from home, I think most people are trying to work some kind of combination of working from home or going into their usual workplace, that's not true of everyone. We've got a productivity challenge in our economy, which predated work from home. And that's why it's such a big part of our economic agenda is investing in productivity not by trying to make people work longer for less, but by investing in their skills and their capacity to adopt and adapt technology and to get the energy mix right in our economy. If we do those things, we can shift the needle on productivity, but it won't happen quickly. This challenge has been developing in our economy for some time, it will take some time to turn it around as well and I'm sure that there are more factors at play than just work from home.
JOURNALIST:
You've said there's been a moderation in growth - just 0.2 per cent in the March quarter. Does that indicate that this current quarter could very likely be negative growth?
CHALMERS:
Well, I'm not going to make predictions about the June quarter, I think it's really clear that a combination of higher interest rates, cost‑of‑living pressures and global uncertainty is weighing on growth in our economy and we anticipated that in the Budget, the Treasury forecasts reflect that and what we're seeing today is quite consistent with the Treasury forecasts for the economy around now. We've said for some time that we expect the economy to slow throughout the course of the next 12 to 18 months, for all of the reasons that I've identified and I think that will continue to be the case as these higher interest rates in particular bite in our economy.
JOURNALIST:
Just one more if you'll permit, Treasurer. Dr Lowe this morning confirmed that the wages decision, the 5.75 per cent increase, was a factor in the board's decision to increase rates. Admittedly, other factors too, but doesn't that contradict what you say? Who's right - him or you?
CHALMERS:
This is what Governor Lowe said this morning; "it's perfectly understandable for the lowest paid workers in the country to be compensated for inflation. It's tough, and we know it's tough. So it's perfectly understandable." Thanks very much.
