THE HON JIM CHALMERS MP
TREASURER
MEMBER FOR RANKIN
E&OE TRANSCRIPT
TELEVISION INTERVIEW
SKY NEWS BUSINESS NOW
TUESDAY, 7 JUNE 2022
SUBJECTS: Interest Rate Rise; Inflation; Reserve Bank of Australia.
ROSS GREENWOOD, HOST: Joining me now, the man who has the responsibility for the Australian economy, Treasurer Jim Chalmers. Treasurer, can I start off by saying that the Governor of the Bank of England has warned it’s a narrow path they’re on trying to defeat inflation, but if there’s a slip, there could be a recession. I just want to start by asking you: is recession a risk if things go wrong here in Australia as well?
JIM CHALMERS, TREASURER: I’d certainly not want to go down that path of speculating about something like that, Ross. I think that we do have some things going for us in this economy. We’ve got a tight labour market but we have high and rising inflation which are accompanied by these rising interest rates. We’ve got falling real wages and we’ve got a budget which is characterised by a trillion dollars in debt. So, what we’ve tried to do in the two and a half weeks that we’ve been in office, is to acknowledge those things we have going for us, but also to be up‑front and honest and not mince our words about the challenges before us. I think today’s interest rate rise is recognition that we do have that high and rising inflation, certainly more significant inflation than what was predicted by our predecessors in the last budget. That’s what the Reserve Bank is confronting. That’s what the Australian Government is confronting and that’s what the Australian people are confronting too.
GREENWOOD: Okay. So, the worst scenario would be stagflation where at some point an employer decides to put off a worker, and unemployment starts to rise as well. That’s going to be a consequence of rising interest rates and rising costs. At what point do you start to get worried about that because that impacts not only families but also your budget?
CHALMERS: My view, Ross, is that we can have a strong economy and a better future, but that requires us to navigate this tricky set of circumstances we’ve got at the moment. Inflation, the most problematic part of which is spiking energy prices but also high prices for groceries and building materials, and the combination of that with what has been almost a decade of wage stagnation is that we’ve got real wages going backwards. I’m confident Australians can get on top of these challenges in time if we work together, but, first of all, we need to recognise, acknowledge, the magnitude of the issues before us and to go about responsibly dealing with them.
One of the reasons why I wanted to hand down a budget in October, rather than wait until May next year is because we need to get our economic plan in place and budgeted for, which is all about growing the economy without adding to these inflationary pressures. It’s all about getting real wages moving again, and it’s all about trying to get more value for money from all of these borrowed dollars in the budget which for too long have been directed at political purposes, rather than economic purposes. So, those will be the tasks of the October budget, to try to get the budget on a more sustainable footing at the same time as we invest in that growth without adding to the sting of high inflation.
GREENWOOD: I was going to ask you how you do that? How do you actually add to costs in child care, in the NDIS, and indeed in a cost‑of‑living package that you are now talking about? How do you actually spend that money as a Government without adding to inflation?
CHALMERS: I’m pleased to get the opportunity to answer that. I heard you talking about this on Kieran’s show a bit earlier on, and what we need is to do to build the capacity of the economy. We do have capacity constraints in the economy around skills shortages and labour shortages more broadly. We do have a big pool of untapped labour when it comes to parents, particularly newish parents, and we need to make it easier for them to work more and earn more if they would like to. We need to invest in some of the big drivers of industrial growth into the future, whether it’s advanced manufacturing or the care economy or other important sectors. This is how you get growth which is broad and inclusive and sustainable without adding to those inflationary pressures is by dealing with those capacity constraints in the economy at the same time as we try to get to the other side of some of these other issues, which are temporary, in the energy market.
If we do all of those things together, if we implement our economic plan, which is about getting value for money in terms of growth without adding to inflation, if we get real wages moving in a sustainable way based on productivity growth, then we give ourselves every chance to have that stronger economy by navigating the next – the difficult period which is immediately ahead of us.
GREENWOOD: That would be the soft landing, the preferred soft landing of the Government and the Reserve Bank, but the Reserve Bank today in its statement, basically, says that there’s more rate rises coming. It says based on the economic conditions it sees into the future, that it will indeed normalise monetary conditions in Australia in the months ahead. So again, Australian families have got to be prepared for higher costs, and indeed those higher costs might end up being played out into the higher prices at the stores as well because businesses will have to absorb those higher interest rates as well.
CHALMERS: A couple of things about that, Ross. I mean, you mentioned the soft landing-hard landing dichotomy and earlier on you were talking about the tricky situation in some of the other major advanced economies and I think there is a fear in some of these other countries where inflation is much higher than it is here that monetary policy risks threatening growth in those economies whether it’s the US or the UK or elsewhere and we’re obviously monitoring that risk as well. What we want to achieve here in Australia, the bank wants to achieve it, the Government wants to achieve it, Australians need us to achieve, which recognises these inflationary pressures, goes about responsibly dealing with them and gets Australians to the other side of this really quite serious inflation problem in the economy.
Clearly, the Reserve Bank as well has been pretty up‑front. Since before the election they said that we’re on a trajectory of rising interest rates. All of the analysts suspect that the one before the election and this one today won’t be the end of the matter. That’s the universal expectation in the market. So yes, Australian businesses and Australian households, particularly homeowners will need to brace for more of these kinds of interest rate rises. This is the tricky balance that the Reserve Bank is trying to strike, how do we deal with this high and rising inflation in a way that manages the problem without overmanaging it. That’s the challenge before the Reserve Bank and it’s a challenge for the Government too.
GREENWOOD: Okay. I want to go to the Reserve Bank, and you’ve flagged there will be a review of the Reserve Bank and its function. Now, it’s well‑known that the Reserve Bank missed inflation targets over a period of time. Do you believe over the long term and given even some of the forecasts that interest rates would not rise until 2024 that the Reserve Bank has served Australian people well during this period of time?
CHALMERS: I think as you would expect, Ross, I’m not into second‑guessing or taking shots at the Reserve Bank. They are capable of explaining and defending their own decisions. My interest in the Reserve Bank review is to make sure that we have got the objectives and the targets and the personnel and the institution right to get the balance right between monetary policy at their end and fiscal policy at our end right. I want to do it not by picking unnecessary fights, but by working with the bank and with every interested stakeholder in a collaborative way to make sure that we’ve got best practice when it comes to the setting of interest rates.
Hopefully, quite soon, Ross, I will be able to announce, after I’ve consulted with my Cabinet colleagues, a process for this review. I’d like it to report next year, perhaps towards the middle of next year, to give people a really good opportunity not just to go through the decisions that the bank has taken, but much more importantly than that, to consider some of those other structural issues. In our history, over a long period of time, the Reserve Bank, our central bank, has been a key strength of our economic policy architecture. We want that to be the case into the future, so now seems to be a good time to ask those questions and to involve and to invite a whole range of submissions and views from right around the economy to make sure we’re doing it as best we can.
GREENWOOD: Treasurer Jim Chalmers, always good to catch up and many thanks for your time today.
CHALMERS: Appreciate it, Ross. All the best.
ENDS
