Ten News First Breakfast 20/07/22

20 July 2022

SUBJECTS: Reserve Bank review, inflation, interest rates, October 2022 Budget.

The Hon Jim Chalmers MP

E&OE Transcript

SUBJECTS: Reserve Bank review, inflation, interest rates, October 2022 Budget.

LACHLAN KENNEDY, HOST: Welcome back. Federal Treasurer Jim Chalmers has bitten the bullet and will today announce a review of the Reserve Bank. It will be the first time the central bank has been reviewed by an independent panel in decades. Now, the RBA has come under pressure recently, particularly after flagging it wouldn’t be raising the cash rate before 2024 and then of course, as we know, hiking it 1.25 per cent over the past three months. Now, to tell us more, the Federal Treasurer joins us from Canberra this morning. Treasurer, is this a sign you’ve lost confidence in the Reserve Bank board?

JIM CHALMERS, TREASURER: Absolutely not, Lachlan. This is about making sure we can have the world’s best central bank, and that means giving the Reserve Bank the best possible set of arrangements, whether it be their objectives and mandates, their governance, their culture, the depth and breadth of experience and expertise that they have on the Board. These are the sorts of things we’re interested in. We’re not interested in taking shots at anyone. We’re not interested in exclusively looking backwards at decisions from the recent past. We’re interested in looking forward. My job as Treasurer is to give the Reserve Bank the best possible set of arrangements so that they can make the best decisions on behalf of the Australian people into the future, and that’s my focus.

KENNEDY: There is an old adage, though: if it ain’t broke don’t fix it. Obviously, you have identified things that you believe could be strengthened as you say if you want the best going forward.

CHALMERS: I think inevitably an institution which is as old as the Reserve Bank – it’s more than 60 years old in its current form and there hasn’t been a review done of the Reserve Bank since the early 1980s, certainly not since the current inflation targeting regime came into place in the 1990s and so it’s – I think, big institutions with crucial influence over the Australian economy shouldn’t be beyond the kind of review that we’re proposing today. And I’ve worked closely with the bank and with others to make sure that the terms-of-reference for the review are the right ones, forward-looking ones. It’s not about taking shots. It’s not about pointing blame. It’s not about second-guessing; it’s about looking forward to make sure that, as this important institution takes crucial decisions with big impacts on the Australian people, to give them the best chance of getting them right.

KENNEDY: As you say, we haven’t seen a review in decades. To your understanding, why has it taken it so long to be a review of the RBA?

CHALMERS: Well, it’s not something that my predecessors have made a priority. But I thought ever since I was in Opposition when I first started talking with Governor Phil Lowe about this and speaking about it publicly, I thought there was an opportunity to make sure that we’re drawing on world’s best practice, that we’re learning from history, but most of all that we’re engaging the best minds from here and overseas to have a proper look at the Reserve Bank and make sure that it’s got all of the arrangements it needs to make high-quality decisions. And I’m really delighted, the panel we’ve put together is absolutely first-class. The first three people I asked all said yes. There’s an appetite in the broader Australian community to provide some input into how the Reserve Bank does their job and that’s what I want to tap. There’s a lot of goodwill here. There’s a lot of interest here certainly in Australia and around the world. We’ve got a big opportunity here to get it right into the future and that’s my focus.

KENNEDY: Can I pick you up on that point where you said about “appetite”. Does that appetite, do you think, come from the fact that the public may have lost confidence in the RBA, particularly after we heard Philip Lowe talking about no rate rises before 2024 and then, as we know, what’s happened over the past three months – 0.25, 0.5, 0.5, bang, bang, bang. Do you accept that perhaps that appetite may come from people losing confidence in the RBA?

CHALMERS: Two things about that. Firstly, the Reserve Bank Governor has spoken at length about that issue that you describe, and he’s provided his reasoning for that, and he has been upfront with people about that. It’s his job to explain the decisions taken by the Reserve Bank Board. My job is – in addition to giving the bank the right arrangements, which is what this review is about – is to recognise that this big inflation challenge we have in our economy is not just about too much demand in the economy, which is the main focus of the Reserve Bank’s setting of interest rates but to also recognise we’ve got some issues around labour shortages and supply chains which our economic plan at a Government level, which we take responsibility for, is designed to address. And so in fairness to the Reserve Bank and in fairness to central banks around the world… not the easiest time to set interest rates right now. There is a lot of complexity, a lot of challenges in the economy. And I’d prefer to think of ways looking forward that we can all work together to deal with these challenges, rather than take potnshots at people looking backwards.

KENNEDY: It’s not only households, of course, dealing with rising interest rates but it’s also Treasury and yourself. You’ve flagged that you will be giving confronting news about the state of the economy when Parliament returns next week. That does sound pretty bleak. Can you give us an idea of what you’re talking about there?

CHALMERS: What I’ve tried to do since I’ve become Treasurer, Lachlan, is to be really upfront with people and engage in some real talk about what’s going for us – so low unemployment, some other issues which are going well for us in the economy – but also what’s working against us and we do have high and rising inflation which will get worse before it gets better but it will get better. That has implications for people’s real wages. And there’s no use pretending that we’ve inherited a Budget in perfect nick so we can spray money around to deal with some of these challenges in the economy. We’ve got severe budget constraints as well. And so, what the Ministerial Statement will do next week when the Parliament resumes is to be really upfront and really blunt about those challenges. And some of the issues I raise around inflation, in particular, but also the impact of interest rate rises on economic growth, I think some people will find that a bit confronting, but I think it’s important that people understand what we’re dealing with.

KENNEDY: In that spirit of transparency and real talk, as you put it, will you also be upfront about the Budget repair that you’re going to have to clearly undertake, or is that something that people will have to wait for, for Budget night?

CHALMERS: The Budget will be the primary opportunity for us to lay out the results of our audit of rorts and waste in the Budget, which is our primary way to deal with some of the poor-quality spending that we want to wind back in the Budget. But we’ve also got some other plans around multinational taxes, for example, and in other areas, to try to make sure we’re spending taxpayers’ money most effectively in areas which deliver an economic dividend and not just a political dividend.

LACHLAN KENNEDY: Treasurer Jim Chalmers, we know you have a busy day ahead. We really do appreciate your time this morning. Thank you.

JIM CHALMERS: Thanks very much, Lachlan.