ABC RADIO NATIONAL BREAKFAST
THURSDAY, 5 SEPTEMBER 2019
SUBJECTS: National Accounts; Government without an economic plan; changes to the Government-RBA agreement.
HAMISH MCDONALD, ABC RADIO NATIONAL BREAKFAST: Jim Chalmers is the Shadow Treasurer. Good morning. Welcome back to Breakfast.
JIM CHALMERS, SHADOW TREASURER: Good morning Hamish.
MCDONALD: Are you talking down the Australian economy as the Treasurer says?
CHALMERS: Of course not. We all want the economy to pick up, and the point we're making is that hoping for the best or pretending that there's no problem, that's not an economic plan, it's not an economic policy, it's not an economic strategy and that's what's needed here.
MCDONALD: Growth might be flat, but inflation and unemployment are low. House prices are recovering. Infrastructure spending is up. Commodity prices are booming. Why then describe our economy as floundering?
CHALMERS: Because growth is half what it was a year ago and the worst in the 10 years since the Global Financial Crisis. People are worried about very stagnant wages, household debt is at record highs, household savings took a hit in the numbers that were released yesterday and the Government's in denial about all of that. They want to pretend it all away, and that's why they don't have a plan to turn things around. What we're saying is we want to play a constructive role in that, we all want the economy to pick up, that hoping for the best isn't a strategy and so we've made constructive suggestions about what the Government might do.
MCDONALD: Is it constructive though, to describe the broader economy as floundering? It is talking down the economy, isn't it? You would understand why people might listen to you and say, I might hold onto my money.
CHALMERS: Of course not, Hamish. I mean the alternative to that, is to do what the Treasurer has done which is to pretend that everything is hunky dory in the economy at the same time that people are genuinely and legitimately worried particularly about their wages and the fact that no matter how hard they work they just can't seem to get ahead. These are legitimate concerns that people have about the economy. We should be able to have a proper conversation about them. We've got a Government in denial over them and without a plan to deal with them and it's our job to keep the Government up to the mark. Pretending these issues away is not a plan, it's not a strategy, but that's what we need.
MCDONALD: The National Accounts show the slowdown is very much driven by the slump in consumer spending which has fallen to 1.4 per cent over the year. At the same time the household savings ratio is also down. People running down their savings but not pumping their money through the shops. Do you expect that to change once the full impact of the first round of tax cuts hits the economy?
CHALMERS: It remains to be seen. Obviously, we supported those tax cuts for people on middle and low incomes partly for this reason, because they are the most likely to spend it in our shops. We've had some very weak retail figures and you're right to point to the fact that consumption has been weak and that's most of our economy. That's because incomes have been weak for so long. People are running down their savings and people are jacking up household debt to record highs. All of those things together are troubling. It is one of the reasons we supported those tax cuts, to get more money flowing into an economy which desperately needs it. It remains to be seen how successful that will be.
MCDONALD: But it's fair to say that's what you would expect?
CHALMERS: Yes that's what we would expect, that they would help the situation. We don't know how much they will help the situation. We don't know whether they will be enough in the September quarter. That all remains to be seen, but we supported the tax cuts because they go to lower- and middle-income earners in the first instance and because we do need more money flowing through the economy. The economy is floundering. I don't walk back from that anguage. We need to do what we can to get more money flowing through our shops.
MCDONALD: But in terms of the response, the Government has the $14 billion worth of tax cuts filtering through the economy, plus record investment in infrastructure. You can also factor in the fact that we now have lower interest rates. What would bringing forward the mid-year budget update achieve, as you want?
CHALMERS: Because most of the infrastructure investment, Hamish, is on the never never and most of it doesn't come in in the next couple of years when we so desperately need it. Most of the tax cuts don't kick in until years down the track. The other thing which is important from yesterday was the Treasurer said that he would consider responding to our calls for investment incentives for business because business investment is around the weakest it's been since the early 90s recession. He said he would contemplate that but not until the budget and that will actually have a chilling impact on investment because if you're a business thinking about making a new investment you are now going to wait nine months until the budget to see what that incentive might be, and that might actually deter and defer investment away from when it's needed most which is right now.
MCDONALD: Is it fair to say that you want the Treasurer to deliver both stimulus to the economy and a surplus in the budget?
CHALMERS: The Government doesn't have to choose between a surplus and responsibly stimulating the economy.
MCDONALD: But that's not the question. Is that what you want? You want the Treasurer to deliver both?
CHALMERS: Yes and that's entirely possible. It wouldn't be surprising, Hamish, if the budget was already in surplus because of the amazing prices that we've been receiving for Australian resources. It wouldn't be out of the realms of possibility that the Government, or the budget is already in surplus. What we're saying is you don't have to choose. What the Government can do is they can update their forecasts, including update their forecasts for resource prices, they can bring forward the budget update, they can consider any of the things that we've been proposing around tax or Newstart or infrastructure or investment incentives. They can get energy policy right after 16 failed attempts. All of these things are possible - or some combination of them - to get the economy moving again without jeopardising that surplus.
MCDONALD: The figures show that 90 per cent of annual growth is coming from government spending by federal and state. Is there really capacity for Government to be doing more here?
CHALMERS: There is, and the Government should do more. They should at least have a plan to deal with the economy which has slowed remarkably over the last year, the slowest - as we said before - since the Global Financial Crisis. They have the capacity to do it. They just don't have the will to do it because they're in denial about our challenges.
MCDONALD: But I mean they're writing to the states about fast-tracking some infrastructure projects. I mean it's not like there isn't an acknowledgement of the need to get infrastructure moving.
CHALMERS: Infrastructure is off in the never never. They've written a letter to the states, that's all well and good, but they have the capacity to bring forward some of the investment that they've got out five and six and seven years away. They've got the capacity to do that. Not just that though. There are things that they could do in tax or Newstart or business investment or energy policy. There are a whole range of options available to them. They seem unwilling or unable to grasp those and in doing so they're selling the economy short.
MCDONALD: Okay can I just ask, step back slightly from this and look at the broader picture. We are all aware of the trade war between the US and China. We are still growing despite that. A number of countries like Germany, Sweden, Singapore, the UK all experienced negative growth in the June quarter. Is that the proper context for understanding our own results here?
CHALMERS: We take to that some remarkable advantages. You know, the strength of our resources sector, for example, is helping us. The fact that our dollar is now down at 67 or 68 cents is cushioning the blow of some of those sorts of issues. Most of our challenges are actually home-grown, Hamish. They've been around much longer than the escalation of those trade tensions between the US and China, for example. So the Government shouldn't be using these global developments - this global volatility which is there, and this concern is real - but the Government shouldn't be using those things as an excuse to do nothing about our domestic economy. There have been problems in our domestic economy left unattended for too long.
MCDONALD: But I mean those external factors are a huge influence, aren't they?
CHALMERS: They haven't been responsible for years now of stagnant wages which is feeding into weak consumption which is feeding into weak economic growth. What the Government wants people to believe all of a sudden is the escalation of these tensions is responsible for some years now of domestic economic weakness. We're saying they shouldn't use that as an excuse or as a reason not to do anything or to come up with a plan for our economy here at home.
MCDONALD: To be fair though we're not the only developed economy with problems regarding stagnant wages.
CHALMERS: No but what we're saying, Hamish, is that their failure to deal with these issues leaves us unnecessarily exposed to this global volatility. These problems have been around for a long time. They haven't been dealt with. Now all of a sudden we do have some genuine global volatility and we're more exposed than we should be because of some years now of developing and unattended problems in our economy at home.
MCDONALD: Okay. Let's talk about inflation. The Reserve Bank has a formal policy to keep the CPI between 2 and 3 per cent. That target has rarely been met in the past six years. Do you support the Treasurer's plan to revise that target back?
CHALMERS: We'll certainly take a look at it, and I'll make a constructive contribution to that if they publish the agreement or a draft of the agreement that they're intending to put to the Governor of the Reserve Bank. It's a bit unusual that it's taken so long to do this. This agreement is typically concluded by now, in the immediate aftermath of an election. We want to make sure that the Treasurer is not just trying to give the impression here that the problems in the economy are because the Reserve Bank hasn't hit their inflation target. As I've said repeatedly, I think the problem in the economy is because the Government doesn't have a plan to deal with it, but we'll look at it and we'll play a constructive role in it. If it's an improvement on the current agreement between the Government and the Governor, then we'll support it.
MCDONALD: Aren't these exactly the sorts of things that you want looked at? I mean you're saying that you want the Government to have plans, to have strategies, to make changes - isn't that the kind of thing that you're talking about?
CHALMERS: I said we'll take a constructive approach to it and have a look at it. If it's good we'll support it but the point that I'm making is this is not a plan for the Government to deal with the floundering economy. This is in some ways a plan for Josh Frydenberg to pretend that the problems are the fault of the Reserve Bank. My beef's not with the Reserve Bank, my beef's with the Government. This is not, on its own, a plan to deal with stagnant wages, or floundering growth, or weak productivity, or weak business investment.
MCDONALD: Jim Chalmers, thank you.
CHALMERS: Thank you.