Interview with David Koch, Sunrise, Channel 7

DAVID KOCH:

Treasurer Jim Chalmers joins me live. Treasurer, not a great Christmas present for home loan borrowers, do you think this will be the end of it or are we close to the top of the cycle?

JIM CHALMERS:

I think you're right Kochie, a very difficult Christmas present for a lot of Australian homeowners. The independent Reserve Bank taking the decision for the eighth consecutive time since before the election to raise interest rates that will make life tougher for a lot of people when they're already under the pump - I think we do need to recognise that. I think the issue here is that the impact on repayments is felt immediately when interest rates go up but the impact on the economy takes a bit longer to kick in. And that's why it is hard to forecast into the future what the Reserve Bank might do. I try not to pre-empt or forecast what they might do. But clearly - as you said rightly in your intro Kochie - there is a break next month and so the Bank board doesn't meet for another two months. And that will give them an opportunity to evaluate what's going on in the economy to see if further interest rate rises are necessary to get on top of this inflation problem that we have.

KOCH:

So you have the Treasury working for you, so you get all the insights, you can see how the economy is going right now and where it will go in the future. Are you starting to see a slowdown? Are you starting to see maybe inflation coming down in some of the key areas?

CHALMERS:

In terms of spending, we are seeing the very, very beginnings of a little bit of a softening. We had a softer monthly inflation number but it doesn't yet factor in some of these energy price rises that we're expecting, plus some of the impacts of the flooding on grocery prices. And so we're really cautious that we think the peak in inflation here in Australia is probably still ahead of us rather than behind us. That's obviously troubling to us but more importantly for Australians as well, there are still a few things to flow through there but we're seeing the beginnings of a softening in some of the some of the areas. But we've got the National Accounts out today as you would know Kochie - they are backward looking and therefore the September quarter - but they will teach us a bit about what's been happening in our economy. But again, I think it comes back to that point that I made before when it comes to the decisions taken independently by the Reserve Bank to jack up interest rates, the impact on people is immediate but the impact on the economy typically takes some months. And so there is still a bit of uncertainty when the full impact of these rate rises will kick in on the economy.

KOCH:

Okay, one of the big inflationary hits at the moment is energy prices. You're planning to put caps on, say coal prices and gas prices. What will that do for inflation? And are you going to compensate the states because you've got plenty of cash at the moment?

CHALMERS:

I think the energy price rises are the most challenging parts of the biggest problem we have in the economy, which is this inflation problem. Some of the costs are starting to come off in the economy, shipping costs, even some of the other things we've been worried about for 12-18 months is starting to come off. But energy is a bigger part of the problem because of the enduring war in Ukraine - pushing up energy prices around the world, including here at home. And so we are trying to take the sting out of that a little bit. There will still be price rises next year, but we want to try and limit them if we can, by doing something which is responsible and temporary and meaningful. And that does require us to work with the states but also the regulators, also the various industries. I'm worried about the pressure that high energy prices puts on Australians, I'm worried about the potential hollowing out of our industries, particularly our manufacturers that rely on gas. So we are looking for a way to intervene in the market for a period of time to take some of the sting out of those price rises.

KOCH:

Okay, a silver lining - some good news in all of this is that you do have plenty of cash - the Budget is basically in balance now after the deficit prediction was tens of billions of dollars - thanks to all the mining royalties coming in. That's good news. You've got plenty to spend, and plenty of money to subsidise.

CHALMERS:

The Budget is in deficit still Kochie. There was important analysis done by Chris Richardson earlier in the week. But the Budget is still in deficit. We’ve got deficits, we’ve got hundreds of billions of dollars in debt -

KOCH:

Only a tiny amount -

CHALMERS:

I don’t know about that Kochie, we’ll see. But if your point is that the Budget is assisted, if your point is that the Budget is helped by higher commodity prices, that’s obviously true. When energy prices go up, it's helpful for the Budget but harmful for our industries and harmful for Australian families. We take a pretty cautious approach to it but we still have big structural problems in the Budget. In the near term, we do well out of high energy prices in the Budget. But there's still structural issues in the Budget. The Budget is still in deficit, and that's why we have to be so rigid.

KOCH:

Yes alright, you do have a slush fund built in there because of the high commodity prices - and our bottle of red that I reckon your deficit won’t be nearly as big as predicted is still on for the end of June.

CHALMERS:

The deficit will be helped by high commodity prices, I do acknowledge that but it will still be in deficit. We are getting a return from this and we're letting it flow through to the Budget which is the most responsible thing to do.

KOCH:

Treasurer, good to see you, thanks for joining us.

CHALMERS:

You too Kochie, all the best.