Category: KB

Source: Australian Treasurer

JIM CHALMERS:

Growth in the Australian economy has been soft, certainly softer than we would like. But I think it’s important to remember that most of the OECD has had a negative quarter or worse in the course of the last year or so, and Australia has avoided that.

That’s because we’ve struck a really effective balance. We’ve maintained a primary focus on fighting inflation but at the same time as we haven’t ignored the risks to growth. Growth is very flat in our economy. It would be much worse had we cut harder in the Budget.

KAREN TSO:

The government stimulus certainly helped avoid some of the worst of what was the downturn predicted from here. But reduced air travel was a big feature, a bit of a fad as Australians stopped turning up to some of those bands going on tour as well, which is a feature we’ve seen in other economies as well. Are interest rates now simply too high for the economy?

CHALMERS:

As you know from the last time that we spoke, Karen, there are good reasons why Treasurers of either political persuasion in Australia don’t give free advice to the independent Reserve Bank. They will take their decisions based on the best information that they have to hand.

My job is to focus on what I can control – delivering 2 surpluses for the first time in almost 2 decades, showing spending restraint, finding savings in the budget. All of this is part of our strategy to put downward pressure on inflation at the same time as we help people through what has been a very difficult period.

TSO:

But you and I both know there is a balance between fiscal and monetary policy where you don’t want to be doing too much on the fiscal side. Are you approaching that? Is it time for monetary policy to step up?

CHALMERS:

I don’t see it exactly that way. The Reserve Bank Governor has herself said that the 2 surpluses that we’ve delivered – again, for the first time in some decades in Australia – that’s helping in the fight against inflation. Our fiscal strategy is helping in the fight against inflation. We’ve found savings in the budget. We’ve shown spending restraint when we’ve got upward revisions to revenue.

We’ve made sure that where we are providing cost‑of‑living help, it’s in the most responsible way that we can. That’s because we do recognise the role for fiscal policy and for budget management in the fight against inflation. That’s our primary focus.

But we’re doing that at the same time as we recognise there are risks to growth and we want to maintain the gains that we’ve made in the labour market in the last couple of years. There’s been a million new jobs created in the Australian economy. That’s the first time that’s happened in a single parliamentary term. We want to preserve and maintain as much of that as we can.

TSO:

Another big government in the region is stimulating – the Chinese government. In recent weeks we’ve seen measures from them to try and shore up property market, to move along some of the local government debt and also help with the consumer appetite for consumption. I asked the Brazilians this question, whether Chinese stimulus equalled better growth rates for Brazil, and the response was, it’s not that simple. How do you feel? Is it that simple – China grows, Australia grows too?

CHALMERS:

There is a relationship between Chinese growth and Australian GDP growth. The rough rule of thumb that our Treasury uses is every extra per cent of growth in China is about a quarter of a per cent for Australia. That’s the rule of thumb that has been applied in the past.

We see the steps announced by the Chinese authorities as really positive for Australia. One of the main concerns we have about the global economy – primarily escalation in the Middle East, the war in Ukraine obviously – but a softer economy in China does have consequences for Australia and, indeed, for the global economy.

So we are very welcoming of the steps that the authorities have announced. As it turns out, I was in Beijing when they announced some of those additional measures. We see that as a very good thing for Australia, but we still maintain some element of concern about growth in the Chinese economy.

TSO:

Do you think they’ll have the same thirst for Australian resources that they’ve had in the past?

CHALMERS:

I think the mix will change over time. We’ve got big opportunities in our resources base in Australia, not just in the Chinese market, in the global market more broadly.

But we have seen in the iron ore price, for example, there has been some volatility. After these measures were announced by the Chinese administration there was an increase in the iron ore price. That’s obviously a good thing for our economy and our exporters and for our budget. But over time demand for different kinds of resources will shift.

TSO:

No shortage of politics in the room here in DC – a US election around the corner, everybody’s trying to work out what it means if it’s a Trump versus a Harris win. You’ve done some modelling on this. Just give us a sense as to what you’re thinking about the implication if potentially it is a Trump win, which seems to be the scenario that could be more disruptive of the markets.

CHALMERS:

Obviously 13 days from the US election there is a lot of talk here in Washington DC, as you’d expect, about the outcomes of that.

We don’t have a dog in the fight when it comes to the outcome of the US election. That is a matter for American domestic politics, and we’ll work closely with whoever the Americans choose to lead them.

But like every country, we have done some scenarios, some planning for the different kinds of policies that the different administrations might enact. We don’t make that public necessarily, but we do think through the various scenarios that may play out.

We’ve made it very clear here and on other occasions as well, we don’t want to see a trade war in our region or in the global economy. We think that would be costly. But we don’t involve ourselves in the domestic political choices or policy choices that the Americans have before them.

TSO:

To the point around the trade issues, bilateral relations with Beijing have certainly improved, as you just pointed out you were there. And, for instance, what are we seeing now? Australian rock lobsters are back on the menu, Australian wine no longer costing $116, 218 per cent higher thanks to tariffs. So there’s clearly been more warmth in the relationship. Could that be derailed if there’s a much more hawkish tone coming out of Washington in coming weeks which puts pressure on the Australian relationship?

CHALMERS:

I don’t really want to speculate on that. We have made some really quite substantial progress when it comes to stabilising, what is a very critical economic relationship for Australia. The lifting of those trade restrictions on lobster and wine are examples of how our efforts have been paying off.

But it’s a really complex relationship. It’s full of complexity. It’s full of opportunity. There are areas where we have to disagree with China, but there are areas where we can work together and stabilise that relationship. We’ve seen the benefits of that already. And that’s because we believe as a government you get more out of engaging with people than not, and that’s proven to be the right strategy.

TSO:

Which is a different change to the last government in some ways. And on that note, it is a sea change from the 2016–2020 era when it was a Trump administration. It was also a conservative government in Australia versus your left‑leaning Labor government. Your policies have been more aligned with Biden’s – the Inflation Reduction Act and climate change policy. So what sort of a reset could you be facing around climate change? Do you hope that there’s still a commitment from the next administration towards climate change?

CHALMERS:

I think the net zero transformation in the global economy is the biggest change since the Industrial Revolution. That will be the case no matter who leads one country or another country. We’re confident that there is enough enthusiasm for and commitment to the global net zero transformation around the world that that will carry on. We want to be a really important part of that.

Our Future Made in Australia agenda, which is a bit like the Inflation Reduction Act here in the US, that’s not about retreating from the world; that’s about engaging with the world, making ourselves an indispensable part of the global net zero transformation. And that will be the case no matter who the Americans choose to lead them.

TSO:

You specifically have weighed in big time into energy and climate policy in recent years. As we’ve seen some data this week from the UN suggesting we’re on course for a catastrophic 3.1 degrees Celsius by the end of the century, IMF staff have also highlighted the need to mobilise quickly. We’re counting down to COP29. Do countries including Australia need to ramp up their ambition around green goals?

CHALMERS:

We’re plenty ambitious about emissions reduction and about the economic opportunity that lies at the very core of that.

Here at these meetings in DC I’ll be joining the Climate Change Minister Chris Bowen, and that’s because we recognise that the environmental and emissions reduction task brings with it enormous economic opportunity for Australia – jobs and opportunities for our businesses, our workers and our investors. And so we see those 2 things as intertwined.

Yes, there needs to be ambition from the world to avoid the worst aspects and the worst outcomes and consequences of catastrophic climate change. We believe there is a lot of goodwill, there is a lot of commitment, but we all need to do better.

For Australia, we’ve got ambitious targets. We need to make them a reality, and we need to make sure that as part of that we grab the economic opportunities as well.

TSO:

How frustrated are you about the EV story? Because from a European lens we’ve got automakers with big goals that they’re having to then concede are not going to be reached. We’ve got declining appetite – and that’s not just in Europe, it’s also in the United States. Prices have been an issue, but in Australia potentially less so. Charging seems to be an issue, having the infrastructure. I can see you’ve done a tonne of things trying to stimulate demand, but it’s simply not catching on. You still don’t have the same level of interest in changing to EVs. What’s going wrong?

CHALMERS:

I’m not sure about that. EV take‑up has been increasing in recent years, and that is partly because of our policy agenda – our tariff cuts and our tax cuts, which are about incentivising EV take‑up, they have been working.

But we recognise in the global market for EVs there are some issues playing out, including decisions taken here by the Americans as they relate to Chinese EVs.

We’ll take our own decisions and we’ll make those decisions based on the best available information. But we believe in the future of EVs. I think Australians do too. And where we can help that with good policies like our tax policies right now, we’ll continue to do that.

TSO:

Do you think governments are going to have to start thinking about full‑blown cash for clunkers type of programs to try to get some motivation into EVs?

CHALMERS:

That’s not something that we’re considering. That policy has some history, as you know in Australia and around the world. It’s not something that we are contemplating.

I think the key here is making sure that the tax arrangements are right, and we’ve made those 2 important changes to incentivise take‑up. We need to make sure we’ve got the supply so that Australian drivers, motorists, have got choices and that EVs are affordable. That’s our priority rather than some of those other options that have been put forward from time to time.

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