Interview with Greg Jennett, ABC Afternoon Briefing
7 June 2023
GREG JENNETT: There's a consistent argument put forward by the Coalition that last month's Budget hasn't helped. So how does it shift its thinking on Budget measures? We spoke to shadow Finance Minister, Jane Hume, earlier. We should note that, due to the Senator's commitments, we had to talk before the latest GDP figures were released by the Bureau of Statistics. Jane Hume, always good to have you on the program. Why don't we go to Governor's Philip Lowe's speech in Sydney this morning. He reiterated that the federal budget was broadly neutral and monetary policy that he is in control of is of course quite restrictive at the moment. What is the Coalition actually arguing that the Budget should be right now? Are you arguing for it to be deflationary?
JANE HUME: Greg, in the October budget, in fact the day after the October budget, Jim Chalmers said that inflation was Public enemy number one. He said slaying the inflation dragon was his priority, and yet in the May budget, the objective of reducing inflation was actually removed from the fiscal strategy, and that was our concern. Because if you remove the objective of reducing inflation, if the government waives the white flag with the leap is that it can pull on inflation, it's leaving all the heavy lifting to the RBA, and that's what we've seen. So even if you have a neutral budget, you've got a contractionary monetary policy. A big spending budget, it shouldn't be any surprise that you'd then see an interest rate rise soon to follow.
GREG JENNETT: Alright, you've had enough time to look at this budget and absorb the statements made sense it, particularly yesterday, by the Reserve Bank board. How much more needs to come out of it, in your assessment, and does it alter your attitude towards budget measures, which you may have supported but now you feel you can't?
JANE HUME: Well, I think that Philip Lowe made it very clear yesterday and the board made it very clear yesterday that there are still some risks on the horizon, particularly around expectations, inflationary expectations. Of course one of the drivers of inflation is inflationary expectations, so trying to manage those expectations is really important, which is one of the reasons why the language that the reserve board users are so strong. And the other risks that Philip Lowe pointed to, and indeed he did so today as well, was persistent wage rises that come with that accompanied productivity growth, because unless you've got productivity growth to accompany those wage rises, that too is inflationary. And we know that getting inflation down is the number one priority, it must be the number one priority, because it is the ultimate thief in the night. It erodes your purchasing power, it erodes your savings, which uses your standard of living and any cost-of-living relief that a government can then provide gets eaten up immediately by that increase in inflation. So this must be the number one priority, alongside those productivity increases that will ensure that wage rises are sustainable into the future.
GREG JENNETT: I will come to wages in the moment but by that argument, why and how would the Coalition continue to support the energy price relief component in the Budget, if it itself is potentially inflationary? I know it is argued on the numbers that it's not, but it is still government spending, right?
JANE HUME: So the energy price relief of course is going to those who need it the most, but it is only temporary and Philip Lowe said it himself last week that when that energy price relief comes off, it will in fact fuel further inflation. More importantly, to get energy prices lower sustainably, we need to increase supply, and there was no message about increasing supply in this budget. In fact, all of the measures that this government have taken, all its interventions in the energy market, are deterring new investment, rather than attracting it. We want to make sure that we can attract new investment, particularly in areas like gas so that increased supply can bring prices down in a sustainable way.
GREG JENNETT: OK, so you won't be supporting the petroleum resource tax increase by that logic?
JANE HUME: Well, no, the petroleum rent resource tax is something we have been considering for some time. Indeed it is something that the industry itself has been asking for. However, it comes on top of market interventions, price caps, all of that becomes cumulative on the gas industry in particular. We want to make sure that there are opportunities for investors to come in and open up new gas fields. It doesn't matter whether it is in Scarborough or Bass Strait or Beetaloo, these are opportunities to invest in new gas fields that will bring the price down of gas sustainably into the future. It is really the only way that we can meet that transition to a net zero emissions economy.
GREG JENNETT: I understand that argument but just on the proposed increased, the Coalition will be supporting it, right?
JANE HUME: Well, that will go through our normal Cabinet processes, but I will say that it is something that the industry itself has asked for, on the condition that there is no further intervention in the gas markets.
GREG JENNETT: Now, the narrow path that Philip Lowe talks about towards bringing inflation back into the target sounds like it's narrowing. How narrow, when you consider the overall health of the economy? Are we a step closer towards potential pathway towards recession?
JANE HUME: Well, we would certainly hope not. Philip Lowe did have some messages of hope there. He pointed out that we have the lowest unemployment rate in decades, lowest youth unemployment rate in almost 30 years, that there was a lot of good foundations in our economy, but there are certainly a number of risk elements as well and one of them was productivity growth. Unfortunately what we saw in the Budget was that productivity growth has actually forecast to decrease over the forwards and the medium term, and I think that is something we should be very concerned about. Things like lower energy prices could improve productivity. More flexible workplace practices can improve productivity, reducing red tape and increasing competition, that can improve productivity, but there doesn't seem to be any of those things in this budget. In fact, we're hearing from the government, messages that are quite contrary to that, particularly around industrial relations, which will push up wages without those corresponding productivity increases which fuel inflation further. If you fuel inflation further, it lasts longer, then unfortunately the RBA will have to keep pushing up rates.
GREG JENNETT: Do you acknowledge that on the productivity question, which is complex business, I know, but this is the continuation, merely, and he is highlighting it, the continuation of a trend that actually began quite some time ago, even before the pandemic, certainly through the years of the Coalition in government?
JANE HUME: Well, Philip Lowe set we haven't seen productivity levels, that they have only really gone back to 2019 levels, of course during the pandemic he would have found businesses concentrating on simply staying afloat, not improving productivity, but now that focus is to shift to making sure that those productivity gains are alongside those wage rises, because unless we do that, the pain will just continue to be prolonged. The RBA will have to do all the heavy lifting, which is why we are looking at messages from the government about making sure that productivity is enhanced, that wage rises aren't pushed through, causing a potential for a wage price spiral, making the situation worse. That would be the biggest risk to the economy.
GREG JENNETT: That much is clear, that is a shared concern that the governor has expressed. Last week and again today. Jane Hume, we will leave it there and I'm sure return to some of these themes in discussions again before too long.