Interview with Laura Jayes, AM Agenda

7 August 2024

LAURA JAYES: Welcome back. As you would have seen, the RBA kept rates on hold yesterday. Just two weeks ago, we were talking about a prospective rise yesterday that didn't happen. That is the good news. The bad news is a rate cut is not going to happen for quite some time, probably well into next year. Joining now is the Shadow Finance Minister, Jane Hume, who has been questioning, she's the Chair of the Select Committee on the Cost of Living, and she's been questioning one of the Assistant Governors of the RBA, Dr. Sarah Hunter, over the last hour. Jane, thanks for popping out to talk to us, thanks so much. So, what's been the most illuminating thing out of the Senate Committee about where the RBA is headed?

JANE HUME: Laura, the RBA today confirmed a lot of what Michele Bullock told us yesterday, that the chance of inflation coming back to that target band of 2 to 3% has been pushed out yet again and now isn't expected to come back to that band until the end of next year. It does seem like every time the Reserve Bank meets, that forecast when it's going to come back to band gets pushed out further and further. It was great news that there wasn't a rate hike yesterday, but the most telling piece of information for me was that a rate cut wasn't even on the cards. Michele Bullock made it very clear that it was either a hold or a hike that they were considering, not a cut at all.

LAURA JAYES: But why do you think that's a surprise given the data we have available at the moment?

JANE HUME: Well, certainly the data that we've been hearing about today shows that there are continual supply constraints on the economy, that the economy is still running hot. That was the phrase that Dr. Hunter used today and there was one forecast in there that I think was the most disturbing, which was that public spending, so that's Government expenditure, the RBA’s forecast for that has increased from 2.1% to 4.1%. So it's nearly doubled their forecast of government spending, and that, of course, is fuelling inflation further. It's like the Government has its foot on the accelerator, but the RBA has its foot on the brake, and that's why we're not getting inflation down fast enough.

LAURA JAYES: But it still seems to be in line with the predictions that were in the Budget that inflation would be back in that target band by the end of the year or early next year. Do you think that is where we're headed?

JANE HUME: Well, certainly headline inflation, which is going to be artificially deflated by some of those Government largesse around assistance with bills, and particularly energy bills, that is expected to artificially bring down headline inflation. But it's amazing, when you look at the data, how quickly that ticks up again, almost by a full percentage point, the moment those subsidies are taken away. So you can understand why economists are calling those subsidies smoke and mirrors, an artificial way of bringing down headline inflation. But the RBA have said that they're going to look through those policies anyway to that core inflation, that trimmed mean inflation, and that is still proving, unfortunately, very sticky and as the RBA themselves have said, it's homegrown. We're seeing inflation and interest rates now come back in comparable countries, but it's still staying way too high here in Australia, and that means that Australians are paying the price. The Cost of Living Committee has heard right around the country that Australians, particularly low income earners, are doing it tough. The charity sector is trying to pick up the slack, but they're facing their own pressures. They're seeing twice as many people come through the doors as they ever have before, and a lot of the charities are telling us, if there's one thing that the Government can do to help them deliver better services, more services, to people in need, it would be to get interest rates down. Now that's an extraordinary thing to come from the charities sector, but it speaks to the importance of this issue. Why it's so important to get inflation back down, because it erodes your savings, it eats away at your purchasing power, and it reduces your standard of living. It's the number one priority of the RBA, but they've only got the one tool and the shed in which to do it.

LAURA JAYES: Well, sure, but one final question on this, is that when you look around the world, one thing that Australia has been able to do, and it's been described as an experiment, is bring inflation down, perhaps not as fast as we want it to come down, but the pace is directly related to the preservation of jobs. Do you support this experiment of doing that, given how the jobs market has held up?

JANE HUME: Well, this is the narrow path that the RBA talks about. Trying to make sure that they can slow down the economy, without tipping the economy into recession. That public spending figure, though, that public spending forecast, is of great concern, because it does suggest that while the economy is slowing, it's only public spending that's maintaining economic growth, and you can see that in things like 36,000 additional new public servants, and of course, the costs and the wages that go with that, seem to be propping up the economy. While the private sector is really tanking, and that's a concern. That's where we're seeing the job losses. That's where we're seeing the insolvencies, and that should be a concern, because otherwise it's unsustainable and that might tip the economy into recession. It's a hard road for the RBA to walk. They need the Government to walk alongside them and walk in the same direction.

LAURA JAYES: Just a quick one, that's just occurred to me. Dom Perrottet, in his valedictory speech yesterday, described himself as the political love child of John Howard and Paul Keating. But yesterday he said that vaccine mandates were wrong in hindsight. Do you agree with him?

JANE HUME: Well, I think it's actually worth looking at a lot of the policy decisions that were made during covid, that exceptional period of time, and assessing what worked and what didn't. What was a good policy and what was a bad policy, not just around health decisions, but also economic as well. That's something that potentially we haven't done. Some of those support mechanisms that we put in place for businesses may well apply appropriately in environments like we're facing now, I think that that would be worth reflection. I'm so glad you didn't ask me who I'm the political love child of.

LAURA JAYES: Who are you? You’re a regular on the program. So I'll ask you next week, some homework for you indeed, and look, just to mention as well, there is a review of the decisions made during covid. But what the Government, this Government, this current Government, caught flack over at the time, was not including the decisions taken by the states, and that has remained while this review is going on at the moment and I still think, you know, there's time for the Government to reverse that decision. I hope they do. What do you think?

JANE HUME: So important. It is so important. This was a national crisis where all levels of Government were involved, and so all levels of Government and their decisions should be assessed.

LAURA JAYES: Okay, Jane, thanks so much. We'll see you soon, and we'll let you get back in there.