Interview with Patricia Karvelas, RN Breakfast

8 November 2023

PATRICIA KARVELAS: In a move many had predicted, the Reserve Bank has again lifted the official cash rate to 4.35%, it's the first rate decision under the governorship of Michelle Bullock, who argues that while inflation has passed its peak, it's still too high and more persistent than expected. The Government has conceded it will make life harder for many households, with some economists warning it will prolong the rental crisis or worsen housing supply and further push up house prices. Jane Hume is the Shadow Minister for Finance and our guest this morning. Jane Hume, welcome.

JANE HUME: Good morning, PK.

PATRICIA KARVELAS: Was this the right decision by the RBA?

JANE HUME: Well, the RBA has really been left with no choice and they sent the Albanese Government a very, very direct message yesterday and that is that they need to do more to get inflation down. While it's going to be an extraordinarily tough decision I think for many Australian mortgage holders. In fact, you know the concern is that the Government's had their eye off the ball. They've spent the last 17 months focused on the wrong priorities and in fact that cost of living crisis has been getting worse and that's been driven by higher and higher inflation. Yes, those numbers came down, but the core inflation, that sticky inflation remains, it's stubbornly high and in fact, just the last quarter's worth of inflation was much higher than forecast. So of course the RBA has had to act. It has been trying to put its foot on the brake for a long time now. This is the 13th interest rate rise under this government. But unfortunately Labor still has its foot on the accelerator and that means the RBA has to do all the heavy lifting in the tackle for inflation.

PATRICIA KARVELAS: So let's go to this accelerator point you make. Yesterday, I understand you argued that under the Coalition you'd spend $188 billion less. What would you cut? Can you be specific about what you wouldn't be spending?

JANE HUME: We took to the last election a budget that outlined our spending priorities. The government, when it went to the election, had a higher rate of spending in its priorities, and since then it's delivered two budgets that have explicitly said that they are going to spend $188 billion more. Now, there are certainly areas that we wouldn't have pursued, and we made that clear prior to the election. For instance, there's $45 billion of off balance sheet funds and the IMF have specifically said that off balance sheet funds cause further inflation and yet the government has persisted with those measures. They've also persisted with things like taxes on farmers, taxes on truckies. We know that those taxes will get passed on to the cost of groceries.

PATRICIA KARVELAS: When you say these off funds, please outline them. You're saying, for instance, which funds would you not be spending money on? What would you cut?

JANE HUME: We've been very clear about that. There they have a fund for rewiring the nation. They have a fund for the Housing Australia Future Fund. They have a fund for the National Reconstruction Fund. All of those funds that are off balance sheets sound terrific. An off balance sheet fund sounds like it doesn't affect your budget, but it does because this is borrowed money and of course it does add to inflation. The IMF has specifically said that. The IMF have also said that we need to tackle, you know, coordinate between the States and the Commonwealth, their infrastructure programmes and of course, Jim Chalmers has used that as an opportunity to point to somebody else and say it's their fault. He's already pointed to Vladimir Putin and said it was his fault originally. He then pointed to the Middle East and now he's pointing to the States. But unfortunately the Commonwealth Government has to do its fair share of the heavy lifting.

PATRICIA KARVELAS: Of course the Commonwealth Government is key, which is why we're speaking to you and we speak to the Treasurer and it's important to find out what the alternative strategies are. When you say all of these off budget balance sheets, that doesn't make the $188 billion though, does it?

JANE HUME: No, it doesn't. But these are alternative strategies that were put forward by the Labor government.

PATRICIA KARVELAS: So what is the rest of the money that you would be saving?

JANE HUME: Well, there's an awful lot of programmes that this government has been funding or more importantly, has failed to tackle. We know that there are cost blow-outs in, for instance, the NDIS. They've said that they are going to bring down expenditure on the NDIS from 14% per annum to 8% and yet there is not a single policy that demonstrates how they're going to do that. They've said they're going to bring down aged care, the costs of aged care and yet there isn't a policy to do that and we have said as an opposition that if the Government can find a way to do that, if they can find reforms that will reduce those burgeoning costs, then we will support them as long as it isn't simply just a, you know, a blunt tax.

PATRICIA KARVELAS: So you've said, I mean, if you look at the numbers that we currently have, you've said that inflation is out of control. Is that your view?

JANE HUME: Well, inflation is certainly much higher than it should be.

PATRICIA KARVELAS: Is it out of control?

JANE HUME: Well, the reason why inflation interest rates are higher than they should be is because inflation is lasting longer and Michele Bullock has made it very clear that the RBA's going to have to keep acting if inflation doesn't come under control sooner. It's not just that headline inflation, it's that sticky core inflation that's not being driven by international factors. Core inflation actually removes the seasonal factors. Core inflation is being driven by domestic factors. That's something the Treasurer simply cannot acknowledge right now. Michele Bullock said it very specifically at estimates that services price inflation is now what is fundamentally fuelling that sticky inflation that they have to respond to. That is the responsibility of the Commonwealth Government.

PATRICIA KARVELAS: So you don't you're now saying it's not out of control, it's just too high. It actually peaked in quarterly terms under your then government in the March quarter of 22. That was at 2.1%, was it out of control then?

JANE HUME: It was driven directly by two things. One of them was supply chain issues that were a hangover from Covid. They've gone now.

PATRICIA KARVELAS: They haven't all gone, they haven't all gone.

JANE HUME: They have largely been alleviated. I think we can agree on that, Patricia and the second thing was, of course, Russia's invasion of Ukraine, which instantly pushed up fuel prices. Those were the two factors that drove that first quarter of inflation. But now inflation has set in. It's been baked in and inflationary expectations, which means that which is one of the great drivers of more inflation, ironically, have also set in. People think that higher prices are going to remain and that actually causes higher prices to remain, which is why we are calling on the government to have a plan to actively tackle inflation, not just the cost of living, because when you tackle the cost of living, that's terrific, but it only tackles the symptoms, not the causes. We want the government to come up with a plan to tackle the causes because if they don't, the RBA will have to keep raising interest rates.

PATRICIA KARVELAS: So, Jane Hume, you say under you inflation was too high, but it was international factors. But how can it all of a sudden not be international factors? If you look at some of that core inflation, for instance, we know that there are absolutely global factors in it. Fuel, for instance. That's a global factor, isn't it?

JANE HUME: Well, actually, fuel is taken out of the core inflation figures, but more importantly, when inflation began, of course, there were those impetuses. That was why we put forward a fuel excise cut back then, because that was the driver, that was the driver of inflation. But now there are different factors that have set in and can I just remind you that at that time that Jim Chalmers said Australians don't give a stuff what inflation is doing overseas, that's the bar that he set himself back prior to the election. Now of course he's trying to point the finger at everybody else, whether it be Russia and Ukraine, whether it be, you know, Israel and Gaza and the Middle East and fuel prices there and now, of course, he's pointing to the States and saying, oh, well, it's your fault because it's your infrastructure projects that are fuelling inflation. At one point, the government has to take responsibility and say, what can we do to bring inflation down? And one of the first things they can do is look at their spending program.

PATRICIA KARVELAS: Well, they have certainly already announced that they understand that infrastructure is an issue. The IMF identified infrastructure as an issue both at a State level and at the Federal level as well. The government has said there will be action on that. Do you support those measures?

JANE HUME: Well, it depends what the measures are. Quite frankly, I don't think you can take an infrastructure review seriously if it doesn't include the boondoggle that is the suburban rail loop in Victoria. I mean, let's face it, this was an infrastructure project that didn't have a business case that the Victorian Auditor-General said the business, whatever business case there was, didn't stack up. Yet, the Labor Government committed $2.2 billion of taxpayer money to it without so much as a plan on the back of a napkin. Now it's expected to blow out to around $134 billion for a piece of infrastructure that no one can really say we need. And yet at the same time, they're trying to cut things, potentially really important programmes like, you know, a fast rail to Geelong, one of our fastest growing suburbs. So, you know, this is a really a serious infrastructure cut program or you know, that is aimed at bringing down inflation or is it just, you know, a program of convenience? Let's face it, this was a 90 day review that was supposed to be undertaken by Catherine King. It is already 200 days overdue. So you know, I've got to scratch my head and wonder how seriously they're taking this or whether they're just looking to point the finger to somebody else to say the blame lies with you.

PATRICIA KARVELAS: Jane Hume we're out of time. Thank you so much for joining us.

JANE HUME: Great to be with you, PK.