Interview with Steve Cannane, RN Breakfast

25 September 2024

STEVE CANNANE: For the seventh consecutive month, Australian households were told yesterday that the Reserve Bank would keep interest rates on hold at 4.35%. While the decision to keep rates steady was largely expected, it follows last week's decision by the US Federal Reserve to cut rates for the first time in four years by a hefty half a percentage point, with more cuts flagged for the world's biggest economy. Later today, monthly inflation figures will be released, which may give us an idea if a rate cut would be coming soon or not. But there was no indication of that prospect from the RBA Governor Michele Bullock yesterday. Here's what she had to say. Okay, sorry, we don't have that bit of audio, but we'll come straight now to Jane Hume, Liberal Senator who's the Chair of the Select Committee on the cost of living, also Finance Spokesperson for the Coalition. Jane, thanks for coming in.

JANE HUME: Great to be with you this morning.

STEVE CANNANE: So, what was your reaction yesterday to the comments from the Governor of the Reserve Bank board.

JANE HUME: Well, I don't think there were any real surprises there. It certainly would be cold comfort to those hundreds of thousands of families in Australia that have a mortgage and are really struggling to pay the bills and put food on the table now because of those higher than expected interest rates and the reason why interest rates are staying higher for longer is because inflation is staying higher for longer and Michele Bullock made it very clear yesterday that inflation in Australia is two things. It's homegrown, so that means that you can't blame anyone else for it. It's not coming from overseas, and it's also sticky, which means it's much harder to come down. Now the RBA is doing everything that it can with the tools that it has and it only has one tool, and that's interest rates to get inflation under control. But the RBA economists told the Cost of Living Committee just last month that one of the reasons why it hasn't moved is because of that sustained public sector expenditure growth, and unless they see that expenditure growth number come back, well it's going to take longer to bring inflation back to band and bring interest rates down. They actually said that they expect that inflation won't come back to that band now until the middle of 2026. So that's about 15 months from now. It's about a year longer than Labor anticipated and forecast in their Budgets. That's the real concern. It means that the government isn't doing everything in its toolkit to bring inflation down.

STEVE CANNANE: Okay, we'll talk about public expenditure in a moment, but the headline inflation rate is set to fall in the figures announced today. That's the speculation. Economists have been estimating that it could be between 2 to 3%. That's good news, isn't it?

JANE HUME: Well, that's headline inflation, and the RBA have made it very clear that they don't look at headline inflation, because that can and has been manipulated through government subsidies. They look through that headline.

STEVE CANNANE (INTERRUPTS): So this is Federal and State cost of living relief that they're talking about.

JANE HUME: Yes, that, well, there was particularly energy subsidies. Energy prices and energy bills are part of that basket of goods that affects the CPI, that's headline inflation. The RBA look to core inflation, that underlying inflation, and that is still very sticky.

STEVE CANNANE: But that's good news for certain prices in certain areas, like energy, but not so good news for putting downward pressure on interest rates, right?

JANE HUME: Well, yes, it is, and yes it isn't, but no, it isn't, because it is only a temporary fix. Yes, of course, Australians who are really doing it tough, appreciated having a little bit of extra money in their pockets, but that's not doing inflation any favors and inflation is the ultimate thief in the night that erodes your purchasing power. It eats away at your savings, it reduces your standard of living, which is why it's so important to tackle it and tackle it at its source. That core inflation staying higher for longer means interest rates stay higher for longer, and we're all poorer for it.

STEVE CANNANE: So, one of the other factors here is the labour market is tight. It means the unemployment rate is too low, in a sense. So is that the government's fault, though, for if the unemployment rate is good?

JANE HUME: Well, we always want to see a sustained low rate of unemployment, certainly, and that seems to be the balancing act that Michele Bullock is making. She doesn't want to raise interest rates further, even though that would be the solution for the Reserve Bank, again, with the one tool that it's got to bring inflation down, because it is concerned about the effect on unemployment.

STEVE CANNANE: So, let's talk about government expenditure. Where do you think it's out of control? And what would the Coalition do if they were elected?

JANE HUME: Well, it's not just the Coalition that think that public expenditure, the growth in public expenditure is too high. It's the Reserve Bank, that's what they've said and you can see that there is plenty of undisciplined and unnecessary expenditure that the government has made.

STEVE CANNANE (INTERRUPTS): So where would you?

JANE HUME: Well, why don't we start with $13.7 billion of production tax credits to go to miners to do what they're already doing. There was a billion dollars for solar panels that, you know, is an industry in which will never be competitive. Even the government's own hand picked productivity commissioner says that there's

STEVE CANNANE (INTERRUPTS): You want to spend more than that on nuclear

JANE HUME: There's 36,000 new public servants, new public servants, just in the last two years alone. That's a real concern and you can get right down to the minutiae. You can talk about $620,000 for Bill Shorten to have a speechwriter to make him sound more empathetic. There is no shortage of undisciplined or wasteful or unnecessary spending that the Coalition wouldn't have proposed and we've blocked. We have, we have, you know, voted against legislation for some of that, you know, for you know, a majority of that around $45 billion worth.

STEVE CANNANE: So, an election is not far off. Would you cut those 36,000 public service positions?

JANE HUME: Well, we'll certainly make sure that we have an efficient and effective public service and you know, I'd be interested to know exactly what those 36,000 public servants are doing, because I don't know about you, but I don't feel 36,000 public servants better served than I did two years ago. So of course, there's going to be a reassessment of the size of the public service. We want a public service that serves Australians well, that's efficient and effective, but at the same time, we don't want, and taxpayers don't expect, a bloated public service.

STEVE CANNANE: We just heard from David Crowe from The Herald and The Age talk about how the Labor Government is asking for expert advice and modeling on ways it could scale back negative gearing and capital gains tax concessions. Look, there's no guarantee the government would follow that advice, but they're asking for it. What do you think should be on the table as a potential solution to the housing crisis?

JANE HUME: I find this extraordinary. I mean, I've read about this in the newspaper this morning myself, and you know, it was only this time last week that the Prime Minister was in this studio opposite Patricia Karvelas, when she asked about this, are you doing work to look at negative gearing? Are you doing work to look at capital gains tax? He looked her in the eye, and he said, those questions aren't very clever. Now, clearly they were very clever, because they are looking at exactly that.

STEVE CANNANE: So, is it clever to be open minded to all things, including capital gains and negative gearing?

JANE HUME: Well, it's not clever to look at policies that could affect housing supply, and that's one of the concerns that the Coalition has with negative gearing. In fact, if you remove tax incentives for investors, then they are less likely to invest in new housing and they're more likely to raise rents of rental properties.

STEVE CANNANE: Does the Coalition have a policy on supply at the moment? Because certainly seems to have a policy on accessing your superannuation, which a lot of economists say would increase house prices.

JANE HUME: Well, we will go to the next election with a housing policy that we will announce at a time of our choosing, rather than, I'd love to be able to announce policy on air today, but I'm not going to.

STEVE CANNANE: Just quickly. We've got about a minute to go. Former RBA Governor Bernie Fraser has argued the RBA should be cutting rates because of recessionary risks looming. Do you agree with that?

JANE HUME: I think that we have to leave the decisions about rates to Michele Bullock and to the RBA board. They have been very consistent and very stable and very persistent in their effort to reduce inflation. That is their number one goal. Inflation makes Australians poorer. That's why it's so important to bring it back down. The RBA doing their bit. We expect the government to do the same, but they have failed in that quest.

STEVE CANNANE: What about the second part of what he says there? Do you think recessionary risks are looming?

JANE HUME: We would hope that there isn't a recession on the horizon. But in fact, we're already in a per capita recession. If it wasn't for those high immigration rates, a million people in the last two years alone, we would already be in recession. We've been in a per capita recession for six quarters in a row.

STEVE CANNANE: Okay, Jane Hume, we'll have to leave it there. We're coming up to the news, but thanks for coming into the studio.

JANE HUME: Appreciate it.