PRIME MINISTER: These past two years have seen some of the most extraordinary events that we could have ever witnessed, the pandemic, the global recession that it caused. Australia during these times has faced our greatest challenge indeed since the Great Depression and the Second World War. In response to that, our Government, through the single largest economic intervention that any government has undertaken in this country, together with the Treasurer, and the then Finance Minister and the Cabinet put in place JobKeeper, saved 700,000 jobs, put in place the cash flow boost ensured we retained the apprentices, provided the tax incentive for businesses to invest. We did all of that to ensure that the Australian economy would come through this pandemic and more importantly on the other side, we would be able to excel and to be able to grow. And the result of those policies has been an economy that has outperformed the advanced economies of the world, both in terms of employment and economic growth. The settings that we put in place to provide this support to get the Australian economy through were indeed extraordinary and unprecedented. But the Australian Government was not the only agency who was taking such action. One of the hallmarks of the success of coming through the pandemic was that government policy was aligned with the policy decisions of the Reserve Bank. And indeed the Governor of the Reserve Bank and Deputy Governor, together with the Treasurer and I would speak regularly about our responses to the pandemic and the responses of the Reserve Bank supported what we were doing and vice versa our responses were to support what the Reserve Bank was doing. And as a result, here we are today an economy that is coming out of this pandemic stronger than most of the advanced economies in the world today. And so it is and so it is today that the Reserve Bank has made a very important statement about where we are now in our journey out of this pandemic. And I’ll use their words, exactly. They speak today that the extraordinary support that was put in place to help the Australian economy during the pandemic that it is appropriate to start the process of normalising monetary conditions. They refer to the unemployment rate declining now to around 3.5 per cent by early 2023. The lowest rate of unemployment in almost 50 years. They refer to economic growth in Australia also remaining positive with Australian GDP to grow by 4.25 per cent over the balance of this year. And importantly, they say that household and business balance sheets are generally in good shape. They do refer, as we’ve remarked already over the course of the past week, that inflation has picked up significantly and more than expected. As I, as I recounted to you this morning and yesterday, the International Monetary Fund just 12 months ago was estimating that in global inflation would be running at 3.2 per cent. They revised that to 7.4 per cent globally. In that same report, they upgraded Australia’s economic growth forecasts while downgrading global growth forecasts. The Reserve Bank Governor says that the rise in inflation is largely reflecting global factors. Importantly, he states that wages growth has been picking up, which I know from our discussions with the Governor and the Treasurers that this has been an important sign the Reserve Bank has been left looking for. So they conclude, given both the progress towards full employment and the evidence on prices and wages, some withdrawal of the extraordinary monetary support provided through the pandemic is appropriate.
Australians have been preparing for this, and as a result the Bank has decided to increase the cash rate by 25 basis points. Australians have been preparing for this for some time. Throughout the course of the pandemic, we have seen them double their buffers on their mortgages. And we have seen them move from variable rates to fixed rates, double the proportion on fixed rates. But importantly, we’ve also seen them strengthen their own balance sheets in preparation for what they always knew would not be the continuation of extraordinarily low rates from the Reserve Bank. That was not something that Australians reasonably thought would go on forever. And the Reserve Bank have made that very clear today in saying that they were extraordinary cash rate settings for an economy such as Australia.
But the Government, our Government, has been preparing for this also. We know that cost of living relief was necessary in the Budget. We knew about the rising prices that were coming, particularly because of the single largest energy shock we’ve seen around the globe since the 1970s. And we knew that that would have an impact on Australians getting back up on their feet. And so as a result of the significant turn around, as a result of our economic plan in this year’s Budget, we were able to provide that cost of living relief, to provide that shield, as we’ve provided that shield across this pandemic to Australians and Australian businesses that have kept them in jobs, that have kept their businesses open, that have protected their incomes and ensured that Australians can come through far more strongly than so many other countries around the world. Now I know Australians would be saying, well, what’s happening in the UK, in the United States and in Canada and Germany and France, what good is that to me if my prices are going up? Well, what that shield has done has ensured that what others are experiencing in other countries has not happened to the same extent here. Those 8.5 per cent interest rates, those 8.5 per cent inflation rates in the United States could have been here. Those almost 7 per cent inflation rates in New Zealand could have been here. All of those pressures that have had those more serious impacts in other countries, just like the death rates from COVID that were overseas, all could have happened here. The shield that we have put in place through our strong economic plan has prevented that from occurring. And it is true that, of course, a 25 basis point increase in the cash rate, of course, for those who will be paying more, that will be harder. And we understand that. That’s why tax reduction has been a key objective of our Government and is ongoing. That is why supporting businesses who themselves face higher rates now as a result of this have been supported with increased tax deductions in the most recent Budget and ongoing support. It has all been about having a strong economic plan that understands the global environment, which we’re operating. And I’ve said all the way through this campaign, whether it’s the strong pressures on interest rates, which we’re seeing around the world from the extraordinary lows settings that we’ve had, the strong pressures on inflation that are occurring all around around the world, war in Ukraine, of course, the impacts on global supply chains caused by the pandemic and the continued lockdowns and shutdowns, particularly of what we’re seeing in China, that will all continue.
The stresses and challenges we face economically continue into the future. So the choice that Australians face is, as you see, the Bank make that decision today, who do you want to rely on to ensure that we can minimise the impact of these pressures on your household budget, on your business? A government that has shown the strength with a strong economic plan to take us through this pandemic or an untested and untried Labor opposition that we know can’t manage money and that we know doesn’t have an economic plan. And we’re less than three weeks away from the election. And a Leader of the Opposition, a Leader of the Labor Party who only three weeks ago didn’t even know what the cash rate was and now thinks he’s better able to manage it. From our side, what we’ve done is have a clear economic plan which we believe has shielded Australia. And I think the economic evidence points that out and the statement by the Reserve Bank Governor today reinforces the strength of the Australian economy under that plan. Treasurer.
TREASURER: Well, thank you, Prime Minister. Today the Reserve Bank of Australia has reaffirmed Australia’s economic strength and Australia’s economic resilience. Australia is going through an economic recovery that is leading the world. We have an unemployment rate at just four per cent, the equal lowest in 48 years. And today the Reserve Bank has said it will go even lower to 3.5 per cent. Our economic growth forecast has been upgraded by the International Monetary Fund, while the rest of the world has been downgraded and the Reserve Bank today has said wages are picking up. And in the Budget just weeks ago we upgraded the wages forecast for each and every year. But as the worst of the pandemic is behind us and health restrictions are eased, fiscal policy has normalised. As the Prime Minister has said, we brought to an end JobKeeper, the COVID Disaster Payments and other emergency economic support. And today the Reserve Bank has started its walk along the path to normalising monetary policy with an increase of 25 basis points in the cash rate, just as other central banks around the world have done. In the United States, the Federal Reserve has lifted its cash rate by 25 basis points in the United Kingdom, by 65 basis points, in Canada by 75 basis points, and in New Zealand by 125 basis points. And just as the Morrison Government has had the back of every Australian during this crisis, we continue to have their back. And in the Budget we announced cost of living relief with a halving of the fuel excise, the extension of the low and middle income tax offset by $420, the $250 payments that are now going to the pockets of Australians, and cheaper and more affordable medicines for more than 2.4 million Australians. These are serious economic times. It is not a time to change course. It’s a time to maintain a steady and experienced hand at the helm.
JOURNALIST: Prime Minister, has your, has your Government just lost this election?
PRIME MINISTER: Of course not. What today is about is what Australians are seeing as a result of our economy coming out of this pandemic. The suggestion that somehow the Reserve Bank ending emergency level monetary policy support to the economy because our economy is growing, growth forecasts have been upgraded, unemployment is falling further, wages are increasing. These are the things that Australians want to see in their economy. They want to see growth. They want to see jobs. They want to see the improvement in wages that the Reserve Bank Governor himself is now saying is occurring. We do know that the Reserve Bank have been looking to see that improvement in wages as one of the key issues that needed to be addressed before they started to address rates. And they’re seeing the evidence of wages rising. And these are economic outcomes that our policies have been working towards as well. So we have seen catch rates, the average over the last 30 years 4.5 per cent, they’ve been sitting at 0.1 per cent since November of 2020, November 2020. And what has occurred in the last 12 months has been two things. The first has been an energy price shock, the likes of which we have not seen since the 1970s. Firstly, pushing up inflation, which has seen the IMF themselves significantly upgrade their forecasts as I said, from 3.2 per cent inflation to 7.4 per cent inflation. Now Australia’s inflation rate is sitting at 5.1 per cent and 8.5 per cent is what is occurring in the United States. So what we’ve seen is a change in the inflation outlook caused by the events, particularly in Europe, but also the hangover effects and the continuing pressures caused by the pandemic. The other part is this, and that is the Australian unemployment rate is falling even further. Now they’re predicting it to get to now 3.5 per cent. That is even further than we had earlier thought. So Australians getting into jobs, Australians getting better wages, the Australian economy performing better than other countries. These are things that Australians voted for at the last election and our Government is delivering.
JOURNALIST: Just a double banger if I could. Given the obvious political ramifications of this decision, are you disappointed the Bank didn’t wait until it seen the official wages data on May 18? And secondly, as for the retail banks, given history has always shown they’re quick to pass on these on mortgages, would you like to see them show equal haste with deposit rates?
TREASURER: Well, Prime Minister and you, Phil, the banks will take their own decisions. And as you as you know, we’ve always encourage them to to to make the changes that have been made by the Reserve Bank. The the decision of the of the Reserve Bank today is an independent one of Government and both the Prime Minister and I have been consistent in that. They have said publicly that what they wanted to see before they moved on interest rates were two things. One was that inflation was sustainably within the band and we know that inflation is running now, as the Prime Minister just said at 5.1 per cent, and they also wanted to see wages pick up. And in today’s statement they made it very clear that wages are picking up. And I also referred to that in terms of the Budget and the upgrades that we have made. So we don’t have an axe to grind with the Reserve Bank. They are independent of Government. They have to make decisions based on what they are seeing through the economy. But it is very, very important to underline the fact that these are global factors that are driving up inflation. Both the COVID pandemic, which has seen supply chains disrupted and the war in Ukraine, which has seen a spike in fuel and other commodity prices. And in the inflation numbers, we saw a 35 per cent increase through the year with fuel prices, which was the single biggest increase in fuel prices since Iraq’s invasion of Kuwait back in 1990. And as the Prime Minister referred to, other countries are seeing higher inflation rates than Australia is seeing right now. So these are international factors having an impact here at home. But it would be completely unreasonable for any objective analysis to think that emergency level cash rates and monetary policy could stay indefinitely. It had to normalise and it’s actually a reflection of an economy coming back to life after the shock of the pandemic.
JOURNALIST: Treasurer, the Prime Minister, has talked about the prudent planning of Australian households. Part of that planning for many of them was the RBA’s guidance only six months ago and for a long period that the cash rate would remain on hold 0.1 per cent until 2024. Do you think the RBA Governor should have provided different guidance? Got that wrong by providing such a date guidance? And should that kind of communication that people have relied upon be part of the review that will happen after the election?
TREASURER: Well, I’m not going to provide a running commentary on either the RBA or the Governor himself, other than to say, as the Prime Minister said, we have a very positive, constructive and effective working relationship where fiscal policy and monetary policy have been in sync through the crisis to Australia’s benefit. And you can now see that in the headline numbers. But I point this out to you. As you know, the council and financial regulators met not that long ago and increased the serviceability buffer to 3 per cent, meaning that households going into into new mortgages had a buffer in place to deal with rising interest rates. We also know that both households and businesses have built up more than $450 billion on their balance sheets that was not there at the start of the pandemic. As the savings ratio comes down and health restrictions ease, this money will be spent across our economy driving economic activity and driving down the unemployment rate. So I have great confidence in the state of the Australian economy right now, but also in the ability of Australian households to deal with the challenges they face.
JOURNALIST: The last time that interest rates rose during an election, John Howard said that he was sorry about it and that he had sympathy with mortgage holders. So on that, do you also have that same sympathy with mortgage holders that for the most part that that they’ll be paying about $50 more every month on their repayments for the average loan?
PRIME MINISTER: Well a 25 basis point increase on the average new home loan – which is about $600,000 – that’s about, it’s just over $80, close to $85. And so, of course, I have sympathy with that. And of course the Treasurer does and the Government has, and we expressed our concern about that in what we did in this year’s Budget. It’s why we’ve reduced taxes. It’s why we cut the fuel tax in half. It’s why we’ve provided support to pensioners. It’s why we’ve ensured on the 1st of July of this year that Australians will keep more of what they earn, $420 when they put their tax return in. We’ve taken practical action to ensure that the impacts of these types of decisions we’ve addressed before they have even occurred. Now what was occurring in 2007 are very different to what we’re seeing now. The cash rate back then was 6.5 per cent. Today it’s 0.1 per cent today. Today the cash rate is at levels that have been put in place in the middle of a global economic crisis and which was caused by the global pandemic. That wasn’t the case back in 2007. And I would say as you read through the Reserve Bank Governor’s statement, you will find no reference to any fiscal policy measures of the Government that has led the Reserve Bank to make this decision. What the Reserve Bank Governor refers to is the strength of the economy, the strength of household balance sheets and of business balance sheets. And in fact, if you go to the RBA’s financial stability review, particularly where it goes to the stress that Australians are currently in, they say the share of non-performing loans has declined to 0.7 per cent, the lowest level in recent years, and this has been mostly driven by fewer non-performing housing loans. Now what does that mean? It means the same thing that the Treasurer and I banked on, assumed, as we went through this global crisis. And that was the resilience and good judgement of Australians and that’s what Australians have been doing. They have been preparing for when these emergency type arrangements would subside, just as JobKeeper was taken away. And I remember the Labor Party saying, Josh, they were saying you take JobKeeper away and the unemployment will go up. Now it didn’t. More people got into work. And similarly, the strength and resilience of the Australian economy, the Bank has made a judgement about, and the resilience and strength of Australians household balance sheets about what they can now start doing in terms of getting Australia back to more normal arrangements. Yeah, Jono.
JOURNALIST: Prime Minister, can I just ask, only a matter of weeks ago you handed down a Budget which is now in many regards is out-of-date, the inflationary figures were wrong, and the RBA has told people for some time now that interest rates wouldn’t go up until 2024. At the heart, the very heart of this election, comes down to trust, who do people trust. If they can’t trust the Budget, which is only less than a month old and they can’t trust the RBA, how do they trust your Government or any government?
PRIME MINISTER: Let me pick up a few points on that. The Budget is made up of many different assumptions and forecasts. The Budget has made very conservative forecasts about commodity prices.
PRIME MINISTER: Assumptions about inflation, also go to nominal revenue growth. And so when you have higher rates of inflation, your revenues will actually be higher. And so that also impacts on what the average- the total Budget outcomes are. My point is, my point is, Jono, is that –
JOURNALIST: The [inaudible] payments will also increase.
PRIME MINISTER: I know. There are many swings and roundabouts in what goes into a Budget and there are many different figures that make up the ultimate outcomes. And so to pick one figure here or one figure there, I think doesn’t properly reflect the complexity of what goes into a Budget. But the broader point is this, you make a very good point, and it was similar to Phil’s question before, what are the implications as we over the next three weeks, go forward to that election about today’s decision? Well, I’ll tell you what it is. This highlights the pressures that are on the Australian economy. I have been saying from the first day of this election that this election is about the future of our economy and who has the strong economic plan and who has the credentials that this Government has shown to take Australia through this pandemic, economic crisis, stronger than pretty much every other advanced economy.
That’s our record. A record that has got unemployment down to 4 per cent. A record that has seen more than 400,000 people in jobs after the pandemic than there were before. A record that is seeing apprentices staying their jobs and have the highest number of apprentices in trade training since 1963. A record that has seen us retain our AAA credit rating, one of only nine countries in the world to do so during the course of this pandemic. Or a Labor Party that has no economic plan, and with less than three weeks out from an election, and a Labor leader in Anthony Albanese who didn’t even know what the cash rate or the unemployment rate was three weeks ago.
JOURNALIST: Prime Minister, thank you so much. Interest rates are tipped to increase every single month from this month, all the way up until Christmas and possibly beyond. With all due respect, hasn’t your shield started shattering right before your eyes and taking you back to Andrew’s question, do you not, do you not want to say sorry to the Australian people for what they’re about to go through?
PRIME MINISTER: Well, I sympathise with Australians as they face higher cost of living pressures. I sympathise with Australians when they face higher repayments on their homes. Of course I do. And that’s why we’ve provided the relief in the Budget that is the function of our strong economic plan. I mean –
JOURNALIST: And your shield’s not shattering?
PRIME MINISTER: Absolutely not, because of what we’re seeing. And when you when you look at what Australia is experiencing compared to – look across the ditch in New Zealand, look across at Canada, Canada –
JOURNALIST: We don’t live in New Zealand.
PRIME MINISTER: …which is – and you’re right, you don’t live in Canada and you don’t live in New Zealand. And what we have avoided in Australia is what is happening in those countries. And Australia’s economic policy shield that has seen our economy through these last two years is also what it is setting us up as we set out in the Budget for the decade ahead. Now, when you look around the world, there are few places that people would rather be than right here in Australia. And the reason for that is, is the way we’ve steered this country through one of our most difficult times. And so you’re right, the stresses are great, the pressures are intense. And we haven’t even begun to talk about global security issues. So at a time like this, as we get close to this election, why risk it? Why go in another direction? Now is not the time to turn back.
JOURNALIST: Prime Minister, you keep saying, praising Australians for being prepared for this rate rise by saying that a lot of them have switched to fixed mortgages. But the RBA itself notes that about 90 per cent of these within two years will expire, exposing those mortgage holders to price rises and shocks. In the shield, the $250 is being spent right now. The $420 offset on taxes will be gone by the end of July. The fuel tax excise ends in September. What is in the shield for the people on these fixed mortgages when they end in what will be the next term of the Government you hope to form?
PRIME MINISTER: Well, there are three things. The first one is unemployment is falling to 3.5 per cent. And you know what banks look at most of all when they’re assessing someone for a home loan? A job. That is what they use to most significantly assess the risk of their loan book across the [inaudible] mortgages they have across the Australian economy. And Australians in work is the best fortification to them being able to pay their bills and pay their mortgages. The second point is this, lower taxes. If you were on $90,000 today, if we kept the income tax rates at the level we inherited from the Labor Party, you would be paying $50 more a week every single week going forward. That’s what you’d be doing. Your taxes would be higher and in the next term we have already legislated to ensure that between $45,000 a year and $200,000 a year, you will pay no more than 30 cents in the dollar. Now, that is a reduction from 37 cents and 32.5 cents. And it means with every single extra dollar you make, as the Reserve Bank Governor has said, as wages are beginning to rise. You won’t have a government taking more out of your pocket. You won’t have bracket creep. And I think that’s incredibly important to provide them with that support. And the other essential part of this is a strong economy means that we can continue to guarantee the essential services that Australians rely on. Yes, they have built their buffers and they have been preparing for this time. And it’s important that through a strong economy we continue to guarantee the essential services and how we provide pharmaceuticals and Medicare and all of these things which you can’t guarantee without a strong economy. So- and I should have mentioned, as Josh already has, when the bank, I should say, APRA, put in place the lending criteria that meant that mortgages were being assessed at levels 300 basis points higher than what mortgages were being offered at. And that was the prudent financial regulation that we’ve seen in this country, which has also sought to protect people. There are no absolute guarantees in life. We all understand that. But I’d rather be living in a strong Australian economy which has had this record and the economic safeguards that are in place to give Australians the biggest opportunity, I think, that we’ve seen in this country over the next decade, that we’ve known since the post-war period.
JOURNALIST: On cost of living, are you not pouring kerosene onto an inflation bonfire by providing cost of living relief just before an election? Isn’t this making matters worse at exactly the time the RBA is trying to take heat out of the market?
PRIME MINISTER: Well, I’ll let Josh speak to that, but my answer is no. And that was certainly the advice we had from Treasury.
TREASURER: That’s right, Prime Minister, Treasury were before the Budget Estimates and they were asked a very direct question about the extra support in the Budget, whether or not it would have a material impact on inflation. They said no.
JOURNALIST: But was that based on inflation figures before the last update?
TREASURER: Well, that was based on the measures that were in the Budget, which is what you’re going to which is about driving up demand because we’re providing cost of living support.
JOURNALIST: And is it now appropriate though, given that inflation is higher than many people expected?
TREASURER: Well –
JOURNALIST: Budget’s (inaudible)…
TREASURER: Well –
TREASURER: The Budget’s not –
JOURNALIST: But inflation figures are out of date. Are they not?
PRIME MINISTER: Forecasts updated every six months on a Budget and there are lots of changes that occur between Budgets and mid-year statements. That has been the case for all of the eight Budgets that I’ve done and all of the Budget updates that I’ve done as well. And that’s why you update them every single six months to take account of the changes in global and domestic economic circumstances. But what I, and what we have always demonstrated, is that our forecasting and our estimates have always been conservative. Take what had happened in the most recent Budget. Our outlook improved by over $100 billion in just 12 months. That was the biggest Budget turnaround we’d seen in 70 years. And so there are swings and roundabouts that occur with the estimates that you put into Budgets. But what our Budget policy has been, both with myself as Treasurer, Josh as Treasurer, and then going back to before that when I was on the Expenditure Review Committee with Treasurer Hockey, is that we always took a cautious approach and that means that’s where you’re able to see as a result of our economic plan, that turnaround of $100 billion, which has enabled that relief. So I go back to the Reserve Bank Governor’s statement himself to answer your question. There is nothing in that statement that suggests what you’ve asked. Nothing at all.
JOURNALIST: On wages, I think it’s safe to assume that low income workers are going to be harder hit by this. Labor has spoken about, you know, making a number of submissions to the Fair Work Commission, calling for lifting wages, minimum wage and also, you know, for those care workers who are female dominated on lower wages. In this context, is that not actually a sensible suggestion?
TREASURER: Well, the Fair Work Commission is the independent umpire. And as you know, there’s a major case going before in relation to the care workforce. What we are seeking to do is to drive up wages by driving down the unemployment rate and to create an –
JOURNALIST: When it’s an Award Wage, when it’s an Award Wage, does the Government not need to make suggestions to the Commission?
TREASURER: We provide advice to the Commission about the economic context in which they are making decisions. They make the decisions in respect to the cases before them. And that’s really important to understand. And by the way, it’s been a consistent practice by governments of both political persuasions. But the key is here that we are driving down the unemployment rate. And what you’ve seen in the statement from the Reserve Bank today is they are seeing proof of wages rising across the economy, including in the private sector, and I think that’s a good thing.
JOURNALIST: Prime Minister.
PRIME MINISTER: The other thing is, I’m not a believer in the magic pin theory that the Labor Party seems to have. They have this magic pen which enables them to write to people and all of a sudden people’s wages go up. Labor Party thinks that prices will be lower, because they’ve got some magic wand that they’ll wave, because they certainly haven’t set out any policies that achieve that outcome. And some magic pen writing off to the Fair Work Commission is not going to change that outcome either. They’re an independent commission which will make a decision based on the evidence and the facts before them.
JOURNALIST: Do you make (inaudible)?
PRIME MINISTER: I don’t overstate the level of influence that the Government or anyone else should have. But they have talked about some policies and we saw the policy they announced on the weekend.
Just like they announced an aged care policy that fell apart after a couple of days when they didn’t know how many nurses they would need and then a health policy that they said was costed and wasn’t. And now we have a housing policy, that’s called Help to Buy. Well it’d go from help to buy to forced to sell as we’ve seen as a result of the fact that people will have to sell their house if their income as a couple goes above $120,000 a year. And what all this means, and this is why this is important and why I refer to it, you have to design economic policy carefully. You have to know what you’re doing. When the Treasurer and I, together with the then Finance Minister, Minister Cormann, worked night and day to design JobKeeper, the single largest economic intervention in Australia’s history, we knew we had one chance to get it right. And the entire future of the Australian economy depended on it and it had to give that confidence boost to the economy to let people know that the next day they would be okay. That policy, because it was well designed, well thought through saved 700,000 jobs. And it worked together with the Reserve Bank, who also moved when it came to monetary policy to ensure they were working together. Now that’s the sort of sensible, responsible financial economic management that has served Australia well.
PRIME MINISTER: The Reserve Bank and the Federal Government working together to ensure the Australian economy has come through. Now we’re looking to the future and we have that strong economic plan that will continue to see unemployment fall. We will see those wages rise and we will continue to be able to provide the support to those less vulnerable because we can guarantee the essential services Australians rely on because we have a strong economic plan.