Jim Chalmers has warned of “significantly higher” inflation and suggested a workers’ representative could soon be appointed to the Reserve Bank of Australia board.
The treasurer commented on ABC’s Insiders on Sunday, suggesting a more representative RBA board may follow a review of the central bank.
With the Reserve Bank tipping inflation to 7% by the end of the year, employers have responded to a $40-a-week increase in the minimum wage and union pay demands of more than 5% by warning Australia could enter an inflationary spiral.
The warnings have been rubbished by unions, who point out that wages as a share of national income are shrinking while corporate profits are up. Inflation is mainly driven by supply-side pressures, including higher energy costs due to the war in Ukraine.
This week the RBA governor, Philip Lowe, said in the medium term, wages should be around an anchor point of 3.5%, assuming the bank can get inflation back into the 2%-3% target range.
Chalmers told Insiders the government, unions, and the RBA all wanted “strong, sustainable wage growth, created by a better trained, more productive workforce”.
With wages growing at just 2.4%, Chalmers said it was “uncontroversial” for unions to note this was “nowhere near 3.5% and nowhere near headline inflation”.
“Phil Lowe is making a similarly uncontroversial point, that if you let inflation out of control, that is damaging for people’s living standards.”
Chalmers said he would not endorse a specific figure for pay rises but noted Australia had suffered a decade of “wage stagnation”, which he attributed partly to Coalition policies to suppress wages.
Chalmers said he would deliver a financial statement towards the end of July, updating inflation forecasts “that will show that inflation will get worse before it gets better”.
“That’s a difficult situation we need to deal with before inflation moderates throughout next year, hopefully.”
Chalmers said the 7% figure “doesn’t seem to me to be wildly off the mark”.
“Inflation will be significantly higher than expected in the last government’s most recent budget, which was also scheduled at election time.
“Certainly higher than the 5.1% we saw in the March quarter. This inflation problem will get more difficult.”
Chalmers took credit for the Fair Work Commission’s decision to increase the minimum wage by 5.2%, suggesting the government’s submission warning against real pay cuts had been “compelling”.
Asked if Lowe, whose term ends in September 2023, would be reappointed, Chalmers said he had a “mountain of respect” for the RBA governor, but the cabinet would take the decision later.
As part of the RBA review, Chalmers welcomed a conversation about whether its board “is broad enough, representative enough, whether it’s the right size”.
He said that the terms of reference would include consideration of “board representation, whether it’s broad enough, in geographic terms and gender and all the important considerations, but also to make sure that the right voices are represented around the table, that the board is of the right composition and size”.
In response to calls to appoint from the Australian Council of Trade Unions secretary, Sally McManus, to set a workers’ representative to the board, Chalmers said it “wouldn’t be unprecedented”.
“I don’t believe in standing positions on the board, but on a case-by-case basis, I have an open mind to ensure that workers are represented.”
McManus has poured cold water on suggestions she wants the job herself.
I just saw Peter Dutton accuse me of acting because I “want a job on the Reserve Bank board”! He doesn’t understand that not everyone works in grubby self-interest. I’ve already got a job, thanks! #insiders
— Sally McManus (@sallymcmanus) June 25, 2022
On Friday, finance department figures suggested that the budget deficit to May 31 had shrunk from $60.5bn to $33.4bn, despite warnings when Labor took office that the budget was in worse shape than previously thought.
Chalmers said the figures reflected “extraordinary prices we’re getting for commodities, and … the relatively tight labor market” but did not reflect “volatility”, citing a 12% fall in iron ore prices last week.
“There is a range of pressures that were not accounted for in the former government’s most recent budget,” he said.
Those included increased hospital spending to fight Covid and higher interest payments on debt.
“We shouldn’t assume that those budget improvements are an ongoing feature of the budget.”
Chalmers noted the proposal from the Liberal leader, Peter Dutton, to double the amount pensioners can earn without sacrificing the pension from $300 to $600 a fortnight.
“If they thought this was a good idea, they would have done it in government,” he said but promised to consider it at the September jobs summit.
“Even an idea like this, which appears to be modest, comes with a relatively hefty price tag.”