Breakfast Wrap: More interest rate hikes expected

0:00Hi, I'm Patricia Carbellis, the host of Politics Now. We're heading towards the end of 2026, but Australian politics is not slowing down. It's been a big year of fights, hard choices, awkward alliances and a lot of surprises, and there's still a lot to play out. Who holds their nerve, who loses ground, and who finds a way through. On Politics Now, I'll help you get through the rest of the political year with the context you need. Search Politics Now on ABC Listen and Hit Follow so you never miss an episode. From Gadigal Country, I'm Nick Grimm, and today on the Breakfast Wrap, four down is there one more to go. Of course Australia's interest rates are only going up, not down. Today on Radio National Breakfast, we probed what 2026 still has in store for struggling households

1:05in the wake of yesterday's cash rate hike by the Reserve Bank. This year's fourth hit on the disposable incomes of borrowers. Well, get ready for a further increase. We think the bar to another increase is actually pretty low. Also, today, government departments ordered to bolster their cyber security defences against AI will hear from the Director General of the Australian Signals Directorate Abigail Bradshaw. And is it time for Britain to exit Brexit? And what has it given us? A country run for vested interests with power held in two few hands. More on British PM Andy Burnham's speech to the UK Labour Conference soon. From the Radio National Breakfast Team, this is the Breakfast Wrap. The Reserve Bank's decision to lift interest rates to their highest level in 15 years dominated the programme today. This is tough. We knew that this was going to hit some people pretty hard,

2:06but we have to do it if we are to bring inflation back down. That's RBA Governor Michelle Bullock speaking there. It means that for someone with a $600,000 mortgage over a 30-year term, repayments will now cost an extra $97 a month. But could there be more hikes? Lucy Ellis' Westpac's Chief Economist and a former Assistant Governor at the Reserve Bank. And she's told Melissa Clark, we can expect another increase before the year is out, while inflation remains high. Well, I think the RBA has always been very focused on inflation and in many respects, the pause in August was because the data went against them, not because the internal members were content with interest rates where they were. They were clearly dissatisfied with where inflation is. It becomes a higher and higher bar to increase rates the further they go. But we think the bar to another increase is actually pretty low.

3:06So what's your forecast then for this idea of a fifth rate rise in November? Well, having listened to them in the afternoon, I'd previously said it was a risk and we think it's now more likely than not that they go in November. I do think they're going to start to be some differences of opinion in the board because the labour market is actually easing a bit more than what the RBA had been forecasting. The unemployment rates already where they forecasted it to be in the December quarter and before too long it will be where they expected to be mid next year. So things have eased off a little bit more than they expected. And there was no discussion in the press release about whether they thought the labour market was still a little tight, but the governor said so in the press conference. And I think that says the internal staff, think it's a little tight, but not everyone on the board wanted to characterize the labour market that way. And they're going to have to resolve that if they keep going.

4:06That's interesting because that has been a key part of debate, I guess, as well with some civil society groups about how much the dual mandate of the reserve bank to ensure that both employment outcomes and inflation control outcomes and whether where we currently are at 4.6 is the point. And it's less about the job losses that people are concerned about. That there are just more people available for work than the RBA had counted on. We and Treasury have been talking about an increasing share of the adult population participating in the labour market, including the over 65s. And that's something you see all around the world as people, you know, population aging means we're older and healthier. So the RBA's forecasts don't really count on that effect. And so we're seeing more labour supply. The people coming into labour market are generally getting jobs, but there's more people coming into the labour force than the RBA counted on. And that means that for any given number of additional jobs, some people are not finding them.

5:07Michelle Bullock really made a point of emphasising yesterday that there needs to be a concerted effort to improve productivity. You know, she was really pushing on businesses saying they need to take some initiative here. But you've said that the reserve bank's assumption of productivity growth being at 0.7%. It is a bit too downbeat. Tell me why you think it's a bit too low. All their assumption is what we achieved over the previous 20 years, which was disappointing, but was also affected by some special factors, such as among other things, you know, the ramp up in the NDIS and that shift to a more labour intensive care economy, which sort of has a lower level of measured productivity. I mean, all productivity is the amount of output divided by the number of hours worked. It's just stuff divided by time. So if you shift people into jobs that don't use as much machinery and so they don't make as much stuff per hour, that's considered lower productivity. And that's one of the things that's been happening. We also didn't have a tech boom during that period.

6:07So the RBA's assumption is essentially saying all the way out we're not going to have any effect from AI. We're not going to have any sort of reforms. I think it's positive that she is saying it's not all about the government and regulation. I mean, at Westpac Economics, we don't think that productivity is just what the government does to you. So it's right to say, well, this is also about businesses, as well as regulation. That's a more balanced view. But, you know, in the end, something that they themselves said when they put this 0.7% assumption in was that the trend rate of productivity growth shouldn't really have anything to do with inflation. It's just about how quickly we can grow. I need to ask you about the robust political debate that is underway about the relatively extent to which domestic pressures are pressing on inflation and how much is due to international pressures. Well, it is both. The economy is turned out to be a little bit more resilient because business investment has been stronger and that's fed through into stronger household incomes.

7:09People have had a bit more money to spend. It will feel tough for some people, but in the economy as a whole, there has been a little bit more growth. That's partly, you know, data centers and renewable energy and all that business investment. Previously, there was a lot of government demand that was increasing growth. That's actually tailing off now. So it's a high level, but the level of public investment actually fell in the first two quarters of this year. So it's a balanced picture. And then, of course, we have the Middle East and what the AI boom globally is doing to tech prices. So it's all contributing. Lucy Ellis is Westpac's chief economist and a former assistant governor at the Reserve Bank. In the face of the growing threats from rogue artificial intelligence agents, Australia's federal government departments have been ordered to bolster their cyber security defences on their so-called legacy IT systems. That's in direct response to last week's open AI Medicare data portal hack.

8:09The boss of the Home Affairs Department has directed all agencies to conduct a rapid stocktake of older systems and introduce a target to reduce their usage of legacy technology. But why are we playing catch-up? For more, we spoke this morning to Abigail Bradshaw, the Director General of the Australian Signals Directorate. We've got this directive to government departments to do a rapid stocktake of legacy systems and report back. Is this a bit of an overdue task? I mean, just how many legacy systems are running by government departments? Work has been undertaking in respect of legacy technology now for some time. It is not uncommon for public or private entities to have legacy technology. What's important now is that we have a comprehensive audit that enables the prioritisation of the decommissioning and replacement of that technology or, in fact, the use of AI technologies to patch where we can. We've done work over the last 12 months.

9:09In fact, stats will be released next month in the annual cyber threat report to actually reduce the number of legacy software systems that are internet-facing. And so we've actually had a 30% reduction in government software-facing legacy technology. So that is significant. What sort of extra resources are required to do this? Or is it just a case of accelerating a programme that's already underway? The process of cyber security is like painting the harbor breach, the Sydney harbor breach. Like it never stops as you introduce next technologies. They will come to the end of life of type or technologies like AI will discover vulnerabilities that require patching. So this is not a set and forget. This is an ongoing process. What we're engaging with now, though, is the introduction of a new risk that comes with new technology. And we've been very focused in the last week or so on the risks that are associated with the introduction of these models that are very capable in a cyber context. It's important, though, that we also give equal focus to the benefits that we have obtained,

10:14including through labs like OpenAI, but the other frontier labs. We have been engaged with those labs for the last six months. In utilising those leading-edge world leading technologies, actually to fortify a number of systems of government significance, but also critical infrastructure providers. So this is a case of needing to use AI to be able to deal with the consequences of AI. So clearly access there is important. Are you satisfied with the level of access and cooperation that you are getting to the models from those frontier companies in the US? You know, Australia has enjoyed a rare level of engagement with the frontier labs. We have had an incredible alliance starting with the Five Eyes Intelligence Alliance. You would have seen in June, we took the unprecedented step actually of taking the cyber, heads of cyber security of each of the signals intelligence agencies in the Five Eyes, providing a global statement on the importance of taking particular measures to protect or defend from frontier capabilities.

11:17But also the steps required to defend from it. Now, importantly, in the past for the last 80 years, we have enjoyed a technical edge as a consequence of our membership and our partnership in the Five Eyes Alliance. This is a new partnership that's required because it's a private entity. And so it is critical. Australia is incredible in this respect. We are world leading. We in ASD have built a partnership program with private entities that is 150,000 strong. That can be tenuous though, can't it? How do you ensure that that access can be maintained, regardless of whatever challenges or incentives might come to a private corporation? It's like any relationship. The benefit of the Five Eyes Intelligence relationship is that we've had 80 years to understand the benefits and to develop that trust. We don't have that time frame available to us now. What I've seen is very positive engagement and a genuine desire to use these capabilities for positive outcomes for Australian network provides.

12:17But we're still beholden to those companies being willing to give us that access anyway. We are. But a partnership works both ways. There are things actually that we can offer. We have unique insights, particularly from an intelligence perspective, but also from a cyber security perspective about how to optimise those technologies. So it's a give and take here. Abigail Bradshaw is the Director General of the Australian Signals Director. Staying now with the rapidly changing digital landscape and the community backlash over the construction of the data centres required to power the growth of AI. A proposed $1.2 billion data centre in Sydney's north has been cancelled after its developer, the Goodman Group abandoned the project this week. The company says it shelved project Mars as it's called after hearing from the local community. It also cited regulation changes. Lane cove deputy Mayor Rochelle flood says while the community has had a major win this week, the battle isn't over yet.

13:17It shouldn't fall to the community to fight every individual proposal on an ad hoc basis. We need strong planning laws to make sure that proposals that are completely out of line like the project Mars development are never considered in the first place. For more on this, Mill Clark spoke today to Paul Scully. The New South Wales Minister for Planning and Public Services. What do you make of the Goodman Group's reasons for withdrawing from this project? Proponents withdraw projects out of the planning system on a regular basis now from what the letter that Goodman has sent through. It said that it had reflected on the policy and regulatory environment for large data centres as well as the view of the community. And look, I think all proponents should be having a mind to not only community views out, but also the guidelines, the new guidelines particularly that the New South Wales government has put in place with respect to data centres. This project in particular has drawn a lot of attention. Liberal Senator Sarah Henderson has repeatedly urged the Goodman Group to withdraw this project,

14:21including during Senate hearings, she was describing project Mars as wholly unreasonable. How much do you think this kind of messaging from high political levels influenced the company's decision? It's impossible for me to say, I'm not part of the Goodman Group, I'm not part of the decision making. What my job is to do is to administer a planning system in New South Wales that is legally required to assess everything that comes before it. The Good, the Bad and the less good if you like. It's not for the planning system to choose what it is, but the New South Wales government has some establish some very specific performance measures with respect to data centres through its new New South Wales data centre guidelines that we released mid August, which sets the standard, if you like, or sets the expectation of the New South Wales government. And we'll continue to apply those.

15:22The reality is we've got to balance up a couple of things here. Data centres are part of the backbone of modern economies. We have a number of them coming through the planning system. We have many around 90 that are already in operation in New South Wales. And we've got to weigh up that element, the potential productivity gains out of the fact that it's hard to operate in modern life without touching on a data centre at multiple points during your day. First is some of the other elements of it that communities are asking the question about where the suitable locations are and what the suitable framework is so that they are not bearing additional energy or water costs as a result of their construction. Have those the fast track process and the guidelines that you have put down to trying to centre-vised data centre builders to comply with forthcoming regulations? Has that helped filter out some perhaps less developed plans? It's impossible to say people may have had ideas that they were working on that may not come to fruition and may not see the light of day the reality is.

16:27We've got more than 60 data centres operating in New South Wales since 2019. 23 of those have been approved. There's a further 18 data centres in the pipeline and assessment pipeline as state significant development. So we've got to set up some clear rules and expectations so that proponents and so that communities and so that investors have some certainty in the New South Wales market. Obviously when it comes to this particular project, Mars, the community pushback was very strong but presumably another development proposal could come along. How do communities avoid fighting one battle and the prospect that there may be more to come in their place? I think what we've seen in this circumstance and I guess what the lesson if you like to the industry might be is that the social licence of anything, whether it's a housing project, renewable energy project or mining project, shouldn't be assumed it needs to be earned and I don't think there are terribly many in similar sorts of circumstances to the one that's proposed here.

17:32I've seen the Victorian Government announce that data centres won't be permitted to be built within a certain proximity of schools and child care centres. Is that something that your government would be willing to look at adopting, to give a bit more certainty to communities who do live near schools and child care centres? At this stage we haven't seen a need to adopt something like that. What we have done is adopt the guidelines and said that we'll review those guidelines annually to keep pace with any changes either in technology or in community expectations. Paul Scully, the New South Wales Minister for Planning and Public Services. Let's go to the UK now where that country's relatively newly minted Prime Minister has delivered his first addresses later at the British Labor Party's annual conference in Liverpool. And while Andy Burnham largely avoided the myriad global issues that are challenging governments the world over, maintaining his focus on more domestic issues like social housing and public control of utilities,

18:33he's also reaffirmed his longstanding opposition to Brexit which saw Britain withdraw from Europe around a decade ago. He's even hinting he could take steps to take the country back into the European Union. I cannot say to you truthfully that where we are is good enough. Brexit has done more harm than good. The big question is whether Andy Burnham has the authority to press forward with a fresh debate over Brexit with the British Labor Party still somewhat traumatised by the entire issue. For more on that I spoke to political journalist Ian Dunt who writes for the UK's I newspaper. And here he's laid out this idea of trying to find consensus. He's not going to find that consensus. There's no wish you want to ask in this country that you could less find the consensus on. But try to look at different models of how Britain would approach its relationship with the EU. Almost certainly he'll talk about it. So she agreement like the one that Canada and the EU are talking about.

19:34Almost certainly he'll talk about single market customs union membership. And I think almost certainly he'll also talk about potentially rejoining the EU. Then when he comes to some kind of position on that within the Labor Party, putting it in the manifesto for the next general election. So do you think he's looking at a Brexit without a Brexit sort of finding ways to I guess rebuild those ties with Europe without necessarily saying that he's going to scrap Brexit outright? No, I mean I think if he had his way and he was the one that could make the call and he didn't have to worry about the Labor Party or indeed the voting public, he would just say let's rejoin the EU. That's what he would prefer to do. I think what he's going to spend his time doing the next two years leading into the election is seeing what can he politically secure. And that is a two stage process that is not just about the public. That is also about really the Labor Party membership itself. The membership is very, very pro-e you but trade unions wary of it, his own cabinet, we think, do we really want to reopen this culture war debate that did us so much damage back in the day.

20:39There's going to be a lot of people who is going to have to convince them a position. And I suspect he'll think I would like to go for rejoined. But if I fail to make that case, if I can't feel confident in that case with my colleagues and with the party, then I'll have to go for something below that. So treading cautiously at this stage, what are your other takeaways from your speech to the conference? Well, firstly that it's very good. I mean, the extraordinary thing is just to watch commentators responses to it who don't agree with it. You know, people are quite far on the right, people on the center right, people within the left who aren't impressed by him. All of them were just, I mean, too a man I'm saying here. Well, basically just like that was a very good speech. It was quite electric. He's very good at harnessing this sort of emotional language speaking person. He's a genuinely quite authentic man, I think. And it went over very, very well in the hall. It's going over very well with commentators. Politically, it was an extremely radical speech. I mean, he's talking about setting up an entirely new care service. I mean, that's a project that's not that much more modest in setting up the national health service from the beginning.

21:43And he's also talking about scrapping the triple lock on pensions, something that all political parties know needs to be done because it is unaffordable, but have not had the political courage to do. So it was really big ticket policy items, really daring policy items, but very, very well delivered in a way that has won applause from pretty much, you know, his enemies as well as his friends. How big of risk is that for any Burnham right now? Yeah, I mean, look, you look at the underlying economic status of a Britain and the shine you would expect to come off very quickly indeed. I mean, it is in a difficult, difficult place. The bond market is at our throat. There is still no growth. It's a difficult situation to be in and there's lots of demands for spending, you know, whether it's on defense, whether it's on special educational needs. The thing is though, when you look at a speech like this, the part of the reason the Labour members were so excited is because they haven't really seen someone on the left, in prepared to lead to make a case to say, look, here is a progressive vision.

22:45I'm going to go out and argue for it, even though I know it's going to be difficult and I will be exposed. They didn't go that with kiss, Tom, they haven't had that really, you know, with Jeremy Corbyn. They didn't have that before with Ed Mitterband. So actually the shine, I mean, in the country, he's still got the popularity personally, he's more popular than the Labour Party. But within the party, his shine, if anything, at the moment, especially after that speech is actually starting to improve. There's a real sense of like, look, you know what, we managed to find someone quite charismatic, someone that's emotionally intelligent, someone that has a vision for where they want to take the country. Even though the underlying conditions are very negative indeed in the country, his personal style at the moment is still in the Ascendant. British political journalist Ian Dunt speaking to me there. Thanks so much for listening to all those interviews from Melissa Clark and myself, produced by the ABC Radio National Breakfast Team. Remember, you can hear the radio show from 6am every day. The Breakfast Wrap is produced with help from Kathy Van Echstell. I'm Nick Grimm, we'll be back with more stories tomorrow.