Productivity challenge will 'take time to turn around', Treasurer says

0:00When your data released by the Australian Bureau of Statistics shows the Australian economy has expanded faster than expected, growing by 2.1% over the year to June 30. So, the question that many Australians are pondering is, will the RBA increase interest rates later this month? Jim Charmers is the Federal Treasurer and joins Minout Treasurer. Welcome back to breakfast. Thanks, Sally, how are you? Very well, thank you. You said the data is that of a robust and resilient economy, but how disappointed were you by the productivity figures in the National Accounts data, which showed that productivity has fallen over the past year? I think the main story of the National Accounts is about an economy which has substantial advantages, but in the face of serious challenges and productivity is one of them. Inflation, of course, is another. And also this very serious, global economic uncertainty is the third. And so, when you look at these national accounts, what you can see is that Australia's economy is robust, it is resilient,

1:05but we face some serious challenges together and they are the government's focus. Reserve Bank Governor Michelle Bullock said at her last press conference that the bank may need to raise rates again. You don't comment on rates, but do you accept the idea that Australia is leaning right up against its economic speed limit and that inflation is still a risk? Well, you're right that I won't do anything that predicts or preamps decisions taken independently by the Reserve Bank, but I've said on other occasions and happy to say again that one of the issues we have in our economy is that the private sector recovered much quicker than anticipated last year. And again, in the National Accounts, yesterday we saw domestic growth being driven overwhelmingly by by private demand. Then we do come up against speed limits in our economy and one of the main reasons and motivations in the budget for the big productivity package, probably the biggest and broadest productivity package in decades was that we do recognise the best way to lift living standards is to make our economy

2:08more productive, to lift the speed limit on the economy so it can grow quicker with lower inflation. So why is it a year on from the round table that we're not seeing productivity improve? We've seen it slip. Because this is a two decade problem that will take more than 12 months or even more than a couple of years to turn around, right around the world with the possible exception of the US. Countries have got a productivity challenge a bit like ours and for us it's been there for decades. The difference between this government's approach and our predecessors was that we take it seriously enough to have a big broad productivity package in the budget which will cut compliance cost by more than $10 billion a year, a national competition policy to boost GDP, all of our efforts on AI and teaching and training. This is all about trying to shift the productivity challenge which has been a huge problem in our economy for some decades now and will take time to turn around.

3:10We've seen several pessimistic forecasts on the property market this week. Are you still confident that treasuries advice that your tax changes would only shave two percentage points of house price growth over two years? Well the really important thing to remember about that Sally is that the treasury assumption is over the next couple of years, not the last couple of months. And if you look at movements in house prices over the last couple of decades, it's not unusual. In fact, we think on at least seven different occasions we've seen house prices come off and that's because they react to things like interest rate movements, like developments in the global and domestic economy. So you don't think the current changes are because of your changes to capital gains tax? I think that's one of a number of reasons. I think that there's not one factor driving softness in the housing market. We saw house prices and auction clearance rates often even before the budget, reacting to interest rate changes and developments in the economy

4:11more broadly. So there's a range of factors that play here. In the last couple of decades we've seen house prices come off on seven occasions. We still had house price growth in 15 of the last 20 months, I believe. House prices are up about 25% over the last five years. And that's a reminder that investing in housing or buying your own home is a long term proposition. And there are movements and volatility in house prices over time, overwhelmingly over the past quarter century. We've seen very quick house price growth that has locked a lot of young people out of the market. And that's the challenge that we're addressing. Whatever the cause has the steep decline in prices taken you by surprise? Not necessarily. I mean, we've seen, we have seen house price movements before the budget, as I said. We have seen some substantial movements in markets. But if you look at the numbers put out by the Commonwealth Bank, for example, this week,

5:12where they had some forecasts, updated forecasts for house prices, they still expected house prices to return to growth next year. And so again, another really important reminder, people don't buy and sell houses in a week to week or month to month basis. Housing is a longer term investment. Over time, we expect our policies to have an impact on house prices. But house prices will continue to grow a bit more modestly. And that means more affordable options for more first home buyers to get into the market, which is our objective here. The coalition is proposing to cut the tobacco excise by 80% and tax and legalise vapes and nicotine pouches. Is that a good idea? Well, I've seen some summaries of reports of their policy. I haven't seen their policy. But for the government, we recognise that this is a really serious challenge, at least that tobacco is a

6:14very serious challenge. Not one that we've just discovered. In fact, in the last couple of budgets, we've provided more than $350 million for extra effort on compliance and law enforcement, because for the government, our focus, our primary focus, has been in those areas trying to bust up this market. We've had some recent successes for which I'm very grateful to the police and other authorities, because primarily this is a law and order challenge and that's how we've approached it. Angus Taylor says the parliamentary budget office has costed the policy and it will raise money. Do you believe that? Well, I haven't seen the parliamentary budget office figures. I'm a bit reluctant to come at that. All I can say is from a government's point of view. We take our advice from law enforcement. We take our advice from the health authorities and our focus from a government point of view has been resourcing these law and order and compliance efforts,

7:16trying to bust up what we do acknowledge is a very substantial challenge in communities right around Australia. Jim Chalmers, thank you for your time this morning.