Senate Economics Legislation Committee, , 52:27 to 59:01
The Treasury Secretary addresses the impact of Middle East supply chain disruptions and fuel costs on global inflation, alongside domestic fiscal assessments from various economists.
Topics: Government spending, Infrastructure
Speakers: Jenny Wilkinson, Hon Jane Hume, Hon Katy Gallagher, Unknown Speaker, Senator Lisa Darmanin
Okay, so a chorus of uh economists have now consistently highlighted the impact of government spending on inflation. Yes, there are other factors, but you can only control what you can control here. Uh economist Chris Richardson was recently quoted in the AFR saying that the RBA is fighting inflation, government spending is not helping. Do you agree with Mr. Richardson's assessment?
Senator I think the point you make, which is we can only control what we can control is the right way of thinking about this. And when I look at the net decisions, so the decisions which are decisions and and the changes uh in the budget position over these last 18 months, in aggregate, all of those have taken some pressure from the government out of the economy. Now, there is a separate argument about whether there's additional activity that should be taken out. That that's that's a different matter. But if you're trying to ask, if you if you if you're asking me whether whether the net fiscal position, the changes in the net fiscal position have contributed to this increase in inflation that we have observed over the past 18 months, then I think it's very hard to sustain that argument.
Sorry. You just said that we can assess the impact of government on inflation by looking at the impact of decisions over time. That's exactly what Chris Richardson has said. He's reported that the net impact of decisions is to worsen the bottom line by 110 billion was the number that he used. Are you suggesting that that hasn't pushed up inflation?
Well, we've improved the UCB, I think, at every budget and budget update, Senator Hume. Uh if if Mr. Richardson wants to have an argument about what government is investing in, fair enough. I probably will disagree with him. But there's so many economists and commentators on this, you know, many with different views. Um I don't agree with all of them, I don't disagree with all of them, but if you look in aggregate at the impact of the UCB, you will see that our decisions and the savings, including savings that you are opposing, so i.e. you want to spend more, is reducing pressure because we are improving the bottom line in the one more minute.
AFR, Chief Economist Shane Ola, AMP chief economist, I should say, said that the problem is that the high level of public spending is contributing to capacity constraints in the economy and lower than otherwise productivity, contributing to high inflation and rate hikes. Secretary, do you agree with Mr. Oliver's assessment?
Senator, I I think I've I think I've made my I I think I've I've made my position clear, which is that when you're when you're trying to assess um I I think we have to be clear about this. It is hard, it is always hard with the benefit of high, so with the benefit of hindsight, could there be different policies which could have been introduced? Um they could have been. But but what governments have to make, have the decisions governments have to make at every budget and every my IFO, they have to make decisions about what spending and taxation decisions they are going to make in order to set fiscal policy, frankly, in their judgment appropriately for the macro economic in the context of the macroeconomic outlook which is available, and in the context of of their priorities. And what I'm saying is that when I think about the 25-6 budget, the 25-6 My EFO and the 26-7 budget, in all of those cases, um the net impact of fiscal policy on the macro economy in 25-6 and 26-7 has been reduced. And you can see that if you look at what has happened to the series of estimates for the underlying cash balance in those two years. So that that that is that.
Sorry, can I just speak to it? Sorry, I just need to be very clear on this. This is your logic. You just say that the net decisions have reduced.
So, Senator, what I'm sorry, I don't want to be, I'm not trying to be misleading. What I'm saying is when you look at the aggregate outcomes in the budget papers. So you look at what's happened to the underlying cash balance in 25-6 and 26-7. The underlying cash balance has come in from 25-6 has come in from a deficit that was expected to be about 42 billion or 1.5% of GDP, that was at the 25-6 budget, it's come in to 22 billion. And the deficit for 26-7 has come in from what was expected about 36 billion to about 31 billion.
So these net decisions I just I seriously need to clarify this answer because I have a feeling it might be other. It was pretty much Wilkinson. You were the one that used net decisions as the benchmark here. Is that net decisions that you're talking about?
So what I'm talking about is when I say net, I'm saying you look at the underlying cash balance, which is the net of spending decisions, tax decisions and outcomes which are which are estimates variation. So that the underlying cash balance as the as the um as the if you like me, January. Yeah. I'm not trying to be misleading in terms of I'm saying sort of the net impact of all of the budget uh outcomes. No, I'm talking about the underlying cash balance, that's what I'm talking about. I'm talking about what the change in the underlying cash balance has been, and the change in the underlying cash balance is not an unreasonable estimate of the impact of government spending uh on uh the economy.
Okay. Rotating the call center payment.