Press conference, Canberra

Subjects: inflation data, housing, passports, AI investment, Queensland state budget Jim Chalmers: Well, the new inflation numbers show that inflation came down again in monthly and in annual terms as well. Inflation came off quite substantially in the month of May and we also saw it moderate in annual terms as well. This is the second consecutive month that we’ve seen headline inflation fall in our economy.

Today’s numbers are much better than what the market expected and better than forecast. Headline inflation fell 0.7 per cent in the month of May, which is down from a rise of 0.4 per cent in April. That means headline inflation was 4 per cent in the 12 months to May, which was down from 4.2 per cent.

And we already had an inflation challenge in our economy, but the war in the Middle East is making inflation higher than it would otherwise be. You can see that the initial impact on inflation came from the conflict when it came to fuel, but we see it broadening a bit today in other areas, including most especially dwelling construction costs. And because of that, we did see trimmed mean inflation at 3.6 per cent in the 12 months to May, compared to 3.4 per cent in April.

One of the big movers was automotive fuel. Once again, this demonstrates the really important role of the government’s cut to the fuel excise. Automotive fuel fell 11.9 per cent in the month, but was still 7.7 per cent higher in through the year terms.

So, that extension of the fuel excise relief in a tapered way provides cost‑of‑living help, it recognises that there’s still some uncertainty in the Middle East and that the costs and consequences of that war will play out for some time. It’s also worth remembering that in the most recent numbers, we’ve seen inflation tick up in the US and in Canada and in Europe, but it has come down again in the Australian economy.

It’s also worth remembering that inflation is much lower than when we came to office. It was north of 6 per cent and rapidly rising. And you can see in these numbers that it is much lower than that.

So, our economy is not immune from all of this global uncertainty and volatility, but we are well‑placed and we are well prepared to confront it. This is a very welcome set of numbers which shows that inflation fell once again for the second month in a row. We’re not complacent about that.

We know that there are still inflationary pressures in our economy. That’s reflected in the underlying measure. But these numbers today are much better than the market expected, much better than forecast, and that’s obviously a very good thing.

Happy to take some questions. We’ll start with Mark and work our way through the front. Journalist: Treasurer, isn’t the truth here, though, that the headline inflation number has come down because of the fuel excise cut?

Taxpayers subsidising taxpayers. And when you take that out, underlying inflation, the important one, is heading in the wrong direction and that means higher interest rates. Well, a couple of things about that, Mark.

I mean, first of all, the government’s efforts to cut the fuel excise are part of the story, but not the whole story. Even when it comes to this very welcome moderation in fuel costs reflected in the inflation figures today. When it comes to the trimmed mean, the measure of underlying inflation, we’ve made it clear for some time, and you can see it reflected in our forecasts and in the private sector forecasts, that the costs and consequences of the war in the Middle East will be felt for some time, that those costs were felt initially when it came to petrol prices.

That’s why we stepped in and stepped up with the fuel excise cut. But they are broadening in our economy and the big standout in that regard is dwelling construction costs. And we have known and we have spoken in this room and elsewhere on other occasions about the pressures in other parts of our economy, broader pressures coming from the war in the Middle East, and those dwelling construction costs are part of that story.

Now, we’ll go to Luke and then we’ll come over this side. Journalist: The RBA has long said that underlying inflation is their preferred measure of prices and it’s what they use when they go to make their decisions on interest rates. Does the government have a preferred measure of inflation in a similar way?

We pay close attention to both measures of inflation and all of the constituent parts of the inflation story in our economy for 4 years now. And inflation has been the primary or one of the key indicators that we watch most closely. So, it’s not really an either or.

But to see headline inflation come down for the second month in a row is a very welcome development. In other countries, it’s going up. Here in Australia, it’s coming down.

We are realistic, we’re not complacent about the future trajectory of inflation. But you’d rather headline inflation coming down than going up. That’s what we’re seeing today.

And the trimmed mean measure reflects these broader price pressures that we’ve identified for some time, including in our Budget, coming from and made worse by the war in the Middle East. Journalist: The Housing Minister this morning said that house prices are correcting. That typically means that they’re sort of falling by 10 per cent from the peak.

Is that what you expect to happen? Well, I think the Housing Minister was using a general description rather than a technical definition. If you look at the Budget’s assumptions from Treasury, they expect house prices to continue to grow, but a bit more slowly.

We have seen a softening in house prices in recent months even before the Budget and that’s a reflection of a whole range of factors including changes in interest rates, softness in the broader global and domestic economies, as well as any other influences from the Budget and the like. And so, the Housing Minister I think was reflecting an accurate general view, not attaching to the situation some kind of technical definition.

Journalist: Thanks, Treasurer. The Queensland Budget handed down yesterday expects stamp duty revenue to be $300 million lower this financial year because of the tax changes that will pass on Thursday. The state is also forecasting a 3.5 per cent slowdown in the housing market.

Do you accept that your tax changes will have an effect on state budgets and is that 3.5 per cent number palatable to you? Look, it’s not for me to proofread and check the Queensland Treasurer’s numbers in his Budget. There are a number of factors playing out in the housing market right now, international and domestic conditions, movements in interest rates and the important policy changes that we made in the Budget.

So, it’s not one factor that is driving softening in house prices or auction clearance rates or any of these other indicators that we watch closely. Now when it comes to the Queensland Budget, I mean, it’s not unusual for state treasurers to point the finger at the Commonwealth at state budget time. I try not to take unnecessary shots at state governments who are all trying to make their budgets add up.

That’s true of governments of both political persuasions. I know that the Queensland credit rating is under very serious pressure. So, the point that I would make about the Commonwealth Budget is we’ve got a stable AAA rating from all 3 major ratings agencies.

It’s for the Queensland Treasurer to explain why that’s not the case in the state of Queensland, the wonderful state of Queensland. Journalist: [inaudible] that states make revenue though, is the fact that they’re going to reflect less revenue on these things by circumstance of the federal Budget. No, it’s a reflection of a whole range of factors playing out in the housing market.

Journalist: Thanks, Treasurer. The government has proposed legislation that would preference businesses that have union agreements in government procurement contracts. I just wanted to ask how does that fit in with the government’s productivity boosting agenda and are there any concerns that it would [inaudible procurement in favour of the CFMEU, other unionised businesses?

I think that just reflects the view that this government has long held which is the best kind of most productive workplaces are where workers and management come to good agreements. And the changes that Minister Rishworth is putting through the parliament reflect that view that we have long held. Journalist: Sorry, this is slightly off topic, but nonetheless, Australia’s got the highest, the most expensive, according to a number of surveys, most expensive passports in the world.

But I’d like to ask you, according to some evidence before an estimates hearing or a Senate committee recently, your income from passport sales is heading for a billion a year. Is the government profiteering off the sale of passports? Can you tell me exactly what it costs to produce a passport?

Because I asked both DFAT, Penny Wong and the Prime Minister and they wouldn’t tell them. Well, first of all, I don’t think that’s the relevant comparison. You know, the cost of printing a passport is not the cost of maintaining the system and obviously the Budget is full of difficult decisions like that one.

And it just reflects the fact that when you’re managing a budget like ours, sometimes you have to take difficult decisions and that applies to fees and charges just like it applies to other areas of the budget as well and so there have been responsible increases on that front which reflect the cost of maintaining the system, but also the broader cost of government.

Journalist: Sorry, but my question was are you charging the amount people the amount to get a passport that it costs to produce, administrative security stuff or are you profiteering off yes or no? My answer to that is no. And I took you in some detail why I believe that to be the case.

Journalist: The inflation figures show that the housing sector continues to be one of the driving forces and you touched on the costs. Your Budget measures, you say are aimed at improving affordability and building more homes with a grand plan to build a lot more, 1.2 million by the middle of 2029. Is that an inflationary pulse that you are putting in to the economy by trying to build so many homes with a workforce that is tapped out and you’ve got extra costs coming from overseas?

Well only if we weren’t investing in the workforce as well and that’s what we are doing. We’ve got substantial apprentice incentives for example to build the workforce, we’ve got Free TAFE. We’re taking a whole range of steps, really important steps, to make sure that we have the workforce we need to build the homes that we desperately need, playing catch up after a decade of neglect.

So, the housing market is obviously a key focus of the government that begins with supply, and that supply challenge has got a range of elements, including making sure that we have the builders that we need and that’s why we are investing so substantially in Free TAFE and in incentives for apprentices. Journalist: Thanks Treasurer. Just building on Shane’s question.

We’ve also seen auction clearance rates plummet. Do sellers need to adjust their expectations on how much they can get for their house? Well, I’m obviously not going to give people a sense of the expectations they should have in these quite personal transactions.

But whether it’s auction clearance rates or house prices, there are a number of factors playing out, as I’ve said in response to some of your colleague’s questions. Those weekly auction clearance rates can be quite volatile. If you look at the most recent final results, we’ve had the prelim results from the weekend.

Auction clearance rates have gone up some weekends since the Budget, but they’ve gone down in others and that’s because that indicator can be a bit volatile. It’s also worth remembering that clearance rates started to come down earlier in the year before the Budget and that is again a reflection of a number of things including economic conditions and movements in interest rates.

When it comes to auctions, one of our policy objectives here is to make it easier for first‑home buyers to compete and win at auctions. For a long time in this country, one of the reasons why first‑home buyers and particularly young people have been locked out of the housing market is because some people have been going to auctions subsidised by the taxpayer and some not subsidised by the tax payer and that’s created the uneven playing field that we are seeking to level.

Journalist: Is the government willing to do a deal with the Coalition to get the NDIS legislation passed this fortnight and if not, why, given it could save the budget, you know, hundreds of millions of dollars if you do it this fortnight rather than August? Well, of course we’ll be seeking the Coalition’s support for these really important changes to the NDIS.

This is about saving the NDIS from itself, making sure that we can pay for the level of services and care that people with a disability need and deserve. Now, on the timing of that, obviously we’ve committed quite recently, yesterday, about this time yesterday, to a longer inquiry and of course we have to honour that commitment that we made yesterday. Beyond that, Mark and Jenny and PM and Katie and others, I think, are doing a wonderful job making sure that we can prioritise these really important pieces of legislation through the Senate.

As someone who doesn’t speak fluent Senate, I’m very grateful for the work that they do. There’s always an element of sequencing when it comes to big pieces of important legislation and that’s what we’re seeing here. Journalist: You said that the Housing Minister’s comments this morning were a general description, not technical.

Do you agree with her, though, that the housing market is correcting itself? I agree that there’s been a softening in house prices. That’s self evident from the numbers, and the same is true of auction clearance rates.

And they are for reasons which go beyond the changes in the Budget. Because in both instances we saw a bit of a softening in the housing market before the Budget. The point I was making in response to the earlier questions is I know that there is a technical definition of a correction. [Inaudible interruption] No, because it hasn’t seen the sort of percentages which are consistent with that technical definition.

But I know that what Clare was describing was a general situation where house prices have softened a bit, auction clearance rates have softened a bit for reasons that go beyond the Budget. Journalist: Just to follow up on Matthew’s question, we’re having a debate about multiculturalism in this country. One third of Australians are born overseas.

Going overseas is not an option for many people. It’s a necessity. It’s a way they connect with their families abroad.

For a family of 4, you’re looking at $2,000 just to get a paperwork to leave the country. Is this just a lazy way to raise revenue? No, I don’t think so.

Journalist: Treasurer, with Canada due to consider amendments to copyright law, do you believe that Australia will attract less investment by AI firms in data centres and the like if the copyright regimes as AI firms are claiming? Look, we’ve made it really clear that we, we don’t support an exemption for our content creators when it comes to training by AI. My colleagues, a whole bunch of my colleagues, but primarily Michelle Rowland, Andrew Charlton, Tony Burke, Amanda Rishworth and other colleagues are working through all of these sorts of challenges.

But we’ve made it really clear that we support the rights of copyright holders, content creators, to make sure that as we work through a series of really quite tricky issues when it comes to AI, that we are maximising the benefits and minimising the risks, and that includes the people who create content. Journalist: On that specific claim, though, about investment.

Do you think that if the copyright laws aren’t amended that there will be less investment? Do you agree with that? No, because we’re getting an extraordinary amount of investment in AI and particularly data centres.

It’s one of the reasons why not the only reason why private sector investment in this country is absolutely rocketing in the last couple of national accounts. And that’s at the same time as the government has made its position clear. Now, we engage with all sides of the argument.

There are at least a half a dozen different ministers engaged in these really important discussions and we take all of the views raised with us very seriously. But we’ve made our position clear when it comes to copyright, and that hasn’t been a barrier to this quite extraordinary and very welcome investment that we’ve seen in that part of our economy, which is helping to drive some pretty extraordinary private investment figures.

Journalist: Thanks, Treasurer. Just want to detail in the Budget and you might want to take it on notice, but if you just bear with me. It’s been raised by David Pocock and it goes to the grandfathering position provisions on CGT and negative gearing.

If a couple owns a joint asset, like a property, an investment property, for example, and one of them dies or there’s a divorce and so there’s a partial transfer of the ownership, that the grandfathering no longer applies. Can you sort of explain why that’s a good idea? Well, the situation is consistent with the existing CGT arrangements around acquisition.

So, the grandfathering rules we put in place, they’re reasonable arrangements that mean that what you owned on Budget night can continue to be negatively geared in the future. Anything bought, sold or acquired after that date is treated under the new rules. And that is entirely consistent with how the rules work now. – Journalist: –You can only then negatively gear half the house after that or the full ownership then transfers to – I’m saying that the arrangements as you describe them are consistent with the way that the acquisition rules apply in the current CGT arrangements.

Journalist: Are you still confident in the modelling in the Budget that showed that house prices will grow just at a slower rate? Or is it possible now that they will actually fall in? Is that what you want?

Well, a couple of things about that. I mean, first of all, it’s only been 6 weeks or so since the Budget. And so when it comes to things like house prices, it’s helpful to take a slightly longer term view than that.

These are longer term investments that people make. The second point is there was already some volatility in house prices and auction clearance rates before the Budget for all of the reasons that I’ve run through responding to your earlier question. When it comes to house prices in our economy, our objective is for there to be sufficient affordable homes for first‑home buyers to buy.

And part of that means making sure that there’s a level playing field at auctions and when it comes to bidding for homes. That is a really important motivator. Now, we’re not targeting a particular price outcome in aggregate, we are not trying to shoot for a certain percentage change.

But we’ve reflected in the Budget papers the Treasury assumption that house prices will continue to grow, but a bit more slowly than before – Journalist: – Only 6 weeks in, we’re already saying that that’s not what’s happening – – Well, first of all, it’s only 6 weeks in as you say. House prices are a longer‑term investment and we’ve seen some volatility in house prices even before the Budget.

Journalist: Is that slower growth rate that’s an average over the period, right. So, it could drop and then come back up, but lower than before? Well, as always, a longer‑term assumption in the Budget is an aggregate assumption about what the Treasury expects to happen.

And again, you know, we’ve seen some volatility in house prices and auction clearance rates that predated the Budget and we’ve seen a bit more of that since. But housing investments are longer term investments and I’d caution people against making longer term conclusions from 6 weekends or so of data. Thanks very much.