Senator the Hon Katy Gallagher

HAMISH MACDONALD, HOST: This is RN Breakfast. If you're a homeowner, business owner or renter, chances are yesterday's interest rate rise was not welcome news in an already tough economic environment. The RBA raised rates to 4.1%, the highest since 2012. Governor Phillip Lowe pointing to upside risks to the inflation outlook. Katy Gallagher is the Minister for Finance and Women. She's my guest this morning. Welcome back to the program.

SENATOR THE HON KATY GALLAGHER, MINISTER FOR FINANCE: Thanks for having me on, Hamish.

MACDONALD: Labor's been in charge of the economy for more than 12 months now, you've handed down two Budgets. Do you take any responsibility for this interest rate hike?

GALLAGHER: Well, the decision around interest rates and setting of interest rates is a matter for the independent Reserve Bank. We've got a very clear job to do, that is to deal with the inflation challenge and how we manage the Budget and other investments in the economy. And you'll see, and we've been saying since we handed down the Budget, that that Budget was carefully calibrated to assist people with some of these cost-of-living pressures to make investments where we could into driving economic growth opportunities in the future, but also to show restraint and repair the Budget. And to not make the Reserve Bank's job harder than it already is. So, we're focused on the responsibilities we have. We take them seriously. And we've been responding appropriately.

MACDONALD: Budgets are about choices, sometimes very tough choices. Do you acknowledge that you could have done more to cut spending so that the Reserve Bank was not in this position now where it was having to increase rates?

GALLAGHER: Well, I mean, if you go back and listen to what the Governor has said, and the Treasury Secretary have said, they have both confirmed that the Budget was not inflationary. In fact, the Governor said, you know, our energy package actually lowered, or, was deflationary. And the Treasury Secretary has made comments along the same lines. I would also say, Hamish, and this is the important, some of those tough decisions, and you're right, Budgets really are a balancing up of a whole range of decisions, some of them tougher than others. Our decision to find $40 billion worth of savings in the last two Budgets has been informed by that responsibility, as has returning over 82% of the upward revisions to revenue to the Budget for Budget repair. Again, those are critical decisions in terms of how we can support the work that the Reserve Bank does and that the decisions we take don't add to inflation but set our Budget up to be in a stronger position in the future.

MACDONALD: But the inflation data is what it is. And it's clear that the Reserve Bank is responding to that. And it might be true that the Budget on its own wasn't adding to inflation. It may be that the wage rises for our lowest paid workers are not themselves adding to inflation, but put together with the global factors, would you acknowledge that all of this does actually make it harder for the Reserve Bank and isn't, on the face of it, bringing down inflation?

GALLAGHER: Well, we're certainly living in an inflationary environment and inflation is staying higher for longer than we would like. The Reserve Bank has a job to do. A lot of that is influenced by those global factors that you've named, particularly the war in Ukraine. We've got to, our job as managing the Budget as the government, is to make sure that the decisions we take, don't make that job of the Reserve Bank harder. And I think you can see clearly in the decisions we've taken, we've made cost of living decisions, a package around cost of living to take some of that pressure off. We've calibrated that, we've targeted it, we've timed it, to make sure that it doesn't add to inflation. We've got those Budget repair measures underway. I mean, it's been a long time since you've seen a Budget that's found $40 billion worth of savings, Hamish. We've done that. And we're repairing the Budget with making sure that those increased revenues go to Budget repair. So, I think you can again, see, yes, we're in a very difficult environment. We're not pretending otherwise. We know this is really hitting households hard, and these decisions are really difficult. But our job is to focus on what the decisions we can take and how we can make them in the best interests of the country, both short term and the longer term in terms of investments about setting our economy up for the future.

MACDONALD: To that point, though, Minister. The Reserve Bank Governor is pointing at productivity, says at the aggregate level wages growth is still consistent with the inflation target, provided that productivity growth picks up. What are you actually doing to tackle productivity?

GALLAGHER: So, we're doing a number of things, Hamish. I would say that productivity growth over the past decade has been the slowest in 60 years. We talked about this at estimates last week. There are, you know, there are like-minded economies finding, overseas facing the same challenges, but essentially, we've had a decade of limited productivity growth. So, look, some of those areas which I can take you through, energy transition, that's a big one. How we use technology, another one. Our national reconstruction fund, our investments in early childhood education so people can work the hours they want without being penalised, and our skills and training packages, our fee-free TAFE program. All of those are investments for the future that we are acting on now. Now we're not going to turn that around in 12 months. I don't think anyone would pretend otherwise. But we have those key areas where we have started, pretty much as soon as we got into government, because the productivity challenge is real.

MACDONALD: Given that you acknowledge that that's not a quick turnaround, is it appropriate in that context and in the inflationary environment, to be creating a broader environment where wages are lifting?

GALLAGHER: Well, I think again, if you go, if you have a look at what the Governor is saying about that, and certainly others, other experts, we don't, wages are not creating the inflation problem in this country. We have had a decade of wage stagnation, minimum wage earners and low wage earners have paid the price for that over a decade and we are seeing modest and sustainable wage growth starting. That's welcome. But we accept that in order to have sustainable wages growth into the future. We have to deal with the productivity challenge, which is why we are doing all of those other things.

MACDONALD: So, this is a question about whether you're doing the wages before you're dealing with the productivity and whether actually, by doing it in the sequence that you are, whether that's really actually adding to the inflationary pressures?

GALLAGHER: Well, that's not what the experts are saying. They are not saying that wages are the reason why we have an inflation challenge. We have an inflation challenge, primarily from global factors relating to an illegal war in Ukraine that's had flow on effects into our economy, but we do not believe that working people-

MACDONALD: But obviously –

GALLAGHER: Should pay the price for you know, essentially a decade of no wage growth, that they should continue to pay a price for that. We think there should be wages growth, it should be sustainable. And so that's why, you know, we're having these, we've dealt with this in, through our bargaining system about getting the bargaining system working, but we don't apologise for low income and minimum wage workers actually getting a pay rise, they're getting -

MACDONALD: Respectfully, Minister, it's not just about -

GALLAGHER: Those pay rises and we've got other things to do, as you said, around the productivity challenge.

MACDONALD: It's not just about one particular demographic, though, because raising wages for one sector or one portion of the economy does tend to create an anchor point, doesn't it, for the rest of the economy?

GALLAGHER: Well, there's no doubt we are seeing wages growth across the economy. We're seeing it in public sector wages, and we're seeing it in private sector wages. That is not delivering real wages growth at this point in time. We're forecasting that in the next 18 months or so. But again, you know, there is the issue with, we want people to get better wages. They've suffered for too long under the former government where wage suppression was actually a design feature of their economic policy. That is not Labor's policy. So we want wages to get moving, but we also acknowledge that we have a significant productivity challenge that we've inherited that, you know, we've seen over the last decade that we are putting in place concrete plans to deal with and those, you know, they're real opportunities for this country to actually set ourselves up for the future. Make sure our people have the skills and opportunities that they deserve, and that we seize the natural, you know, the natural strengths of our country, particularly through the energy transition, to put ourselves in the best shape possible. And they are, we are doing all of those things, Hamish, but we do not want to see working people blamed for this.

MACDONALD: Is it also about whether business banks profit or invests it into the productivity of their own business, improving the technology, improving the processes?

GALLAGHER: Well, sure. I mean, business has a role to play here too. And those obviously are individual decisions for those businesses. But, you know, I think the opportunities in adoption of technology and some of the changes we're seeing in workplaces have benefits for business and their outcomes as well. So this isn't necessarily, and it isn't something the government has, can deliver on our own, but we can set up the policy framework, like, a decade of failed energy policy has had impacts on business as well. And so by us setting in place that policy, making it clear, providing certainty that will drive business investment and opportunities for business as well which is why we're tackling all of these issues, whether it be you know, new businesses of the future through the National Reconstruction Fund, making sure our workforce is skilled and trained, making sure women can work the hours they want to work. All of those things are part of our response to this productivity challenge and we've been driving it, really, since we came to government.

MACDONALD: Today, the Senate Inquiry into consultants will continue. Can you fundamentally change the public sector's reliance on consultants?

GALLAGHER: Yes, I think we can and I think we should and I think we have to. You know, this is something I've been talking about for years from Opposition. We saw a shift towards outsourcing, essentially public service jobs into the private sector and outsourcing that responsibility. Obviously, the issues with PwC have highlighted that at an extreme end, but they're, we've got a lot more to do to rebalance the public service to make sure that it's there as the important institution that it was already, always intended to be, to work in the interests of the Australian people. So there's a lot of work underway about how we do that. You've seen in this Budget, we've converted about 3300 labour hire jobs into public service jobs, because they are permanent jobs that always need to be done. And that's the beginning of the shift away from this reliance on external labour. There's a lot more to be done. We're very focused on it. We think it can save money, and we think it'll deliver better public policy outcomes.

MACDONALD: On another matter. Obviously, your name has been mentioned in several reports in recent days relating to the Brittany Higgins allegations. In an audio recording her partner David Sharaz, said, "I've got a friend in Labor, Katy Gallagher". I want to give you the opportunity to respond on the record. Are you comfortable with that association, that description?

GALLAGHER: Look, I have nothing further to add to this, Hamish. I've been very clear with those that are reporting this story about my responsibilities. And you know, and how they relate. Particularly it's been raised in relation to a settlement or a compensation package in relation to Miss Higgins and that I had absolutely no role in that at all. And, you know, I think that's all I need to say.

MACDONALD: But not a friend, then?

GALLAGHER: Look, I knew Mr. Sharaz from my previous role, he was a journalist here in Canberra when I was Chief Minister, so I knew him. But I have nothing further to add. My statements are all on the record, and I'm comfortable with those.

MACDONALD: Katy Gallagher, I appreciate your time this morning. Thank you very much.

GALLAGHER: Thanks very much, Hamish.