Senator the Hon Katy Gallagher

PATRICIA KARVELAS, HOST: You might be feeling a little relief this morning after the RBA decided to hold the official cash rate yesterday, leaving it at 4.1%. But the central bank was quick to mention it's likely there'll be more hikes to come, as the path to avoid recession and getting back to that inflation target two to three per cent narrows. Katy Gallagher is the Acting Treasurer and the Minister for Finance and Women. And she's our guest this morning. Katy Gallagher. Welcome back to the program.

KATY GALLAGHER, MINISTER FOR FINANCE: Thanks very much for having me on Patricia.

KARVELAS: I know you're across the RBA’s accompanying, like the statement that goes with its decision. Do you think interest rates have now peaked or should people buckle up for a couple more?

GALLAGHER: Well, the bank sets interest rates and it's an independent institution. So, where interest rates go and whether there's further increases or further pauses is a matter for the bank, that it's not unusual for them to issue or to indicate forward guidance in their decision that they release along with the outcome of their meeting. So, in that sense, they have you know, provided that, some of that forward guidance about whether or not there may be further tightening of monetary policy in that decision. But that isn't unusual, Patricia.

KARVELAS: No, I mean, obviously, I'm not asking you to set rates, but you are Acting Treasurer. You're watching this closely. Should people be prepared for a few more interest rate rises?

GALLAGHER: Well, I think we should be prepared for the fact that the bank has a job to do, which is to ensure that inflation comes down, and that heads towards the target range and certainly in our Budget forecasts we expect that to happen. We do believe that inflation has peaked and that we will see moderation of that over the next 18 months. But as to what happens with interest rates, that it really is a matter for the Reserve Bank. From the Government's point of view, we have to make sure that our decisions are working alongside the Reserve Bank, not against it, and the Budget we handed down and Jim handed down a couple of months ago. The decisions in that were carefully calibrated to make sure that we didn't make the bank's job harder.

KARVELAS: 12 of 27 economists surveyed by The Conversation believe a recession is now more likely than not. Is that your fear too?

GALLAGHER: Well, that's not our expectation. That's not the Treasury forecast, and I note in the decision of the bank yesterday. They do have a line in there that says the Board is still expecting the economy to grow as inflation returns to the two to three per cent range. So that's the advice the Government has, but you know, we accept, you know, people are doing tough out there. We accept that, you know, growth is slowing, economic growth is slowing, that is what was expected essentially as we try to deal with this inflation challenge. So, you know, we can see it in a range of economic data that's coming in, but growth across the economy and sort of confidence, consumption, all of those measures are showing that, you know, economic growth is slowing, which is what we'd forecast in the Budget and I think what the bank is also forecast.

KARVELAS: Given people are doing it so tough, why has the Government essentially taken off the table further cost of living relief?

GALLAGHER: Well, in the Budget a couple of months ago, Patricia, is it a couple of months? Yeah. Well, in May. It seems a long time ago. We did have a significant cost of living package and that that those measures will start to flow. I mean, in particular, we've got childcare, we've got the energy bill relief. So, people will start seeing that in the next six months and that will make an impact on household budgets without a doubt. We have a range of other measures and of course, we've got big, you know, significant investment in aged care workers’ wages, and we are seeing some increase in wages outcomes. So, on those measures, I think, you know, the Government is doing what it can, and our Budget was targeted to sort of take some of the pressure off those costs of living issues without adding to inflation. And so, restraint was part of our decisions, which is why, you know, we've been so careful about spending, the timing of that spending and making sure that we're repairing the Budget at a time when inflation is at its highest.

KARVELAS: Do you think there's more that you can be doing to withdraw money being spent in the economy on your side? The Opposition says you're not doing enough heavy lifting.

GALLAGHER: Look on that. I mean, we've had $40 billion worth of savings over the last two Budgets, in October and May which is about $40 billion more than the Opposition did in their last two Budgets. So, we are doing that, we are making sure that we are getting rid of the waste and the rorts, so we're returning the Budget to a much more sustainable footing. We're forecasting the first surplus in 15 years. And that is partly because of those decisions we've taken about showing restraint. So, we take responsible Budget management very seriously unlike the Opposition, and we are making sure that our decisions work alongside the Reserve Bank, I mean, it would not have been a responsible thing to do, we've had calls to spend more, we've had calls to save more. We think we've found the balance right with a mix of savings, showing restraint and investing in cost of living decisions.

KARVELAS: Minister the states and territories are spending tens of billions of dollars on big infrastructure projects. Isn't that driving inflation?

GALLAGHER: Well, states and territories will always spend money on infrastructure. And, you know, so does the Commonwealth Government. We have a large infrastructure program as well.

KARVELAS: Sure, but that's not the question. Is it driving inflation?

GALLAGHER: Well, we have a review underway to better phase our infrastructure program and the states and territories are part of that review. They are working with us at looking at how we essentially smooth the pipeline of infrastructure over time to make sure we're building what we need. And you know, I think there's also calls to do more on infrastructure because, you know, particularly the cities and the regions are seeing you know, significant growth and pressure from infrastructure. So, I think the responsible thing to do is what we've been doing is around unpicking the mess the last Government left around their infrastructure program.

KARVELAS: Sure, but if I can take you away from the politics and ask this when you say better phase in, is that basically a message to the states and territories to slow down?

GALLAGHER: No. Well, I think what we're saying as a Government is that we want to make sure the projects are deliverable. Understand what the true costs are, and make sure that they're delivered in the way that they are able to be delivered, which is not the way that that program has been phased in the past.

KARVELAS: I'm talking about its impact on inflation.

GALLAGHER: Yep. And I think all levels of government recognise that inflation is a key challenge in our economy, which is why the states and territories are working with us around how we phase those big infrastructure spends.

KARVELAS: So it is about inflation? And you're saying they recognise that they might be pumping too much money into the economy?

GALLAGHER: Well, no. I'm not saying that. I'm saying that we are trying to ensure that the infrastructure that's been promised, projects that have been outlined, are phased appropriately, can be delivered and that we understand what the true cost is. Because at the moment, we've inherited a program that's over programmed, that hasn't been able to be delivered, and where there is significant cost difference between what was expected and what is actually turning out to be the case. And so that work is underway. It's important that that is being done, and it's being done at a time when inflation is at its highest. I mean, we've essentially paused some of the decisions around that program based on the mess that we inherited.

KARVELAS: Minister, if I can just change the topic, the Minister for Indigenous Australians, Linda Burney, will today make, deliver a speech, outlining the policy areas she wants The Voice to provide advice on. If it gets up, of course, after the referendum. Why is the Government setting the priorities? Isn't that the job of The Voice to decide what it thinks its policy priorities should be?

GALLAGHER: Well, The Voice will be you know, an advisory body to the parliament and to executive government. I think it's entirely reasonable that the Minister for Indigenous Australians would when she's giving a keynote speech, which she is today, outline those key areas that she sees as a priority. And I don't think it's any surprise that these would be areas that you would expect The Voice to provide advice on when you look at health outcomes, educational outcomes, employment outcomes and housing outcomes for first Australians. These are an area where we need to improve programs and support to First Nations communities.

KARVELAS: I just want to move to another issue minister before I let you go. Analysis by the Centre for Public Integrity found the Big Four consultancy firms, PwC, Deloitte, EY and KPMG have donated $4.3 million to Labor and the Coalition over the past decade. At the same time, during that time according to The Guardian, the value of their government contracts increased by 400%, which is pretty staggering. Is it time you stop taking donations from them?

GALLAGHER: Well on donations I think there's two separate issues there. On donations, donations should be made in accordance with laws and be disclosed, and we've got some reforms coming around that that we have been advocating for years. The second issue is about the significant increase in contracts awarded and we do think that's a problem. We thought it was a problem from Opposition. And we're cracking down on it. We've, we've found significant savings that we've taken off agencies to reduce the reliance on consultants. In this Budget alone, the conversion from external labour into permanent jobs, which is essentially what was happening under the Coalition is saving the Budget $811 million because we're converting those arrangements.

KARVELAS: I understand but my question was direct. Will you stop taking donations though, from consulting companies?

GALLAGHER: Well, that I mean, that is not a matter for me as the Finance Minister. I think, well my view on donations to political parties is that they should be made in accordance with the laws that Parliament sets, they should be disclosed, they should be transparent and the fact that we're having this discussion is because that is what happens. They are disclosed, it's very clear.

KARVELAS: Isn't that a conflict of interest given they have so much to gain from these government contracts, wouldn't it be better to put a line in the sand and say we won't take money from these consultancy firms?

GALLAGHER: Well, that's a matter for the party, political party organisations. My focus as Minister for Finance is on making sure that our procurement processes, and I would say politicians do not determine the awarding of contracts. That is not how it happens and so I think there is a misunderstanding about that, that you know, if say one thing happens, then ministers award certain contracts and ministers do not award contracts. And my job as Finance Minister is to ensure that all of the procurement processes ensure that taxpayers get good value for money and that those decisions are made in accordance with the procurement rules, which they are.

KARVELAS: Okay thank you so much for your time this morning minister.

GALLAGHER: Thanks very much PK.

KARVELAS: Acting Treasurer and Minister for Finance and Women, Katy Gallagher there, and you're listening to ABC RN Breakfast.