Senator the Hon Katy Gallagher

SARAH FERGUSON, HOST: Katy Gallagher, welcome to 7.30

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

FERGUSON: The incoming Governor of the Reserve Bank, Michele Bullock, says that unemployment would have to rise to 4.5 percent for inflation to come down. Is the possible loss of 150,000 jobs the price we have to pay to achieve that?

GALLAGHER: Well, our forecasts, Sarah, released in the Budget do show an uptick in the unemployment rate as we see the impact of the results of the tightening of monetary policy being implemented. So we do see that that will happen. I mean, our unemployment rate has been very low, historically low, and even if it gets into the 4 and 4.25 or 4.5 as is forecast by the Treasury forecasts over the forward estimates, it remains historically low. But of course, we want as many people in jobs as can be in jobs and that's been a real focus of the Employment White Paper which we'll be releasing later this year.

FERGUSON: Are you, let me just ask you this: Are you preparing to support those tens of thousands of Australians who would lose their jobs under that scenario?

GALLAGHER: Well through the Budget of course, there are a range of payments available if people are on the, you know, unemployed or lose their jobs. And that naturally kicks in, it's an automatic stabiliser in the Budget, like that will occur. So the Budget absorbs that. That's part of the reason why we need to get the Budget in good shape too, so that it can respond flexibly as it needs to based on the economic circumstances of the times.

FERGUSON: So that is an economic reality that we could face job losses of tens of thousands of people?

GALLAGHER: Well, our forecasts released in the Budget show that we would see an uptick from a historically low, I mean we're still at 3.6% unemployment, our labour market has been incredibly resilient. But we are as the economy slows as a result of some of that global uncertainty, some of the results of the monetary policy tightening that we're seeing, we do expect to see an uptick in unemployment, but of course the government will do everything it can to support people who may lose their jobs. We've got a big emphasis on training and reskilling and productivity, so there's a lot of policies that we're working on, based on the forecast that we are, that are outlined in our Budget papers.

FERGUSON: How critical are the next decisions by the Reserve Bank in terms of keeping Australia out of a recession?

GALLAGHER: Well, I note in their decision that they released after the last meeting, they do forecast that they expect the economy to continue to grow. That is certainly the forecasts of the Treasury as well, but I think they're a bank and I don't want to speak for the Bank and they can do that for themselves, does talk about a narrow path.

FERGUSON: Nonetheless, there's a number of I think most senior economists in the country put the chance of a recession at 50%. Are you worried that the Reserve Bank would be prepared to tolerate a recession if it meant they could bring inflation down?

GALLAGHER: Well, the Bank has a job to do and they know what that is and we have a job to do as the government. They are different jobs, and our forecast and the Bank’s forecast is that the economy continues to grow. Now, they talk about a narrow path. Our responsibility is to look at the areas where we can make a difference with the policy decisions that we take. And we've done that in our Budget and we're rolling those decisions out, whether it be some of our support for cost of living measures, whether it be our long term growth agenda, they are also critically important to looking at how we strengthen the economy over time and make sure people's living standards, you know, are maintained and people are able to get good quality and decent jobs.

FERGUSON: At the same time, economic growth is slowing, consumer sentiment is at deeply pessimistic levels, so notwithstanding those forecasts, you can't exclude a recession, can you?

GALLAGHER: Well, the forecast that the government has published and the ones that we are working on are that the economy continues to grow. But we also understand and have forecast that the economy will slow and we're seeing some of that come through in that economic data that you've just referred to. The government remains focused on rolling out the Budget decisions we took and of course, we will monitor and make decisions accordingly. If and when those economic circumstances change, that's what a responsible government would do. And that's what we will do.

FERGUSON: But it's clear that you've had discussions about it. I'm just, what I'm keen to find out is what are the contingencies that are put in place for a possible recession?

GALLAGHER: Well, I don't know what you mean when you say it's clear we've had discussions about it.

FERGUSON: Let me explain what I mean by that. The Treasurer said yesterday that banking the surplus provided a more solid foundation if things deteriorate. Now that sounds like it's not certainly a recession, but it sounds like contingency planning. What I'm trying to understand is what measures have you got in waiting, if a recession eventuates?

GALLAGHER: In terms of what the Treasurer said yesterday, I mean, he was making the point about the need to get fiscal policy and fiscal, you know, our budget, essentially on a stronger footing. We were in deep deficits, we're now forecasting a surplus, we've banked the upward revisions to revenue, we found savings in the Budget to make sure the Budget is in better shape if and when we need to use the Budget to support the economy. You know, that is just standard budgeting and something that responsible governments should do when they've got the opportunity to do it.

FERGUSON: I just want to talk about the burning issue of consultants. Our story this evening reports that the Federal Government has spent more than $8 billion on consultants over the past 10 years. You made an election promise to end the reliance on private sector consultants, what have you achieved so far?

GALLAGHER: Well, we've found about $3 billion in savings along the spending on consultants and contractors that we have removed from agency budgets. We have sent the message that we want to rebuild public sector capability. One of the issues that we inherited when we came in was that there was this artificial staffing cap in place by the former government that said you can't employ public servants unless you get a special exemption. And so the behavioural change to that was consultants were brought in to do the work and we're rebalancing that. We've converted a number of positions that were external labour into permanent public service jobs, and it's a saving to the Budget in the order of $800 million. We've got our public sector reform agenda, looking at things like an in-house consulting model, but it's going to take a bit more time than one year to unpick some of the damage that's been done to rebuild the public service into what it should be and what it can be and what it ought to be.

FERGUSON: Given what you've learned and what we've learned, particularly through the Senate inquiries, given the extent of the conflicts that we've seen, the lack of transparency and a failure of regulation, is there a need for a Royal Commission?

GALLAGHER: Well, there's a number of inquiries underway at the moment. There's also been referral to appropriate bodies, including the AFP so I think there's a bit more to be done there. And from my side, we're doing a lot of work in public sector reform. We're also looking at procurement and how we can make sure that some of those issues that have been highlighted and been raised, including on your show, around conflicts of interest and management of some of that, that we have the right framework in place to deal with that. So there is, I absolutely agree, that there is more work to be done. But I think the Senate is also doing its job that it's there to do which is to apply proper scrutiny with the powers that it has to examine these issues and report.

FERGUSON: Katy Gallagher, thank you very much indeed for joining us.

GALLAGHER: Thanks very much, Sarah.