A rate 'bump in the road' for Labor

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Speaker 3 It's the rates decision that stops the nation. RBA Governor Michelle Bullock has confirmed that interest rates will again be put on hold, so you don't get your rate cut.

Speaker 3 The widely expected move comes after inflation figures came in hotter than expected last week. But what does the move mean for the government?

Speaker 3 And what does it mean for future signals about where they might take things? Welcome to Politics Now.

Speaker 3 Hi, I'm Patricia Carvelis.

Speaker 1 And I'm Tom Crowley.

Speaker 3 Oh, so glad we've just jumped straight into the studio. The Reserve Bank has kept the cash rate on hold at 3.6%.

Speaker 3 Tom, not really a surprise at all, because when that hotter-than-we expected inflation figure came out, it was all but certain that a rate cut was dead this year, right?

Speaker 1 It was. We might as well have recorded this on on that day, PK, because the story was pretty much set in stone back then.
It was a unanimous decision from the RBA board today.

Speaker 1 We get to see that vote count now, but it wasn't a particularly exciting one today. That uptick in inflation was

Speaker 1 the reason. So, look, you know, it's a little bit of an awkward one for Jim Chalmers, who you've just come running back from the chamber and the House of Representatives in question time.

Speaker 1 He didn't look too thrilled, did he?

Speaker 3 No, look, you know, he was downbeat. He knew that, like, he'd practiced this line 100 million times, I reckon, because, as we say, we all knew what was going to happen.
And so

Speaker 3 the line from the government is as expected, Tom. You know, we've still halved inflation from where it was at at its peak under the previous government.

Speaker 3 We're making, you know, all these inroads, but it's not a linear path.

Speaker 1 It's not a linear path, but, you know, it's a little embarrassing because earlier this year, Jim Chalmers was saying, oh, you know, I will never preempt the Independent Reserve Bank, which is always what he says just before he kind of does.

Speaker 1 And then he said, oh, look, I noticed that the markets are pricing in four rate cuts this year.

Speaker 1 And in the end, we're going to fall short of that. It's three

Speaker 1 is it. We've had the last meeting of the year, so he can't get to that.
Okay, let me just interrupt.

Speaker 3 For our listeners, what's the significance of that? Because he was right at that time, to be fair to him. The markets were pricing in four rate cuts.

Speaker 3 Now, what is wrong, I'm not saying it's not right to mention it, but explain to our listeners why it was just a bit dicey for him to lock that in as a kind of, or to sort of wed himself to that.

Speaker 1 Well, I think it was just probably a little bit of haste from the markets as well, frankly, to declare victory and move on. So I think both the markets and then the treasurer got it wrong.

Speaker 1 I mean, you have to play word games a little bit here because the treasurer will never directly verbal the RBA.

Speaker 1 But when he points to something like that as a market expectation, he's clearly, you know, as someone said this morning, you know, he's not exactly going to get up and say, oh, the market expectations for four rate rises this year.

Speaker 1 You know, if it's bad news, he wouldn't point to it. And there was an enthusiasm and a willingness to maybe get a little bit overexcited about the fact that that was going to happen.

Speaker 1 But I just think if you step back over a few years, this is exactly what we were told was going to happen, right?

Speaker 1 The trade-off that we were given was the RBA was not going to go as high as the other central banks in terms of the rate, and it didn't. It was not going to send us into a recession, and it didn't.

Speaker 1 Unlike a lot of other countries, we didn't see the significant spike in unemployment that other places have had. We didn't see, yes, there was a pinch on households.
We didn't see distressed sales.

Speaker 1 We didn't see much sign that mortgage holders were unable to cope.

Speaker 1 But, you know, the trade-off of that slightly better outcome was that rates were going to be a little bit higher for a little bit longer. And that's what we're seeing now.

Speaker 1 And you get these little bumps in the road, but the fundamental picture hasn't changed, right? We got a little bit of a jump in unemployment last month. It went from 4.3 to 4.5.

Speaker 1 4.5 is exactly the number from years out that the RBA told us they thought that unemployment would settle in. And it's a reasonably historically low number.

Speaker 1 I just think that kind of, you know, from the outset, we were being told that this wouldn't be conclusively over. It would be nearly over, but not quite done, all the way into 2026 and even 2027.

Speaker 1 That's what we're seeing. It requires maybe slightly more patience than some people have been ready for.

Speaker 1 But I don't think that this is necessarily a story, this bad inflation number, that the whole thing's gone out of control. Here we go again.
Strap yourselves in.

Speaker 1 It's just another one of those bumps in the row. We get tired of saying it, but these things play out over long time.

Speaker 3 But if the opposition could get their house in order and no evidence of that, my friend, but if they could,

Speaker 3 you know, this is something real for them to keep prosecuting. Second term now,

Speaker 3 you know, persistently high prices, a government that, you know,

Speaker 3 gets a bit older and therefore more pressure on them to deliver.

Speaker 3 We know high electricity prices they are clearly very acutely aware of because they've just announced, and this is another story running today, the three hours of free

Speaker 3 electricity that you can have in the middle of the day. Now, lots of questions around that.

Speaker 3 I have, like what, so if you're like the sort of fancy pants person who can work from home, and sorry for those of you who listen who do that, but it is, you know, it's a privilege for many people who don't get to do that.

Speaker 3 You get to do your washing for the free time. Some questions around that, but why would they be doing that? It's because they know price pressures, Tom, are so intense, right?

Speaker 3 So it's all the same part of the story.

Speaker 3 But there is going to be some pressure, even if it's not from the opposition, from the public, for them to show, to demonstrate that the relief is coming, that it wasn't just sort of a few aberrations by the RBA.

Speaker 3 So the pressure will mount on their own spending. What's the Treasurer going to do? And well, my EFO is coming up, but then the May budget next year.

Speaker 3 Like that is a key budget, isn't it, in terms of the electoral cycle to do some stuff, to make some difficult decisions, to perhaps take some of the foot off the accelerator when it comes to the economy potentially.

Speaker 3 Am I right, or am I losing my mind?

Speaker 1 No, absolutely. And look, if the opposition weren't distracted, biting one another's limbs off this week, there might be a significant line for them to push here.

Speaker 1 Not just on the cost of living pressure. side of it.
You know, I mean, they did that in the last term and it didn't really get them all that far when push came to shove.

Speaker 1 But I actually think that there's a conversation for them to have about the underlying cause of what is a fairly stuck and stagnant economy and a conversation about what's labor really doing to breathe life back into it.

Speaker 1 And the word I'm trying not to say there because it's not an electoral selling one is productivity. Productivity is all about expanding what an economy can do.
Inflation sticks around.

Speaker 1 Inflation is what happens when an economy is too hot for what it can do. So inflation is about we're straining against the bounds of what our economy can manage.
Productivity is about expanding that.

Speaker 1 Productivity is about growing living standards. It's about finding ways to sustain a good unemployment rate and a good wages rate.

Speaker 1 And the government, I think, although it has talked about productivity and even had a summit about productivity, is yet to really have any conclusive wins on that front and yet to really conclusively answer the question about how do we get a bit of life and growth back into this economy in a meaningful way.

Speaker 1 Instead, I think, and this is where I, you know, maybe I'm being a little bit mean by pointing to Chalmers and the four rate rises, but this is where I think the government had a little bit of a sense that it could have its cake and eat it by saying, hey, great, we get a low fours unemployment rate.

Speaker 1 We get reasonably high wages growth and we fixed inflation. Goody, we've got this perfect trifecta.
Everything's fine. The trade-off that those boring economists warned us about doesn't exist.

Speaker 1 But it does.

Speaker 1 And until we can fix the productivity problem, we're going to keep getting stuck in this period of time where we can't be as excited as we'd like to be with the budget in the middle of an electoral cycle because you know we're not expanding the productive capacity of the economy it's a dull answer but if the coalition can turn it into tell us what you really think tom that sounds you know sounds a little bit more exciting relates to how people think about their lives and their livelihoods there is an opportunity there well it's a perfect point to segue to like what this means for for mortgage holders of course that's no relief i mean i have a thumping mortgage i've mentioned it a few times it's like damn would I liked a rate cut, but it's not coming.

Speaker 3 So, you know, there is that, and that's the people who own the houses, as you and I have talked about 3,000 times. There are the people who don't own the houses, and they're annoyed.

Speaker 3 Now, Labor, I spoke to a very senior person in the Labor Party who said to me the other day, like we know that this is the term of delivery. Housing is

Speaker 3 it, like for us. Like, they know, like, they're like that.
Actually delivering on that is the hard thing.

Speaker 3 And on that, I just, if you look at recent figures, and we're focusing at at the ABC on housing I mean you know house prices are are hot right

Speaker 1 they are and sorry to that particular frontbencher but it it doesn't work that way the housing market does not answer to that quick a turnaround and I think that that's something that Labor is grappling with in a bit of an ugly way with this 1.2 million homes target.

Speaker 1 It just doesn't move that fast.

Speaker 1 And I think, you know, Labor was convinced by arguments that have a lot of evidence that if you fix supply, if you get more homes built, you know, I think that there is a really overwhelming body of evidence saying, yes, over the long run, that makes houses cheaper.

Speaker 1 But the words that I said quickly there, over the long run, it's just longer than the timelines that Labor thought that they could grapple with.

Speaker 1 And it's longer than the timeline of two terms of government. And this is what they're finding at the moment.
So, you know, this week, we were starting to see some green shoots in housing approvals.

Speaker 1 Now, these things are kind of cyclical. They move like a tide.
There's upswings and downswings in construction. The last few years has been an ugly time for construction.
We're turning the corner.

Speaker 1 Labor can genuinely be hopeful that what they're doing on planning is going to make this upswing bigger than normal.

Speaker 1 And over the course of maybe the next, I don't want to put a time on it, but say three to five years, might start to actually make a difference to the housing market, first in the numbers and then in what people actually feel.

Speaker 1 But that's a while away. And in the meantime, I think they thought they could get away with, you know, essentially handing out some candy in the form of demand side stimulus in the short term.

Speaker 1 And I think they're about to find out that they can't because we've got the first month yesterday, the first month of data from the 5% deposit universal guarantee era.

Speaker 3 And what was it, Tom?

Speaker 1 It was the fastest house price growth in two years.

Speaker 3 Stop it. Why would that happen, Tom? Like, why would that happen that if more people can have access to money? to buy a house, that it would increase house prices.

Speaker 3 No, is that really the way markets work?

Speaker 1 And not only that, but increase house prices at the bottom of the market for the kinds of homes that first home buyers normally try to buy. Surprise, surprise.

Speaker 1 And I'm sure that plenty of people listening to this will have observed this in the kind of homes that they might be trying to buy.

Speaker 3 Are you talking for yourself, i.e. a friend?

Speaker 1 Well, you know, I mean,

Speaker 1 Elise in our parliament team here has been keeping a close eye on auctions recently. And she pointed out that in Canberra, the maximum for this scheme is $1 million.

Speaker 1 And there are homes going for $1,000 and $5,000.

Speaker 1 So all the first home buyers drop out of the race and then one lucky person comes in and they says, oh, well, I'll take it for a million and just a little bit over.

Speaker 1 We're already starting to see anecdotal signs and now some data signs that this could really be having a bit of a turbocharge effect at the bottom of the housing market.

Speaker 1 Now, whether that's just a transitory thing, whether that's just a bit of a bump, I'm not sure, but it's just a reminder that if you want to play around with demand side stimulus while you're taking a while for understandable reasons, but taking a while to get your supply picture going, well, you're going to be making the problem worse in the short term and that's going to be really hard to sell.

Speaker 3 Of course, and it's such a great point because, I mean, even at the time where the government announced this in the election campaign, they did concede it would have what they think the word, you know, the sort of political word is modest, isn't it?

Speaker 3 Modest, modest impact on house prices. Now, as you say, first month's results come in and, you know, yeah, okay, if you want to call it modest, but it's having an impact, right? Like it's being felt.

Speaker 3 Yesterday, and I know this piqued your interest as well, I interviewed Andrew Bragg, who's the shadow housing person, and he critiqued that they're basically stimulating the lower end and that he thinks it's problematic.

Speaker 3 Sure, good point. We just made it.
And then I put to him, well, how about your super for housing plan? That's going to stimulate as well.

Speaker 3 And he said, which I thought was very noteworthy, I know we're far from the next election, but this is pivotal. They've taken to the election twice super for housing.

Speaker 3 You can use your own super to buy a house. He wants to dump it, even though he was a champion of it, because of the stimulation it does to house prices.

Speaker 3 And he says all of the work has to be on the other end,

Speaker 3 on the supply side, not on the demand side.

Speaker 3 They want to stop this

Speaker 3 insanity in some ways.

Speaker 3 If he can, you know, he's actually got to land the thing. We'll see.
You don't think he can land it?

Speaker 1 Oh, you know, I think it's easy. I mean, you know, credit to him for saying it.
I think it's easier to say in opposition.

Speaker 1 It's a bit like when Susan Lee said a few weeks ago, we're going to have an end to kind of cost of living handouts at elections. And I thought, yeah, will you, though, when push really comes to shove?

Speaker 1 I would like to see that cycle broken, but on the labor side as well.

Speaker 1 You know, I think Claire O'Neill is really genuinely convinced about supply and really kind of understands and is making the case that that is the way to fix the crisis.

Speaker 1 But then in the end, it was the demand elements of Labor's housing agenda that the PM was most excited to talk about because it sells better.

Speaker 3 Yes,

Speaker 3 it sells much better because it's...

Speaker 3 It's such a simple thing, isn't it? Right? Rather than

Speaker 3 these houses we're constructing and also just the delay when you do that, too. Like you can't just do that stuff overnight.
You know, there's a planning process.

Speaker 3 They're obviously trying to streamline a lot of this, but

Speaker 3 there's there's tricky things dealing with the states and territories and regulations. And it goes back then to the EPBC Act even, which is still under debate.

Speaker 3 Do you like how I made a link to that legislation? I feel quite proud of that.

Speaker 1 Tying it in very beautifully there, PK.

Speaker 3 It's almost like I've done this before. Anyway, Tom, I don't think today is an overwhelmingly happy day for the government, even though they knew it was coming.

Speaker 3 A rate cut is kind of would have been a beautiful way to end the year for them. It didn't end that way.
Having said that, and everyone knows we think this because it's hard not to, I feel like,

Speaker 3 I just walked out of question time to record this, and it's worth mentioning for our listeners, because I know they're political junkies, that's why they listen, that the oxygen in that room...

Speaker 3 you should have seen, given the inflation, no interest rate cut, the pressure on the government, but the opposition is so in the doldrums.

Speaker 3 Susan Lee's body language, I've got to say, I don't mean to be a body language expert in one of those a current affairs short stories, but I will. You know, you could feel the deflation of that woman.

Speaker 3 Like, I feel like she's clearly having a really tough time, not a lot of interaction with her frontbench. You could just feel it.
They went for a strategy of backbenchers mainly asking the questions.

Speaker 3 Fine. I don't know why they made that decision, but, you know, okay.
But as a result, it looked like, you know, frontbench couldn't even front up in the middle of their wars. Do you know what I mean?

Speaker 3 Like, it's just not a good look.

Speaker 1 And that feeling of deflation is all across the building. You know, you speak to liberal staffers and say, how are you going? And just sort of make the small talk.
They sigh deeply. Yes.

Speaker 1 And I think, you know, I mean,

Speaker 1 I'm a big

Speaker 1 football fan, big AFL fan. And

Speaker 1 I'm a Brisbane Lions fan. I'm pleased to say, and I can be insufferable about that.

Speaker 3 Is it a previous Fitzroy when you went over? The old Fitzroy Lions.

Speaker 1 But look, you know, there are limits to when politics should be compared to sport.

Speaker 1 But in footy, sometimes the coach sacking happens in slow motion, and it begins with with a whole lot of people saying the coach is not about to be sacked. No, no, no.

Speaker 1 There's no talk about sacking the coach and that may be true for a period of time but it's always a sign that when you start feeling the need to say it it might be about to change and so I don't think anyone is seriously thinking that Susan Lee is about to lose her job this week but the fact that we're having a whole week full of liberals saying no no no we're not going to get rid of our leader I think that is worth marking as a shift.

Speaker 3 One thing I want to say about this I reckon and I said it yesterday that Susan Lee is in a lose-lose situation. It's like really my thesis.

Speaker 3 Whichever way she jumps on something like net zero, she gets smashed. And that's because it's a bitterly divided party.
So just do the maths. Either way, right? Either way is a risk.

Speaker 3 I think that her time is almost up, not quite up, but almost up.

Speaker 3 The only thing that'll save her from the killing season of the last sitting week of the year, which happens towards the end of November, which is kind of the sort of next opportunity after this week, is, and I'm just going to call it out, is blokes who wouldn't mind a summer off till they take over next year.

Speaker 3 That's how I see it. Like guys who are like, yeah, like I might have a bit of a holiday, see the kids a bit.

Speaker 3 And she can, you know, every bushfire that happens, she can do a press conference about, you know, the government's, you know, alleged slow response or various other things. Yeah.

Speaker 3 Keep her working over the summer. There's no rush is my point, right?

Speaker 3 Like take it when you've you're refreshed because they they think, I think some of them think it's an inevitability that it'll come to their hands that she's she's over.

Speaker 3 Okay, so let me give you what I think, because I've been thinking so much about this. You know, sometimes it's better to die on your feet than on your knees, right?

Speaker 3 You'd think that this is her chance in terms of her image. Remember? She said she's serious about climate change.

Speaker 3 She's serious about putting her foot down as a sort of

Speaker 3 liberal, a small L liberal, yeah, the sensible centre, and to kind of go hard and say, no, we will not be a party that goes down a road of looking like they're following the nationals.

Speaker 3 We won't do that. Now, I think that will be diabolical for a leadership.

Speaker 3 I'm not claiming that will work for her, but my God, for her own reputation and the way she goes out, I think it would be powerful. What do you reckon?

Speaker 1 Yeah, I mean, I think that...

Speaker 3 I've really thought this through.

Speaker 1 I think that there's an argument for it. But as you say, right, like that, I guess it just points to the fact that this is

Speaker 1 an ideological gap. In fact, really just like an abyss that exists in this party.

Speaker 1 I think when Labour, on rare occasions recently, has had leadership instability going back to Rudd Gillard, it's often sort of, you know, personality and temperament.

Speaker 1 But all through the Liberal years, there was plenty of personality and ego, but a lot of it was just conservatives versus moderates. And a lot of it was specifically about the issue of climate change.

Speaker 1 Time and time and time and time again, it's the same debate. Looks like we might reach some kind of consensus position unless Susan Lee decides to go down swinging, as you say.

Speaker 1 But the fundamental divergence in the view of the world on this just isn't going anywhere. It's hard to see it holding together whoever the leader is.

Speaker 3 Exactly. All right.
So it's, you know, a problem for whoever's next if there is someone next. And I think inevitably there will be.

Speaker 3 Hey, Tom, thank you for staying back and jumping in and hanging out with me.

Speaker 1 Pleasure. Time to go and listen to the RBA governor.

Speaker 3 Oh, yeah, I can't wait. That's it for politics now.
I mean it actually. It's my favourite.

Speaker 1 I do like the way she delivers to Brother Wathers.

Speaker 3 Yeah, I enjoy her, the accountability process. It's a good change that Jim Chalmers put in.
Agreed. Tomorrow, David Spears will join me on the podcast.

Speaker 3 And if you have a question for us, send a short voice note to thepartyroom at abc.net.au. Mel and I will answer them.
And thank you to those who have responded to our audience survey.

Speaker 3 We love that response. If you haven't yet submitted your thoughts, please click on the link in our show notes and tell us what you think about politics now.

Speaker 3 We'd love to hear from you and your responses. We'll make it better.
Of course, we only launched this podcast at the start of the year, so it's nearly a year old.

Speaker 3 I mean, obviously, the party room is almost a decade old, so I've been doing this podcasting for a while, Tom, but it's like,

Speaker 3 you know, we want to make it the best ever. It It is the most popular politics podcast in Australia, which I'm pretty proud of.
And we just want to keep making it better.

Speaker 3 So, please give us your feedback. See you, Tom.
See ya.