The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
Picture of Wayne Swan

Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

4 January 2008

Interview with Alexandra Kirk

AM Program with Eleanor Hall

Friday, 4 January 2008

SUBJECTS: Petrol prices, interest rates, inflation, US sub-prime crisis

ELEANOR HALL:

The Treasurer, Wayne Swan, has called on the banks to consider the "financial pressures on families" when deciding whether to raise home loan interest rates.

The National Australia Bank did inform the Treasurer of its decision to increase home loan rates before it made the decision public.

Mr Swan has been speaking to Alexandra Kirk.

ALEXANDRA KIRK:

Wayne Swan, petrol prices are heading up to $1.50 a litre, and the National Australia Bank is the first of the big banks to raise home loan rates because of the global credit turmoil. Labor campaigned hard on the cost of living pressure on working families for much of last year and in the election. What do you say now?

TREASURER:

Well, we certainly did campaign very hard on cost of living pressures, and we are acting on cost of living pressures. For example, we have now authorised the ACCC (Australian Competition and Consumer Commission) to investigate price rises at the petrol bowser, and to take action…

ALEXANDRA KIRK:

Nevertheless, petrol prices are still going up.

TREASURER:

Yes they are, and I think many people would be scratching their head, looking at the rise, almost simultaneously with the rise on international markets, and many people would feel that there was something wrong with that.

Well, we have now given the ACCC the formal powers to throw the book at the oil companies if they're found to be profiteering, something that the previous government wouldn't do for 11 long years.

Now, when it comes to interest rates, the parting gift of the Liberal Party to the people of Australia was to pass on an elevated level of inflation, which is putting upward pressure on interest rates, and we've indicated that our most significant priority when it comes to the economy is putting downward pressure on inflation.

ALEXANDRA KIRK:

So what do you say to the National Australia Bank and any other bank planning to increase interest rates?

TREASURER:

Well, this rate rise announced by the NAB is a direct consequence of the sub-prime mortgage crisis in the United States, but I would still urge all of the banks to be very mindful of the significant financial pressures on families when making decisions in these matters. But of course, the turbulent international conditions when it comes to financial markets are now posing very significant challenges for our economy, and this is one example of that.

ALEXANDRA KIRK:

Is it justified?

TREASURER:

Well, they are simply passing on rate rises which are a consequence of increases in the cost of borrowing. It's not an increase in the official cash rate. There were six increases in the official cash rate in the last three years under the previous government, and what we have said is that we have to do everything within our power to put maximum downward pressure on inflation. And we are doing that.

We intend to work very, very hard. We are not complacent about the inflationary pressures in the Australian economy that the previous government let rip for a long period of time.

ALEXANDRA KIRK:

Do you think the big banks can afford to absorb the impact of the US sub-prime crisis?

TREASURER:

Well, I would certainly urge them to be very mindful of the financial pressures on Australian families when they are passing on increased costs that flow from the sub-prime crisis internationally.

ALEXANDRA KIRK:

Have they shown any signs of that then, do you think?

TREASURER:

Well, they certainly have indicated that they've waited as long as they possibly can, in terms of their commercial operations, to pass on increased costs. But Australian families are carrying a huge financial burden, so I would ask the banks to be patient and mindful of the financial pressures on Australian families.

But at the end of the day, the nation cannot necessarily avoid the fallout of the sub-prime crisis in the United States. These increases in the variable rates from the banks, caused by these international conditions, have been going on for some time.

ALEXANDRA KIRK:

So do you accept that the banks have been patient and mindful, to use your words?

TREASURER:

Well, I certainly accept that there has been a significant increase in the cost of borrowing that is a direct consequence of the sub-prime crisis, and certainly some financial institutions have waited a considerable period of time to pass on part of those costs.

I would still ask them to be extremely mindful of the impact of those decisions on average Australian households with mortgages and, of course, business.

ALEXANDRA KIRK:

Do you think the bank's action in raising home loan interest rates might stave off another jump in the official cash rate by the Reserve Bank of Australia?

TREASURER:

Well, I don't comment on movements in the official cash rate. That is entirely a matter for the Reserve Bank. But what this government can do, and is dedicated to doing, is to put maximum downward pressure on inflation over the long-term.

It's very important that the decisions that we take, particularly in the next budget, do everything we possibly can to ease inflationary pressures in the Australian economy, because the Liberal Party's parting gift to the Australian people, before they were defeated, was an elevated level of inflation above the target band and forecast to stay there for some period of time. Those inflationary pressures took a long time to build. It will take some time to deal with them. But we're determined to act.

ELEANOR HALL:

The Federal Treasurer Wayne Swan speaking from Queensland to Alexandra Kirk.