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

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

16 January 2008

Interview with Ray Hadley

2GB

Wednesday, 16 January 2008

SUBJECTS: ASX 200, US sub-prime crisis, sharemarket, interest rates, skills shortages, apprenticeships

RAY HADLEY:

Treasurer, good afternoon to you.

TREASURER:

Good afternoon and Happy New Year.

RAY HADLEY:

All the best. I haven't had a chance to talk to you and the Prime Minister. Congratulations on your emphatic victory.

TREASURER:

Thank you very much and delighted to be on the program.

RAY HADLEY:

By gee you have a job in front of you as a Government and you more particularly as the Treasurer.

TREASURER:

We have a few challenges out there. But they are challenges that we are going to take on with a lot of energy. You know, we have assessed the challenges and we understand what they are. Certainly we have an inflation challenge on our hands. We began work on that from day one. And we have the international financial turbulence from the US sub-prime mortgage crisis as well.

RAY HADLEY:

Now, inflation. What can you do about it given the main trading index here the ASX 200 has fallen eight straight days in a row. Today it is now 2½ per cent — significant losses for shareholders. And this happened 8 years ago now, or 7½ years ago. And they say if they cough over there we get the cold and so it goes on. Independently of what happens over there in the United States of America and independently what happens in the sharemarket. What can you do as a Government to arrest that?

TREASURER:

Well, the turbulence in the international financial markets is certainly having an impact on the sharemarket. There is no doubt about that. But the most important thing that we can do here is to modernise our economy. I mean the fundamentals in the Australian economy are good. There is no doubt that we will suffer from the fall out from the turbulence overseas. And if the US economy slows somewhat that will have some impact there. We have already seen the cost of borrowing flowing through to banks in this economy. And I make the point that some of the rises in this country that flow from that crisis have been excessive. And I have made the point very loudly and very clearly that I want to see more competition in the banking market. And we have asked for a report from the Treasury about that. I will be going round talking to the banks and I will be putting forward a package to deal with those competitive issues. There are a lot of things on our agenda Ray, but the most important thing is that the outlook for this country in the longer term is very good. But we do have to get on top of this inflation challenge. The Treasury has advised us that inflation will be at or above the Reserve Bank target band for the next 18 months. And, of course, you have a high inflation rate out there which we have inherited. What that does is put pressure on interest rates.

RAY HADLEY:

Does that come as a shock that what you were told by Treasury in relation to where we are headed in the next 18 months to 2 years?

TREASURER:

No it didn't because we have been making this point from Opposition. We are acutely aware of the inflation challenge. It is somewhat higher than we thought it would be. Because the Reserve Bank effectively warned the former government on something like 20 occasions about inflation caused by skill shortages, infrastructure bottlenecks, and so on. These inflationary pressures are taking a long time to build and they will take a while to deal with. But we are getting to work very quickly to put in place a range of measures to deal with them in the longer term. And the most important thing that we can do is in the forthcoming budget show some restraint at the Federal level. And that is why we have put out a savings package during the election campaign, and we intend to make further savings through this budget process.

RAY HADLEY:

Will that impact on promises you made in relation to what you might do?

TREASURER:

We are going to continue with those commitments, because those commitments are very important to building the productive capacity of the economy in the longer term and dealing with inflationary pressures, for example, dealing with the skills crisis. That is one of the factors that is putting upward pressure on inflation. Dealing with those infrastructure bottlenecks that we feel particularly in the major cities but right around the country in the major export ports, we have to deal with those. They will take some time as well. But we are sitting down with the States and trying to reform Federal-State relations, so we can deal with a number of issues in the longer term. That is why we began work just before Christmas in the COAG meeting. That's why I met with the Treasurers the other day.

RAY HADLEY:

But surely, if these are suggesting that, you know, things are worse than even you anticipated. You know, you talk about reigning things in with the budget. I mean, surely there will be some things, you know, that you will have to put on the back burner for the first budget anyway.

TREASURER:

We are going to change priorites. We can meet our election commitments, but our priorities will not be those of the former government. We don't think they put enough priority on skills and education more generally, or on infrastructure. And we also think, Ray, that there is a lot of wasteful expenditure. As we go through the budget process we are going to be pretty harsh when we look at that expenditure because we have to take it from some areas and put it into others.

RAY HADLEY:

Yes, you have started with Foreign Affairs already.

TREASURER:

Yes, we have started with Foreign Affairs. There has been, as you know a range of cuts to the entitlements of even the politicians in the incoming Government. There are a whole series of things that we will be doing because we have to say to the public – ‘Restraint starts with the Federal Government'.

RAY HADLEY:

I was talking to a mate of mine who employs plumbers, mainly plumbing apprentices yesterday. And you talk about the skills crisis and the shortfalls. And he talked about first year apprentices in the building trade, and every other trade for that matter, whether there are sparkies or plumbers or builders. And he said I just don't know why in relation to those young blokes you wouldn't given them, and I know it's not your baby, a payroll concession state wise and a tax concession for young blokes and young women.

TREASURER:

Well, we have put a range of incentives out there. There are a few things, but certainly the money that is paid is an issue. But, I think a lot of younger people are now considering a traditional trade, because the money they are going to get when they come out is now much, much greater than it has ever been. And we haven't paid in recent history mechanics and plumbers and people like that in those occupations what they have been worth. So a lot of people have steered away from those occupations. But I also think there has been a classic problem in the education sector and also in society more generally where we haven't introduced younger people early enough in the school system to the importance of those trades. So one important policy, long term, which is operating in the state that I come from Queensland; they are looking at school-based apprenticeships as well. So, there is a range of things. Yes, it is the pay. Yes, it is the conditions. Some of it is the attitude as well. I think some of those attitudes are starting to change, because a lot of people out there can see that people in the trades are making a lot of money.

RAY HADLEY:

Well, I have just got a young bloke finishing Year 12 and starts a plumbing apprenticeship next Monday.

TREASURER:

Right.

RAY HADLEY:

So I am intimately involved in those discussions.

TREASURER:

That will be handy for your family Ray.

RAY HADLEY:

Don't you think I know that one. I am just delaying any repairs for two or three years until he can do it. But, you see, one of the things is you talk about the way society looks at it. Now I am 53 and left school in '72 and during that period up until probably recently, in the last decade, people started to look down their noses at young blokes leaving in year 10 and 11 and said that I want to be a builder, or sparky or plumber, or I want to be a plasterer, I want to be a brickie. And, you know, there was this view that you have got to go to year 12, and you have to do some tertiary education, and you have got to go to TAFE and you have to do this. What was wrong with people leaving school at 16 or 17 and entering a trade?

TREASURER:

Well, that is why we have got to elevate the status if you like. The quality of the training and how we go about it. We need both. We need more people to stay at school until year 12. But if someone has got a particular bent when it comes to the trade, we ought to introduce them to that earlier and accommodate that in the school system. And that's why we made the commitment about trades training centres in high schools. And the one that Kevin Rudd and I went to at Nambour High, and I left in 1971, when we went back there last year the trade centre in that school is not any different to what is was when I left there in 1971. That is terrible.

RAY HADLEY:

That is a long time ago.

TREASURER:

Certainly is.

RAY HADLEY:

Now before you have a crack at the banks as you should. I had a call earlier from a local man. He made the point that he was ringing from rural NSW that he had some money on fixed deposit for three months with the NAB and they offered him at the time 6.5 per cent. And he goes into roll it over for another three months and they say, down to 5 per cent.

TREASURER:

You are kidding.

RAY HADLEY:

No, they said ‘Leave it here for seven months and we will give you seven per cent'. So he leaves it there for seven months. And then I get a call from a bloke who says ‘Look, I went to ING, and they will give me 6.4 or 6.5 at call.

TREASURER:

Well, the only thing that I can say is that we want to make this market more competitive so that people can get better deals. And one of the problems that we have got there at the moment is that some of these excessive rises when people say, ‘well I want to shift my account'; there are a whole lot of bureaucratic impediments to them moving. You know, people may have their credit cards linked in and they have direct debit linked in, we are looking at a series of issues and I have asked the Treasury to come back to me on these, where people can change easily without missing their bill paying process — those sorts of issues. And there are, of course, the issues of exit fees. I think a lot of people sign up for loans and haven't got a clue that they may have signed up to a very hefty exit fee. But making that very clear and transparent in the process is part of a competitive package we do need to put out there. And I intend to talk to the banks about it. And I intend to make sure that we get the best set of arrangements possible that we can.

RAY HADLEY:

You might talk to them Treasurer, but do you have the feeling that in three years you will be scratching your head. There will be lip service there, but at the end of the day they prey upon people upon being proactive and going looking at a lot of places.

TREASURER:

Well, that is why we have to help the punters out there with a much more competitive market and give them the tools to exercise choice. It may be that some of them count on the fact that people don't know and don't bother to find out. Well, there are ways in this economy where we can help them find out and make it easier to move.

RAY HADLEY:

Well, I have taken enough of your time. Thanks very much. We will talk again in the near future.

TREASURER:

It was good to talk to you.

RAY HADLEY:

Federal Treasurer, Wayne Swan online making himself available to us and I do appreciate it.