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

5 February 2008

INTERVIEW WITH JON FAINE

ABC Radio 774
Melbourne

Tuesday, 5 February 2008

SUBJECTS: Interest Rates, Inflation, Mitsubishi

FAINE:

Mr Swan, good morning again.

TREASURER:

Good morning, Jon. It's good to be with you.

FAINE:

Are you expecting more interest rates hikes later this year as well?

TREASURER:

Well, what the Reserve does today is entirely a matter for it. It's an independent body, it takes its decisions independent of the government. So I'll await the decision today.

FAINE:

But today if rates do go up, it's unlikely to be the only time they go up this year, is that correct?

TREASURER:

I don't speculate on the future course of rates. What I do do is talk about the causes that lie behind the decisions of the Reserve Bank. And in this case what the Reserve Bank will be considering is elevated levels of inflation in Australia and unfortunately, Jon, last October, November and December inflation hit a 16-year high. Underlying inflation hit a 16-year high.That will weigh heavily on the Reserve Bank's mind and it certainly weighs very heavily on the government's mind, which is why we began work on day one to deal with this inflation legacy.

FAINE:

How do you stop people buying stuff they can't afford?

TREASURER:

Jon, it's not just caused by people buying stuff they can't afford. I mean, inflation pushes up the cost of living for everybody and there's a lot of people out there doing it tough because of high inflation. And inflation is high because as the Reserve Bank warned the previous government over a number of years that they weren't attending to the skills crisis, they weren't attending to infrastructure bottlenecks. So what has been pushing inflation up in Australia relates directly to capacity constraints in our economy which weren't dealt with by the previous government over a long period of time. So it took a long time to build and it's going to take a long time to deal with.

FAINE:

But things like mortgage stress, household credit card indebtness and the like, is fuelled by a consumer goods boom when things like cars, televisions, everything's cheaper than we're used to, money's more available than ever before and people are buying stuff they can't afford.

TREASURER:

Well, Jon, you paint a picture that everybody's out there sort of living in clover with plenty of money or just borrowing it and not acting responsibly. I don't share that view of hardworking Australian families. They great bulk of them struggle to make ends meet, behave responsibly and they've been hit with six interest rate rises in the last three years and that has certainly been the single most important factor in causing mortgage stress and rental stress, the six interest rate rises that occurred over the last three years and the 10 interest rate rises that occurred on the trot.

FAINE:

Wayne Swan, we've got this two-speed economy that we've often remarked upon and analysed. There's the resources sector and the boom accompanying it, but then manufacturing is in real trouble. Mitsubishi's expected, and the Financial Review in fact on its front page today regarded it as a fait accompli, that Mitsubishi will close its South Australian plant today. What impact do you think that and the resulting job losses will have on the Australian economy?

TREASURER:

Well, Jon, we're waiting on the announcement from Mitsubishi so I don't intend to pre-empt that. It is certainly the case that in this country the manufacture of vehicles has had increased difficulties in recent years and governments of both persuasions have worked hard with the car industry to put in place policy settings that can make it competitive. But I'm not going to pre-empt the decision that may or may not be announced later today.

FAINE:

But in the event that it does go ahead, it's another blow to manufacturing in Australia.

TREASURER:

It certainly is, yes. If it were to go ahead it would be a blow to manufacturing in Australia. I for one am an optimist about what we can do in manufacturing industry in this country. We face many challenges in the area…

FAINE:

Would you assist South Australia with any particular measures, if in fact, thousands are out of work, not those just at Mitsubishi but the knock-on effect in the components industry?

TREASURER:

Yes, certainly, well our priority is the workers and their interests and we will be working with the South Australian Government and the workforce to do everything we possibly can to assist them should this occur.

FAINE:

The previous government preferred South Australia with all sorts of contracts, in particular defence contracts, in order to, I think, pave the way for this eventuality. Will you be looking at extra help or is that pretty much it?

TREASURER:

Well, South Australians are as valued as anyone else in the country. They are hard workers, they've got a pretty good economy down there but they've got some problems in the manufacturing sector and we will work with the South Australian Government and the South Australian people to do everything we possibly can to strengthen the economy over time down there.

FAINE:

Treasurer, thank you for your time on a day when the challenges are many and the pressures, I'm sure, are great.

TREASURER:

Good to talk to you.