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

JOINT PRESS CONFERENCE
Prime Minister &
Treasurer

Parliament House
Canberra

Tuesday, 5 February 2008

SUBJECTS: Interest rate rise, Inflation, Tax cuts, Mitsubishi, Apology, Chinalco, Politicians pay

PM:

The tough job of balancing the family Budget just got a whole lot tougher today with the decision to increase interest rates.

The reality of modern life in Australia is that there is no such thing as a small interest rate rise. And after ten interest rate rises in a row, this one will really hurt. Reflecting on how we got into this set of circumstances, the base line is this, that when it comes to higher inflation rates, they result in higher interest rates.

We've had, now, for a long period of time, inflationary pressures building in the Australian economy. And the truth is, inflation in the last quarter of last year was running at the highest rate in 16 years.

These pressures have been building particularly over the last couple of years.

Turning to the future, it means that we have a really tough job ahead.

What are we going to do about it? As I indicated in our first statement on the economy this year, that the core priority of this Government is the fight against inflation. If you look carefully at what the Reserve Bank Governor has said in his statement today, this has been a long time building, and it's going to be with us for a long time as well.

Turning this around is going to take a lot of effort on the part of Government, in order to make sure that we put the position of the Bank such that downward pressure on inflation and downward pressure on rates becomes the reality in the longer term.

Therefore, we announced at the beginning of this year our five point plan of attack against inflation. We stated clearly that we will be embracing a conservative Budget target, a Budget surplus of 1.5 percent of GDP.

The razor gang has been hard at work here in Canberra to ensure that we bring about that outcome. That means doing our bit to restrain public demands.

And secondly, as part of our plan of attack against inflation, to do what is necessary to boost private savings.

And thirdly, on the supply side of the economy, to tackle those things which have been left un-tackled for so long now when it comes to the skills shortages in the economy, the infrastructure bottlenecks, and what needs to be done on workplace participation.

These inflation pressures have been building for a long time. It's going to take a long time to turn them around. We have a course of action for the Government. We'll be implementing that course of action rigorously in the year ahead. If I can ask the Treasurer to add to my remarks.

TREASURER:

Thanks very much, Prime Minister. This 11th interest rate rise in a row will be tough for a lot of families out there and tough for a lot of businesses. And, the Reserve Bank statement points to the significant problem. High inflation produces higher interest rates.

And of course, for that December quarter, in October, November and December, Australia recorded the highest underlying inflation in 16 years.

So the RBA statement points directly to that. And it also points to a revision upwards in terms of future inflation. And it also points to capacity constraints in the economy, I quote:

"… Reports of high capacity usage and shortages of suitable skilled labour persists"

The Reserve Bank warned the previous government on twenty occasions about capacity constraints in the economy and those warnings were ignored. The government was complacent.

The government now, takes these matters very seriously and from day one we have worked hard to put in place a series of policy settings to deal with inflationary pressures in the Australian economy.

The Prime Minister's five point plan announced a few weeks ago shows our determination to deal these inflationary pressures. And today's decision just hardens our resolve to deal with these inflationary pressures.

I can understand why families would be angry. I can particularly understand that families will be very angry with the previous Government for failing to heed these warnings. The Rudd Government will not ignore these warnings.

We began work on day one and are continuing to work very hard, using ever lever at our disposal to deal with these inflationary pressures. Thank you.

JOURNALIST:

(Inaudible)

PM:

Firstly, your reading of the government statement is correct. That is, that the Governor, consistent with his statutory obligations, is putting the fight against inflation first, hence the monetary policy, tightening that we see today.

Our judgement as a government is that inflation is not just the enemy of the entire economy, it's the enemy of businesses and it's the enemy of working families. And as a government we therefore believe that the fight against inflation must come first as well.

In terms of the long term implications for growth in the global economy which of course lies beyond the remit of the Reserve Bank, but growth in the domestic economy, which is shaped by the decisions of the Reserve Bank. We are confident at this stage that our revenue projections are in order. As I said in my statement in Perth the other day, we will however, as we go forward this year be very mindful of unfolding circumstances in the global economy. Our five point plan of attack against inflation is made against the information that we have at hand today.

There is nothing further we have at hand today which suggests that there should be any deviation from it or our current belief as to what revenue projections for the year ahead will be.

JOURNALIST:

Mr Rudd you said that the family budget will get tougher, is it time for you to get tougher with the national budget. Some economists don't think a 1.5 per cent surplus is enough, it won't make an impact on inflationary pressures. Do you accept that argument? Do you think you have got to revisit that target?

PM:

Well, I said that we were setting a target of 1.5 and I'd note for the record that that's about 0.5 of a per cent of GDP higher than that was projected by the previous government only about three months ago. We therefore set an ambitious target. Of course, if the Treasurer and I and the Finance Minister succeed in doing better than that, we will.

We will do whatever it takes when it comes to budget policy to put downward pressure on interest rates. That's our responsibility as the national government. We intend to execute that responsibility.

JOURNALIST:

Mr Rudd should the Reserve Bank have acted earlier and harder on these interest rate rises – I mean, given that the government was ignoring the warnings that you have indicated – should they have gone harder earlier? Are we suddenly inflation genie out of the bottle now?

PM:

I am not in the business of public hectoring of the bank in terms of historical, present or any future decisions. If you accept the independence of the Bank, you should let the Bank get on with what it is doing.

When it comes to fiscal policy settings, I think we've been pretty clear about this ourselves. We believe that fiscal policy settings in this country by the previous government were too loose. We've said that for a long, long time.

Quite apart from inaction on the rest of the Government's agenda, namely on the skills front and infrastructure front. Remember as the Treasurer said before, the warnings on inflation have been around now for the better part of two to even three years. Twenty warnings in a row. Read those warnings. They are very stark. But they were warnings from the Bank, to the government, which the government – the previous government – ignored.

JOURNALIST:

Mr Swan, you say there were warnings from the Reserve Bank but (inaudible)

SWAN:

Underlying inflation, Laurie, has been on the rise for a long period of time. You can look at the headline rate but you also have to look at the underlying rate. And the Reserve Bank and the Treasury have been warning about the underlying rate for some period of time.

And in the incoming government brief that we received there was another warning about underlying inflation. The alarm bells on inflation have been going off. The previous government was not listening. They were not listening.

JOURNALIST:

(Inaudible)

SWAN:

The Treasury did not necessarily get it wrong. They have been warning about underlying inflation for a long period of time. Headline inflation moves up and down. Underlying inflation –

JOURNALIST:

You say that inflation will be two per cent this year and next year?

SWAN:

No not at all. And that's not the Treasury projection. No, they didn't get it wrong and it's not the Treasury projection, Laurie. The Reserve Bank has been warning about underlying inflation. The Treasury has been warning about underlying inflation. Headline inflation goes up and down. You might recall the famous banana effect of last year.

What the Treasury takes notice of, what the Reserve Bank takes notice of is underlying inflation. And the advice that we receive from both the Treasury – and you have received today from the Reserve Bank and the government has received from all of the forecasting authorities that work with us – is that inflation has been on the rise for a long period of time.

Indeed it has been on the march for at least the last two years. And both authorities are extremely concerned about it. They ought to be, because underlying inflation is a cancer which eats away at living standards and that is why it has to be dealt with and we are dealing with the consequences of that today.

JOURNALIST:

Can I ask you, is the advice that Treasury gave you in the Red Book the same as it gave publicly in the pre election economic and fiscal outlook?

SWAN:

I'd have to go back and read both documents and line them up, Laurie and I am happy to do that afterwards.

JOURNALIST:

(Inaudible)

SWAN:

I certainly will.

PM:

But the responsibility Laurie, lies with the Treasurer of the day, I mean, let's stand back a bit. If you are the Treasurer of the Commonwealth, as Mr Costello was for a long, long time. You have got rolling in the door, twenty successive warnings from the Reserve Bank of Australia. A responsible Treasurer would have acted, particularly on the supply side constraints.

Mr Costello chose not to do so. In answer to part two of your question, by the way, is no.

JOURNALIST:

You said the government is confident your fiscal projections are in order (Inaudible)

SWAN:

Well I don't conceive that they have got them wrong. So we'll line those documents up later, and we'll have a look.

JOURNALIST:

(Inaudible) should abolish your tax cuts. Will you stand by them?

PM:

Yes, our intention is to implement the tax cuts. I have said that on a number of occasions in the past. And nothing has caused me to change that course of action.

JOURNALIST:

You have said that families are struggling under the interest rate pressures and inflation is building, how long will it take for your five point plan to have an effect, how long will it be before families get some relief from inflation through your plan?

PM:

Well, inflationary pressures have taken a long time to build, and they are going to take a long time to put back under control. There are three measures available to us to help. One – the budget's impact on demand and what that therefore does to push inflation up over time. We have put our credentials on the line on that in terms of our target for 1.5 for this year's budget.

On the supply side of the economy, we have embraced some very vigorous courses of action, to deal with skills and infrastructure and workforce participation. But I am just being blunt with you. A problem which has a long time to build, a long time to turn around and, if you read the Governor's statement carefully, inflationary pressures are still on the build.

I don't intend to guild the lily on that. They are on the build. Therefore it takes radical action. We have outlined our course of action and we did so some weeks ago before any of this data was available.

JOURNALIST:

Mr Rudd you said you'll stick with your tax cuts, but can you explain how putting an additional $7 billion into consumer pockets through tax cuts over the next twelve months is consistent with the Reserve Bank's call for a significant (inaudible) in demand?

PM:

Well, as you know there are two contributing factors to demand. One is public and the other is private. If you look carefully at the statement I delivered in Perth the other day, it sought to address both. One aspect of that was of course public demand, and we've indicated our approach on budget policy on that score. The other is private demand, and if you look carefully at that statement, ways in which we can continue to encourage to boost private savings. Can I indicate one measure which we have sought to do so, announced by the Treasurer yesterday - it was our First Home Saver Accounts.

That is not inflationary, that actually encourages savings in the long term over a number of years, before you can access that to assist first home buyers to get into the housing market. That encourages people to save, thereby removing pressures, from private demand now. Unless you wanted to add to that -

TREASURER:

Well, I do actually, because we will make additional savings elsewhere in the Budget. We've made that very, very clear and we intend to do that and that will be revealed on Budget night.

JOURNALIST:

Prime Minister, you met with your full Ministry earlier this afternoon. Did you outline to them the sort of savings that you expect them to put up in this Budget round?

PM:

I've been meeting with each Minister and their Secretary individually now for a long time and I still have a number to go. It's been a very interesting set of intensive discussions.

On top of that, the Budget Committee has been meeting in long session, line by line, program by program, item by item. This is a very tough business. I understand the Finance Minister may have more to say about this tomorrow.

JOURNALIST:

Mr Rudd, Mike Rann's indicated that if Mitsubishi is closing today its Adelaide operations, as we expect later on, that the company should pay back the substantial taxpayer support it's been offered in recent years. Is that your position as well, given the support to Mitsubishi [inaudible]? Do you think that the company has an obligation to repay taxpayers, given that it gave assurances that its operations would continue until 2010?

PM:

Mitsubishi has a responsibility to act properly given the government support it's received. The actions of the South Australian Government are a matter for Mike Rann.

More broadly, on the question of what's happening with Mitsubishi, the Industry Minister, Kim Carr, was speaking with representatives of Mitsubishi last night and I understand again this morning both in Tokyo and in Australia.

The Industry Minister federally, as has the State Government of South Australia, has spoken to Mitsubishi in terms of confirming whether there are any measures, further measures, which the Australian or State Government should consider which would be relevant to the deliberations of the Mitsubishi board. I think we need to wait to see what Mitsubishi itself formally determines. And on this matter, I spoke at length also with the Premier of South Australia this morning.

JOURNALIST:

Mr Rudd, considering many Liberal MPs said that they'll only support the Sorry motion based on the words [inaudible] not too extreme. When will you make that language available to them so that they can look through it so they can get …?

PM:

Sure, sure. As I said yesterday, the objective here is to get, if we can do it, a unanimous resolution of the Parliament. I think that's a really good outcome for the nation if we can do it when it comes to this important step in the process of reconciliation.

On the specifics of the apology itself, what I have indicated already is that I'll be sitting down with Brendan Nelson very soon to go through the principle content of the motion for the Parliament. I hope to do that within the next 24 hours, and I look forward to that discussion with Dr Nelson.

JOURNALIST:

(Inaudible)

PM:

I'll be conveying the clear content of what's there and I'm sure he'll have something to take away with him.

JOURNALIST:

Will he have anything to take with him into the party room meeting tomorrow morning or is he going to have to wait?

PM:

Well, it depends on when Brendan wants to have his party room meeting. But we'll check that out. We're not sort of, you know, trying to be cute and clever here. I've said yesterday or the day before, Jenny Macklin's been engaged in one round of consultations with Aboriginal leaders, there's still more going on this week and there's still a few things to do on that front.

But given where we are at the moment, I intend to accommodate Dr Nelson as much as is possible, given he's got his MPs in town and needs to have some discussions. I understand that.

JOURNALIST:

(Inaudible) …stake in Rio Tinto, what's the government's position on that, and more generally, on China's buying up of stakes in Australian resources stocks?

PM:

Well, I'll ask the Treasurer to comment on this because FIRB matters lie within his province. But by way of a couple of general principles, one, the reason we have Foreign Investment Review Board guidelines and a Foreign Takeovers Act is to ensure that the Australian national interest is always met and deliberations on any significant foreign equity in an Australian firm, whether it's from the United States, whether it's from Japan, China or Balukistan, wherever it comes from. The second point is there is no country called Balukistan, it's part of another country. That's a comment on the future of Pakistan.

Therefore, those national interest guidelines are there, they'll be applied by the Treasury in its deliberations on the proposal from Chinalco. These matters were discussed also between myself and the Chinese Foreign Minister this morning and I understand Minister Ferguson has also had discussions with Chinalco as well. That is the facts concerning the current investment by Chinalco in Rio. But the deliberation on national interest considerations is within the Treasurer's purchase, consistent with the regulations which exist under the Foreign Takeovers Act.

TREASURER:

Thank you, Prime Minister. But as I said yesterday, I don't intend to make any comment on this issue. I will apply the law under the Foreign Investment Review Board. Under the Foreign Investment Review Board I will apply the act of the national interest and I don't propose to comment on individual proposals.

JOURNALIST:

Putting aside individual proposals, are there any particular concerns that an Australian government should have about state-owned investment vehicles, whether they're companies or sovereign wealth funds or other investment vehicles out of China investing in Australia?

PM:

I think if you look at the regulatory environment at present, it covers a range of possibilities, including direct investments by foreign governments and their agencies, irrespective of size. That's there at present. That's as relevant to the national interest considerations as anything else and the Treasurer's entirely right in saying that this, together with any other such proposal, should be assessed on its merits against the national interest criteria.

JOURNALIST:

So regardless of whether it's a private company investing in an Australian company or whether it's a foreign government investing in an Australian company, be judged on the same merit, national interest and merit base?

PM:

Well, the fact that the existing guidelines countenance these entities separately, I think partly answers your question, and that is there is a separate reference to direct investments by foreign governments and their agencies irrespective of their size.

JOURNALIST:

Mr Rudd, just to confirm that, do you consider the Chinalco investment to be one by a foreign government agency?

PM:

I presume this will be the subject of deliberations between the staff of the Foreign Investment Review Board and those seeking clarification of the facts from the Chinese investor. That's part of the normal processes which apply with officials in these circumstances, and also I think you will find that previous investments, I think, by the Singapore Government investment agency and various entities in Australia have occurred before. But the Treasurer's entirely right, these should be considered on its merits against the national interests and that's what will occur.

JOURNALIST:

You've spoken about the apology as a resolution, what's made you have a resolution rather than a declaration? And if the vote is split, do you think that taking it over the long-term, that will diminish the value of the apology by the Parliament?

PM:

Our belief is that a resolution of Parliament is an appropriate way of expressing formally the resolve of either the Government or the Parliament, depending on the way in which the Opposition votes on this, on such a fundamental matter as this, which is an apology for what has occurred. That's the advice we've received, that's what we propose to do. I think it's the right way to go.

JOURNALIST:

The advice from whom?

PM:

The advice that we've received from the various agencies of Government. And of course, we own that decision, it's ours, but we believe a resolution of the Parliament is the right, substantive and most appropriate symbolic act that we can take to put this behind us as a nation. We've got a big opportunity here. Grab this with both hands, get on with it so that Aboriginal and non-Aboriginal Australia can move forward together on the critical, practical, substantive challenge of closing the gap between indigenous and non-indigenous Australians.

JOURNALIST:

Mr Rudd, will that motion go to both Houses and if not, why not?

PM:

My understanding, Laurie, and I'll take advice on this and I don't want to mislead you, is that that has not been determined yet but I'll come back to you. I don't want to mislead you by getting the question of the Senate wrong.

JOURNALIST:

Mr Rudd, during your discussion with Mr Rann this morning did the issue of the tariff freeze come up [inaudible]?

PM:

We were speaking quite specifically about Mitsubishi's current circumstances and the discussions his government has had with Mitsubishi, the discussions our Government has had with Mitsubishi and both governments be absolutely clear in their communications with the Mitsubishi board in Tokyo as to whether there is anything further from either government, State or national, that could be done that would be material to Mitsubishi's decision.

It was very important for us to establish that and clarify that. We did that yesterday at the national level. I'm not quite sure when the State Government of South Australia did it and the answer was there was nothing.

JOURNALIST:

[inaudible]

PM:

Because I think it's a responsible course of action on the part of any government to assure itself that there is nothing which could be done that has not been done.

Remember, at this plant you've got nearly 1000 direct jobs at stake. These are folk living in the suburbs of Adelaide who have been, as I understand it, on average, working at this plant for 15 to 20 years.

A lot of people spent their lives there and so I think it's responsible of anyone trying to do the right thing just to check whether there's something that hasn't been done that could be done. It's just the right thing to do.

JOURNALIST:

Mr Swan, the Reserve Bank Governor referred today to further rises in the Australian terms of trade. To what extent do you think Australia's inflationary problem has been caused by the minerals boom?

TREASURER:

Well certainly it adds to demand in the economy which makes it all the more important that we deal with supply constraints n the economy, and that's why the Reserve Bank has been issuing repeated warnings over a long period of time to the previous government to deal with the supply capacity of the economy.

We took those warnings very seriously when we were in Opposition and we constructed our program to deal with the skills crisis, a program to deal with infrastructure bottlenecks precisely because that takes into account our new environment.

We have to prepare the country for a different world and in the world we live where there is a higher terms of trade, we need to work very hard at expanding our supply capacity and that's what we're doing.

PM:

This Government believes in planning for the long term. The Government we replaced was a government of short-term-ism, as demonstrated by no action on skills, no action on infrastructure.

They seem to think that these were interesting exercises in social policy or what happened out in the regions. Our predecessors didn't quite grasp the fact, it seems, these are core elements in the overall fight against inflation. If they did, well there's not much to show for it.

I can only assume that that core reality passed them by and we are now paying the price for that. There's not just an idle piece of social policy about whether you should do something on the skills front or you know, being sweet to a state government about an infrastructure project here, infrastructure there. It's a systemic question about what you do on the supply side of the economy.

The Reserve Bank is not made up of a bunch of pussy cats who sit there and make the odd sort of fleeting observation about a few skills here and a bit of infrastructure there.

If, in 20 warnings over a three year period, they are saying to government, will you please pay attention to this because it's building inflationary pressure in the economy, you would have thought someone would have done something.

JOURNALIST:

Mr Rudd, you've said that you'll do whatever you can to do whatever is necessary to fight inflation. Does that include revisiting any of your election promises?

PM:

There's nothing in our pre-election commitments that we have any basis for walking away from. I have no such intention to do so. We were serious about our commitments to the people before the election. We intend to implement those commitments. It's part of our relationship of trust with the Australian community. Of course, Wayne's already answered the question in relation to tax cuts put up the back there.

We're entirely familiar with the dilemmas which are created as a result of that. We are going to honour our commitments but that's why we are taking a really hard line on Budget and that's why we are taking an innovative look at what we can do on the private savings fund as well as demonstrated…

JOURNALIST:

Do you regret that in retrospect, embracing that whole package [inaudible]?

PM:

Working families right across the country, you heard me say this months ago, and the reality is even truer today, are under financial pressure. It's not just mortgages, they are big, and as I said in my opening remarks, hurting families big time. It's petrol prices, it's grocery prices, it's childcare costs, all taken together and that's what shaped our decision to embrace the more modest package of tax cuts that were put forward relative to the government. And remember, ours are some $3 billion to $4 billion less in magnitude than those advanced by the government. And one more question there and we'll zip it.

JOURNALIST:

Mr Rudd, you've asked workers to show restraint in their pay claims the ACTU has called on politicians to show similar restraint. Would you back an approach where MPs decided to have a pay rise on a lower level than that suggested by the Remuneration Tribunal?

TREASURER:

You know something? We've got the Remuneration Tribunal, and everyone here is familiar with the way that operates. I've got a really open mind on that. It depends how this year starts to unfold. But restraint is restraint and we'll have something further to say about that.

Thank you very much.