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

10 February 2008

Interview With Paul Bongiorno

Meet The Press

Sunday, 10 February 2008

SUBJECTS: Bank Switching, Tax Cuts, Superannuation, Future Fund, Interest Rates, Gambling, Stamp Duty

BONGIORNO:

The man pulling the levers of economic management for the Labor Government is Federal Treasurer, Wayne Swan, and he's our first guest for the year. Mr Swan, congratulations on your new job and welcome.

TREASURER:

Good morning, Paul. It's been a very busy nine weeks.

BONGIORNO:

I'm sure it has. And it hasn't really been an easy start for you or the government. We've now had 11 interest rate rises on the trot, every sign of more to come. Isn't there a real danger that we could be heading for a recession as the Reserve Bank tries to put the brakes on the economy?

TREASURER:

Paul, I'm an optimist about the future of the Australian economy. We do face substantial challenges, but I think our growth prospects remain very solid. We have two very big challenges; we have slowing world growth, and dramatically slowing growth in the United States. On top of that, we do have this domestic inflation challenge. It's a very big inflation problem. And we have to deal with it. We have to deal with it because inflation pushes up interest rates, erodes living standards and, in the end, inflation is a threat to growth. And that's why the Prime Minister put forward his five-point plan. And that's why we began work on day one to deal with the problem.

BONGIORNO:

But have we learnt the lessons of the 1990 recession?

TREASURER:

Well, I don't believe that the previous government had learnt the lessons of that period. I mean, they've been on a reckless spending spree, and what they didn't do, what the Liberals didn't do, was attend to capacity constraints in the economy. Now, in the last three years, that's produced seven interest rate rises. So our job is to clean up that mess. And we accept responsibility for cleaning up that mess. I wish they would be honest enough to accept some responsibility for causing it.

BONGIORNO:

Your job is to slow the economy, at this stage, isn't it?

TREASURER:

Well, our job is to deal with the inflationary problem that we face. The Federal Government itself has to provide the leadership. That's why we put forward $10 billion worth of savings during the election campaign, and that's why, in this Budget process, we are looking for further savings. But in addition to that, we do need to expand the supply side capacity of the economy to deal with the skills crisis and to provide political leadership when it comes to infrastructure.

BONGIORNO:

Just going to the banks, you've said that you could understand why families would be furious, particularly with the Commonwealth Bank, during the week. But aren't the banks, by raising their rates, doing exactly the job that you and the Reserve need them to do?

TREASURER:

Well, the Reserve is independent and it is imposing increases in the official cash rate. And on top of that, you've had some rises which have been due to the fallout of the sub-prime crisis. I said very clearly in January some of those rises were excessive. And that's why I put in place this switching package, so customers could vote with their feet and go down the road if they were unhappy with their bank.

BONGIORNO:

There were reports today that if the banks don't comply with your measures voluntarily, you - "every option", I think, is on the table. Is that option regulation legislation, is it?

TREASURER:

I've reached agreement with the banks, and I'm certainly very hopeful this package will be implemented in full. But if it's not implemented in full, all those options are on the table. I don't believe they will be necessary. But we are determined to ensure this package is operational and benefits consumers.

BONGIORNO:

The Opposition has pointed out that the states put taxes on mortgages, or duties on mortgages, and it would help enormously if you could convince them to relieve the pressure there.

TREASURER:

I saw Mr Turnbull talking about this yesterday. I mean, the Liberals had 11 years to achieve progress in this area. In just three weeks, we've put in place this switching package that they couldn't put in place over 11 years. We will look at all of these issues. We are extremely concerned about housing affordability, and only last week, we announced our First Home Saver Account so we could help people trying to buy their first home more quickly accumulate their deposit. We are very active in this area, and will be very active over a long period of time.

BONGIORNO:

All the banks have said that the cost of money, especially as they raise it overseas in America, is one of the big reasons why they've gone further.

TREASURER:

Sure.

BONGIORNO:

Have you asked them to explain this?

TREASURER:

I certainly have.

BONGIORNO:

Especially in the light that interest rates, the wholesale cost of money in the United States is coming down dramatically.

TREASURER:

Well, two things have happened. First of all, we have pressure on rates because the Reserve is imposing increases in the cash rate because of very high domestic inflation. And then secondly, increases in the cost of borrowing are flowing through. I've sought an explanation from the authorities about this. I believe some banks were excessive back in January when they raised their rates. That's why I put in place the switching package. What we've got to get is the power of competition, the power of competition out there so people who are unhappy with what their bank is doing have the option of moving their account. Get some real competition into the sector.

(ad break)

BONGIORNO:

On Wednesday, the Finance Minister signalled he has tax concessions in his sights and says measures will be announced by the end of the year. The biggest concessions are for retirement savings; superannuation tax cuts will cost around $27 billion this year and are forecast to keep growing.

SHADOW MINISTER FOR FINANCE PETER DUTTON (Wednesday):

There is great uncertainty for Australians in retirement at the moment who are drawing money either in a lump sum or a pension from their superannuation funds, tax free, and he needs to rule out any imposition of new taxes on those people.

FRAN KELLY:

Treasurer, will you rule that out amidst all this talk of having to inflict pain and restraint on everybody, will you guarantee that the tax benefits within super will be quarantined?

TREASURER:

Well, we certainly ruled out the allegation that he was making - that there was going to be some increase in the super guarantee. We stand by all of our election commitments. I mean, this is just sort of desperation from the Opposition. We are very, very supportive of superannuation. And we will do anything we can to enhance incentives in superannuation that are economically responsible into the future. This is the point that we have made repeatedly, and particularly we've made this point in relation to a whole lot of people, particularly baby boomers, who didn't get a substantial benefit from previous packages brought down by the previous treasurer. So we're supportive of enhancing private savings, and that's, for example, why, Fran, we put forward our First Home Saver Account last week. We're very serious, as part of the attack on inflation, of enhancing private savings.

KELLY:

Does that mean that this Budget could include extra tax benefits for superannuation? Because you did say this week that larger budget surpluses will be quarantined either with the Reserve Bank or the Future Fund. What about looking at individuals' private future funds and putting more into super?

TREASURER:

First of all, we've got a Budget to come in three months' time, so we can't really have that scoop this morning.

KELLY:

It would be good.

TREASURER:

We're going to bring down a responsible budget. The most important thing that we have to do, Fran, is that we have to really take the axe to public spending, given the inflation problem that we've inherited. And that will mean that we will go through the Budget looking at all areas of the budget to make the savings that are absolutely essential if we're going to put downward pressure on inflation and downward pressure on interest rates. Now, part of that is the Prime Minister's five-point plan. And part of that five-point plan is enhancing private savings. It's very important. But I'm not going to go through it measure by measure and tip my hand as to what we're going to do during the Budget process.

MALCOLM FARR:

You said the super fund had reached a level where it could achieve its purpose, which was to cover...

TREASURER:

This is the Future Fund.

FARR:

The Future Fund, sorry. It could achieve its purpose of covering public service superannuation liabilities. Why put more money into it? What's that money going to do?

TREASURER:

We will be announcing what we're doing with future surpluses as we go through the Budget process.

FARR:

But you said you might put it into the Future Fund. So you're now ruling that out?

TREASURER:

No, I'm not ruling that out. What we actually said during the election campaign is that once the Future Fund had enough money in it to meet superannuation liabilities, we would then put future surpluses into the Building Australia Fund. That's actually what we said.

FARR:

So not the Future Fund, per se? You'd put it into another investment fund for...

TREASURER:

Once the super fund has enough capital in it to meet public servants' superannuation liabilities, we will then look at what we do with future surpluses. And that's a question for the Budget.

FARR:

Okay. Now, people paying the 11th increase in a row on their mortgage, many of them will be saying, "Hang on, I thought the other 10 were supposed to take care of this inflation problem." Are they entitled to think that the Reserve Bank is incompetent?

TREASURER:

Well, the Reserve Bank is absolutely independent. What the Reserve Bank deals with is...

FARR:

But are they competent? Eleven interest rate rises in a row?

TREASURER:

The people that have been incompetent here are the previous government. The Reserve Bank is forced by law to impose an inflation-targeting regime. The job of the Federal Government is to take the pressure off inflation. And the reckless spending spree, particularly of the past four years, and the inattention to capacity constraints in the economy, is what has put upward pressure on inflation and tipped the Reserve Bank's hand. That's what's occurred here.

FARR:

Okay, but the Reserve Bank looks ahead when it decides on interest rates. And it's seen on the horizon several things, including $31 billion in tax cuts. So doesn't that make you just as culpable as, you say, the previous government on this?

TREASURER:

Not at all. Could I just quote to you from the Reserve Bank's statement? "Recent information points to significant inflationary pressures, with underlying measures around 3.5 per cent." Underlying measures well out of the Reserve Bank's target band in the months of October, November and December. That's what's driving the Reserve Bank. And what drives us when we accept responsibility for cleaning up this mess is that we've got to deal fundamentally with the inflationary pressures in the economy. That's why we have to lead and make cuts in the Budget, and that's why we have to follow through with all of those points in the Prime Minister's plan.

KELLY:

But you want it all ways. You say, "We're going to deliver these tax cuts, $31 billion, and we're going to take the inflationary pressures out." For every rate rise, you give a tax cut that undercuts it.

TREASURER:

Not at all. Fran, what's important here is the balance. It's the total Federal Government spend. It's a balance between providing reward for effort, enhancing participation in the labour market, which is a critical part of our plan to wage a war on inflation. That's where the tax cuts are. They enhance labour force participation in an environment of skills shortages and labour shortages more generally. That's why they're vital. But we can still take the axe to unproductive spending, wasteful spending, and that's what we're going to do. We've got to get the balance between the two right.

KELLY:

And surely you've got to loosen the purse strings for productive spending. We've got to see the money, the billions pumped into infrastructure, broadband, better rail links, all of that.

TREASURER:

Well, we have to rearrange spending priorities. We have to modernise spending priorities. The tax cuts are part of enhancing labour force participation. We have to get resources into skills and education. And we have to get the equation right when it comes to infrastructure. And that won't necessarily all mean public money. It might be public-private partnerships or whatever.

FARR:

On gambling, can you see a case for the Federal Government using whatever mechanisms available to reduce the incidence of gambling and thus lower the revenue intake to state governments?

TREASURER:

Well, there are big revenue considerations here, but let's start where we should. There are also big social implications that flow from gambling. I think it's a very sensible thing the Prime Minister is doing, sitting down and talking to MPs who have these concerns and looking at all of the issues. We'll take our time to look at all of the issues and we'll make our evaluations after we've been through that process.

KELLY:

The point is here, though, how determined or how prepared is a Federal Labor Government to put pressure on the Labor states to do things like give up gambling revenue and, as we were talking about earlier, forego mortgage stamp duty?

TREASURER:

Fran, I don't think anybody doubts that there are very big revenue implications in decisions that are taken in this area. Once again, we've got to get the balance right between social responsibility on the one hand and economic responsibility on the other. The Prime Minister is doing a very sensible thing, sitting down with MPs and Senators to talk about this issue. And it will be something that we'll talk about with the states over time.

FARR:

But you must have a view of the increasing propensity of states to rely heavily on gambling revenue. You must have, at least, a personal view.

TREASURER:

Well, I do. They do rely heavily on gambling revenue. That's why we have to be very careful as we move through this process. There's no doubt about that. It's got very big revenue implications.

FARR:

Is that good or bad?

TREASURER:

Beg your pardon?

FARR:

Is that good or bad?

TREASURER:

Well, it depends on the balance we strike and the decisions that are taken.

KELLY:

Just on that, though, to stay with the pressure on the states, because earlier you skirted around the point of how much pressure you would put on the states to, for instance, give up some of those stamp duties and things that are adding to homeowners'...

TREASURER:

I didn't skirt around it.

KELLY:

The last Treasurer was determined the states should forego those. They haven't. Do you agree with that?

TREASURER:

Hang on a sec, Fran. The last treasurer did nothing about stamp duties in the states. He had 11 years to strike a deal with the states about stamp duties.

KELLY:

The states wouldn't play ball.

TREASURER:

Nothing occurred. Stamp duties are a very big proportion of their budgets as well. We've got a whole Federal-State reform process happening right now, across the whole area. We've got a fundamental reform of Federal-State relations going on. All of those factors are in the mix.

FARR:

Well, in 2005, the states agreed to drop mortgage stamp duty. So far, only two have done so, Tasmania and Victoria. Will you be urging the other four to do that?

TREASURER:

Sorry, I think that's the Peter Costello version. I don't think that's correct.

KELLY:

Will you be urging the states to forego that?

TREASURER:

We'll be talking to the states about Federal-State financial relations and fundamental reform of that. That's what the COAG process is about. Last November, December, we had a full COAG meeting. We had premiers and treasurers there. We'll work our way through these issues in good time.

BONGIORNO:

There's certainly plenty on your plate for this year. Thank you very much for joining us today, Treasurer, Wayne Swan.

TREASURER:

Good to be with you.