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

2 March 2008

Interview with Laurie Oakes

Sunday Program

Sunday, 2 March 2008

SUBJECTS: Personal History, Government Spending, Inflation, Economy

OAKES:

Mr Swan, welcome to the program.

TREASURER:

Good morning.

OAKES:

Today's newspaper headlines say things like "staid Treasurer's wild youth of sex and drugs". I didn't realise we were getting such a colourful guest?

TREASURER:

Well, I didn't realise I was so colourful either, Laurie. These refer to events over 30 years ago and I've had plenty of ups and downs in my life but I've got a wife and three beautiful children, I've battled cancer in my life, I've lost my seat in parliament. There have been plenty of things that have been happening in my life but I'm generally a pretty normal guy, but you wouldn't necessarily know that if you were reading the Sunday papers.

OAKES:

Well, what's the wild sex?  I assume it has something to do with the fact that I think your wife was pregnant when you were married which is not all that unusual and you had some flirtation with marijuana, is that what this is all about?

TREASURER:

Well, apparently. I did say that I had an experience with marijuana in the '70s and I also indicated that my wife and I have three children, but I don't know that there's any more evidence than that to justify some of the very colourful headlines this morning but I guess that's public life.

OAKES:

Doesn't sound like a Mick Jagger existence to me?

TREASURER:

No, it certainly hasn't been a Mick Jagger existence. I've been very privileged and fortunate in my life to have a wonderful supportive wife and three very bright and supportive children, and that's very important to me.

OAKES:

You were at high school though with Kevin Rudd? Was he a pot smoking rager as well?

TREASURER:

No, I don't think so and I was a couple of years ahead of Kevin and I think Kevin himself has said that the approach that he took at school from the approach that I took at school was quite different. I guess the one thing that we had in common about our approach at school was that we were very serious about education and very ambitious to go on to university and to secure a degree.

OAKES:

Do you think you might feel like smoking something strong on Tuesday when the Reserve Bank meets? All the economists are saying there'll be another interest rate rise?

TREASURER:

Well, Laurie, I don't comment on possible decisions of the Reserve Bank. My job as Treasurer is to support the Reserve Bank by putting as much downward pressure on inflation as I possibly can and unfortunately at the moment underlying inflation is at a 16-year high, and we've had something like seven interest rate rises in the last three years. That was the parting gift of the Liberal Party of Australia to the people of Australia. So what the Rudd Government can do is to put maximum downward pressure on inflation by implementing our five-point plan to tackle inflation. That's the most constructive thing and practical thing that we can do to put downward pressure on inflation and downward pressure on interest rates in the long-term.

OAKES:

Look, I appreciate you can't speculate about what the bank will do, but how seriously would another half a per cent rise impact on Australian families?

TREASURER:

Well, there's no doubt that many Australian families are under tremendous financial pressure. As I've said, we've had seven interest rate rises in the last three years on the back of elevated inflation which has really been on the march since the beginning of 2006. They're the circumstances that the Government inherited. That's why we've said from day one, we will do everything in our power to put downward pressure on inflation to tackle that problem in the medium term and the long-term. That's why the Prime Minister outlined his five-point plan to tackle inflation in the middle of January, in Perth.

OAKES:

But as you say, we've had seven rate rises in three years. We've had three, I think, since, this will be the third anyway, since the start of the election campaign, but people are still spending, inflation is still rising. Why isn't the Reserve Bank's medicine working?

TREASURER:

Well, the most important thing we've got to do from a national level is to show some leadership by the national Government which is to get rid of reckless spending. That's why we said during the campaign, we would make savings of $10 billion and that's why we've set ourselves the objective of making further savings through this budget process. You see, we are seeing almost daily evidence of reckless spending from the former government. Only yesterday Mr Turnbull admitted that he increased a grant to a friend, five times, originally recommended to him at $2 million, and given to the recipient at $10 million. That era of reckless spending is over. We need a new era of fiscal discipline and that is what the Rudd Government is determined to put in place so we can play our role in tackling inflation and taking some of the pressure off the Reserve Bank.

OAKES:

I'm glad that era of reckless spending is over. I assume then that today's news, that you're going to spend $2.6 million to turn the Tree of Knowledge in Barcaldine into a Labor Party shrine, must be a mistake?

TREASURER:

No, it's not a mistake. It's a legitimate grant. That is a legitimate tourist attraction. It has received the support of both sides of politics over a long period of time. It sits up there like the Stockman’s Hall of Fame. It's a very important institution in this country. It's not just because of its Labor roots. It's a very legitimate project which both sides of politics have supported over a long period of time.

OAKES:

That's not extravagant, what about the million dollars for a dinosaur museum. That's not extravagant?

TREASURER:

Laurie, we knocked off a range of grants of the former government and Lindsay Tanner outlined those in an address to the National Press Club some weeks ago. $10 billion worth of savings we found during the last election campaign, and we are on the hunt for substantially more savings in this budget process. People will see a new era of fiscal discipline from the Rudd Government. We ran as economic conservatives and we will govern as economic conservatives. That's very important in putting down ward pressure on inflation and downward pressure on interest rates.

OAKES:

But Labor grants are different from Coalition grants?

TREASURER:

No, we have a rigorous process to approve grants and we do make legitimate grants but what we will do is get rid of the reckless spending and wasteful grants and that's what we've been doing over the last couple of months.

OAKES:

OK, well back to the main game. The Australian reported yesterday that there are deep seated fears inside the Government that the drivers of inflation are resistant to interest rate rises and budget spending cuts. Is there a deep-seated fear in the Government about that?

TREASURER:

No, what the Government believes is we have to do everything within our power to put downward pressure on inflation and that does mean reining in the budget. I've already made that point. Secondly, it means enhancing private savings. Thirdly, it means we need to address the skill shortages and the education issue more generally. We need to provide national leadership when it comes to solving the infrastructure bottlenecks that are putting upward pressure on inflation and finally we need to enhance workforce participation, particularly through our tax cuts and child-care initiatives.

OAKES:

Look let's try to simplify this. The Reserve Bank and the Government are trying to slow economic growth in Australia that is the bottom line, isn't it?

TREASURER:

The bottom line is that we're trying to deal with the inflation challenge and the central...

OAKES:

By slowing economic growth?

TREASURER:

Well, we have to deal with the inflation challenge. Growth is expected to remain very strong, Laurie, all the advice I receive from the Treasury is that growth will continue at a relatively strong pace. It may slow a little but if you go out there and talk to employers, there are labour shortages, there are skill shortages, business investment is strong and, of course, we've received the news over the past week that there will be further increases in international commodity prices, which will be a substantial benefit to this country. So there's certainly plenty of stimulation to the domestic economy coming through and that makes it all the more important that we deal with the inflation challenge in the short-term, medium term and long-term and that is why we are so focused on that inflation challenge.

OAKES:

There's a very good article about all this in yesterday's Australian by Paul Kelly...

TREASURER:

Yes there was...

OAKES:

And he quoted the Reserve Bank, he quoted the Reserve Bank as saying its objective is to slow non-farm GDP growth from 4.5 per cent to 2.75 per cent by June and keep it there for a year. Now, is that your objective?

TREASURER:

No, our objective is to enhance the supply side capacity of our economy. Time after time, for a number of years, the Reserve Bank has been saying that we need to enhance the productive capacity of the economy. We need to do that by increasing labour force participation. We need to do that by addressing skills shortages and labour shortages more generally and by attending to critical economic infrastructure. And that's what we're doing. That's what our program's all about and on top of that what we have said is we do need to reduce the impact of Federal Government demand in the economy, and that's why we're reducing expenditure across the board through this budget process. That's the task that we've set ourselves to work with the Reserve Bank by playing our role in putting downward pressure on inflation.

OAKES:

So, you and the Reserve Bank don't have the same objective?

TREASURER:

No, the objective that we have is to deal with the inflationary challenge. The Reserve Bank takes its decisions independently. We are supportive of an independent Reserve Bank. What we have to do is to play our role in backing up the Reserve Bank by putting in place the sorts of policies which will enhance the productive capacity of the economy and therefore put downward pressure on inflation and also, getting rid of reckless spending at the federal level which fuels demand and we're doing both of those things. We are doing both of those things to play our role as responsible economic managers.

OAKES:

You're obviously reluctant to state the obvious, that all these policies are designed to slow economic growth and dampen domestic demand, but I think most people recognise that. The result or a result will be increased unemployment, won't it?

TREASURER:

Laurie, the economy may slow a lot but I have no advice from the Treasury that suggests that unemployment will increase substantially for all of the reasons that I outlined before. We've still got strong domestic investment; we still have strong employment creation. We also have the addition to the economy from the commodity price increases flowing through. I think that will mean still a relatively strong outlook for the year ahead.

OAKES:

In the Government's view then, is an unemployment increase preferable to an increase in inflation, is that ...

TREASURER:

No, what we want to do in our priority is to keep inflation down and have job creation and job growth as strong as possible, while we bring down that rate of inflation to make sure that growth in the long-term is sustainable.

OAKES:

But you're fighting inflation first?

TREASURER:

What we're doing, Laurie, is creating wealth in this economy by investing in the productive capacity of the economy, enhancing its supply side capacity so we can have employment growth and lower inflation for the long-term.

OAKES:

I’m having trouble getting past this straight bat. But, I mean, economists agree that unemployment will rise. The point I make is that all this is a very inexact science as Paul Keating found when he tried to slow the economy and he gave us the recession we had to have. I mean, how certain are you that won't happen again?

TREASURER:

Well, I will do everything in my power to make sure that doesn't happen. The problem we've got at the moment is the previous government backed the Reserve Bank into a corner because it didn't attend to the vital aspects of the economy that it needed to attend to. It went on a spending spree precisely at the time that we had a terms of trade boom. That's why we've got to rein in that spending and it didn't attend to the capacity constraints in the economy which were putting upward pressure on inflation and interest rates. We're doing both of those things, Laurie, both of those things to ensure that we have sustainable growth as well as employment growth without the inflationary pressures that have been left to us by the Liberal Party.

OAKES:

There's a two-speed economy and one of the concerns expressed by what the Government and the bank are doing is that western Queensland will continue booming but it's the other more vulnerable states that will be hit by your policies.  Now, what can you do to try and avoid that situation?

TREASURER:

Laurie, the other states will not be hit by our policies. It is true that monetary policy is a blunt instrument, but inflation is Australia-wide. Inflation, underlying inflation at a 16-year high is experienced right across the economy. That's why we've got to deal with and tackle that inflationary problem in the first instance. It affects all aspects of the country and it impacts on employment right across the country, it attacks the living standards of working Australians, it erodes savings and it's not good for growth in the long-term irrespective of where Australians live. So, what we have to do is to tackle the fundamental underlying problem in the economy, deal with that inflationary problem, and deal with it in a way in which the Prime Minister outlined in his five-point plan.

OAKES:

What kind of action will you have to take to prevent a wages breakout, and do you expect conflict with the unions, or will they co-operate?

TREASURER:

Well, Laurie, the Prime Minister and I have called on everyone out there to show some restraint at a time when there are inflationary pressures in the economy. One of the reasons why we are so supportive of the tax cuts is that not only do they enhance labour force participation, provide some incentive to people out there who will work additional hours or up-skill but they also do ease wage pressures that are currently in the system, because the environment we have at the moment is one of labour shortages and skills shortages. That does puts pressure on wages and that's why we think delivering the tax cuts is so important. It enhances labour force participation but what it also does, is recognise that there are wage pressures out there caused by labour shortage and skills shortages.

OAKES:

Treasurer, we're out of time but we thank you.

TREASURER:

Good to be with you, Laurie.