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

13 April 2008

Interview with Kim Landers

ABC TV

Washington DC

12 April 2008 (Washington time) / 13 April (Canberra time)

SUBJECTS: IMF Spring Meetings, Global Economic Conditions, Budget Preparation

LANDERS:

The International Monetary Fund says inflationary pressures remain a concern in Australia. How are you going to deal with that?

TREASURER:

Well, we've made it very clear that our number one priority in this Budget is to deal with inflation, and that's why we've set a target of a surplus of at least 1.5 per cent of the GDP. It's why we want to modernize and rearrange our spending. It's very important because what we've found out here in Washington is that inflation is on the rise, particularly in developing countries, so we have a very significant inflationary challenge on our hands.

LANDERS:

Don't those inflationary concerns though raise concerns about an increase in interest rates in Australia?

TREASURER:

Well the most important thing we have to take into account is what's been said here, at the IMF, because what the IMF has done is significantly lower their growth forecast for the coming year, whilst warning about domestic inflation in Australia and pointing to higher inflation in the developing world. So what we've learned here is that there are some significant global challenges that we have to take into account as we frame this Budget: slowing world growth and higher inflation in the developing world is a backdrop here of the financial market turbulence which is affecting confidence around the world.

LANDERS:

But that does raise the prospect of further interest rate rises, does it not?

TREASURER:

Well, certainly what it means for Australia is we've got a delicate balance as we frame this Budget. We have to tackle inflation, but we have to modernize our economy, particularly to safeguard the country from the international fallout of what has been obvious here at the IMF.

LANDERS:

After what you've heard here in Washington, are you more or less concerned about the impact that the US economy, and indeed the world economy may have on this forthcoming Budget?

TREASURER:

Well, certainly Australia is better placed than most developed countries to handle the fallout of what's happening in the world economy. But what we know here is that we've had slowing world growth, higher inflation in the developing world, and international financial market turmoil, which is attacking business confidence around the world. That's going to produce slower growth; if that flows onto China and India, that does have significant implications for the Australian economy and for our Budget.

LANDERS:

Has what you have heard here in Washington made you think that you are going to have to deliver a tougher Budget that you'd already warned Australians about?

TREASURER:

Well, there's no doubt we're framing this Budget with a very difficult international outlook: slowing world growth, international financial market turmoil, and higher inflation in the developing world. That poses challenges for Australia. We are better placed than most countries to handle that, but it will have a significant impact on the economy and on our Budget.

LANDERS:

In what way is it going to have a significant impact? What changes do you think you're going to have to make?

TREASURER:

Well certainly slower world growth will produce slower growth domestically and less revenue. That's one fallout that will come from the revision downwards by the IMF world growth forecast. And also, the outcome of financial market turmoil which is hitting business confidence around the world.

LANDERS:

The IMF has already raised the prospect of a global recession — the US Treasury Secretary Henry Paulson has told these spring meetings that "no economy is entirely immune from global forces". So, is the Australian economy in danger of being forced into a recession?

TREASURER:

The Australian economy is certainly not immune from the fallout from the world financial market crisis — not immune at all, and that's been very clear from these meetings. That's why the IMF is talking about slower world growth, which will impact on Australia as it will impact on the developing world that has been the source of so much of our prosperity. That's why it's so important that we modernize our economy, deal with the inflation challenge, and reinforce our strengths by investing in education and investing in infrastructure.

LANDERS:

You've met with the Federal Reserve Chairman, Ben Bernanke. What did he tell you about the prospect of the US slipping into recession?

TREASURER:

Well, Mr Bernanke told me what he's told the American people: that the American economy is slowing, and that growth in the next six months or so will not be strong. That's what Mr Bernanke said to me, that's what he said to the American people.

LANDERS:

Did he actually say that the US is going to go into a recession?

TREASURER:

No, Mr Bernanke said to me what he said publicly. Slowing growth in the United States — the Americans here are optimistic about what that will mean for the latter part of this year and early next year, but the IMF is much more pessimistic. The IMF is predicting a substantial revision downwards of world growth that will flow on to Australia as it will flow onto developing countries which have been the source of so much demand for Australian product.

LANDERS:

Did Chairman Bernanke think the IMF prediction was too pessimistic — the IMF saying that US would slip into a mild recession?

TREASURER:

Well, I had a private meeting with Chairman Bernanke, so I can't tell you what he said to me, but I can say that the IMF is certainly much more pessimistic than the US authorities have been publicly.

LANDERS:

In Australia, the Opposition has been saying that the tax cuts proposed by the Federal Government will probably not be enough to bring inflationary pressures down, that more may be needed. What do you say to that?

TREASURER:

Well, the Australian Government is tackling the inflation challenge in a variety of ways. The tax cuts are an important part of that {inaudible} in workforce participation and encouraging incentive. But what we're also doing is tackling reckless spending, modernizing our spending priorities so we can invest in education and infrastructure. These are the things we need to do to safeguard our economy from the fallout of global events.

LANDERS:

The Rudd Government's first Budget is just less than a month away. Is it a bit of rotten timing with the US economy faltering so much, these looming predictions about the possibility of a global recession — does that make your task for your very first Budget even harder?

TREASURER:

Well, certainly it's a much more difficult backdrop. That's what I've discovered here in Washington — that the revisions downward of world growth will have an impact on our Budget, and also, the fallout from the world financial market crisis will also have an impact. That's a difficult backdrop.

LANDERS:

And if I can just clarify, when you say it's going to have an impact on the Australian Budget — you talked about falling revenues for example — what was another area that you think it might have an impact?

TREASURER:

Well that is a consequence of slower world growth, slower demand, slower employment growth, slower revenue.

LANDERS:

Okay, thank you very much.

TREASURER:

Thank you.