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

6 May 2008

INTERVIEW WITH PHILLIP CLARK

Radio 2GB, Sydney

6 May 2008

SUBJECTS: Budget; inflation; Dr Nelson's 'charade' comments

CLARK:

I don't know what Dr Brendan Nelson is on about today. He gave a speech today to the Brisbane Club in which he accused the Government of inventing an inflation crisis. He says they should hold the line on public spending and stop talking down the economy. When he says hold the line on spending, he thought they should not be indulging in spending cuts in the coming Budget. I would've thought that Wayne Swan and the Prime Minister and the rest of the Government should do just that, actually - keeping a tight rein on expenditure. Inflation is a problem. According to Dr Nelson, although the current inflation rate of 4.2 per cent is of concern, it's in line with past experience of inflation movements during commodity booms. This does not mean we have an inflation crisis, Dr Nelson says in his speech.

Well, it's all very well to say that. I wouldn't have thought it's a good position for Dr Nelson to be in - to be out there advocating, maintaining or increasing levels of spending in the community, particularly in relation to the Federal Budget. I would've thought there has to be significant downward pressure on spending in the Budget. Inflation is, as anybody who was around in the 1980s remembers, a terrible, terrible curse in the community.

Wayne Swan, the Federal Treasurer, joins me on the line. Mr Swan, good afternoon to you.

TREASURER:

Good afternoon, Phillip.

CLARK:

Mr Nelson says that you should hold the line on public spending and stop talking down the economy. He says inflation's exaggerated and you're the one doing it. What do you say to that?

TREASURER:

Well, he just gets more bizarre by the day, Dr Nelson, and even Mr Turnbull, because there is an inflation problem in this country and we've made it very clear we do need to deal with it. It's been responsible for something like eight interest rate rises in the last three years and we have people really being hit by inflationary pressures across the economy. So, responsible economic management means that you deal with it. And for Dr Nelson and Mr Turnbull to simply stick their head in the sand and say it isn't a problem just demonstrates to me how out of touch they've become.

CLARK:

How big a problem is it?

TREASURER:

It's a substantial problem. It's the highest it's been in 16 years and that's one of the reasons why we've had so many interest rate rises - eight in the last three, 12 on the trot. So, we've got to deal with that, particularly in Sydney, Phillip, as you know. These interest rate rises have put people under a lot of financial pressure, and they're feeling it also, more broadly, from the broader inflationary pressures in the economy.

CLARK:

I know, as Treasurer, it's not your business or bailiwick to be commenting on interest rates rises or otherwise, but the Reserve Bank's Board decision today is going to provide some comfort to homeowners and mortgage owners, isn't it?

TREASURER:

Yes, certainly it's a welcome relief. But what we've got to do is to deal with the broader challenge and it can't just be dealt with by the Reserve Bank, which is why we made it very clear from day one that we would accept responsibility for the inflationary pressures that we inherited and we've been out there and been very serious about it. And part and parcel of that will be cutting back on government spending in the forthcoming Budget, building a strong surplus not only to assist in the inflation challenge but also to provide the resources for the long-term to build the infrastructure we need, and also, I think, to provide a bit of a buffer because times, internationally, are pretty uncertain.

CLARK:

How much of the inflationary pressures are we seeing? I mean, surely a lot of it's coming from overseas? There's not much we can do about that, is there, by way of oil prices and other things?

TREASURER:

Yes, some of it is, but there are underlying measures and it just is springing up everywhere. Sure, at the moment it's rents and it is petrol, but it's broader than that and it's been building for a long time and has to be dealt with. Because IN the future, if we don't deal with it, will mean permanently higher prices and permanently higher interest rates. And interest rates at the moment are already hurting a lot of people.

CLARK:

What's the outlook for, though? I mean, we're in the midst of a power debate here in NSW and new carbon emission regimes are only going to make electricity more expensive, that's going to feed into everything. That's going to be inflationary too, isn't it?

TREASURER:

Well, potentially, but in designing the emissions trading system, we've got to take all those things into account and get a set of policy setting that work. There's no doubt that there are challenges there and there will be price pressures there as well. But the inflationary pressures we've got at the moment have been building for some years. And you saw that FOI yesterday that came out that said before the last budget, the last government had been warned not to go on a spending spree otherwise they'd put upward pressure on interest rates. They did that in defiance of all the advice they had from their professional advisers. It falls to us in the forthcoming Budget to rein that in, and that's what we're going to do.

CLARK:

So, we'll be seeing significant downward pressure on spending in the Budget?

TREASURER:

Well, certainly we'll be pulling back Commonwealth Government spending in the Budget, absolutely. It's been a big task because we are also going to meet the election commitments we made. So, we've had to rearrange spending priorities in the Budget as well as to cut back spending in some areas. So, that will involve some pain but absolutely necessary in terms of fighting inflation, but also, I think, giving many working families out there a much needed hand when it comes to some of the pressures they face, which is why, Phillip, we're so determined to deliver the tax cuts that many people said we shouldn't be doing. So, we've had to make room elsewhere in the Budget - to cut back on spending - and that's what we've done.

CLARK:

What do you think Dr Nelson's on about?

TREASURER:

I think he's lost the plot. I think he's completely lost the plot and I think Malcolm Turnbull has too. They've been going around all year saying that inflation was a fairy story. It was only a month ago that Mr Turnbull claimed that when it came to inflation it was "mission accomplished". Well, it hasn't been accomplished, it's got to be dealt with, and we're going to deal with it as a central feature of this forthcoming Budget.

CLARK:

Good to talk to you.

TREASURER:

Good to talk to you.