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

14 June 2008

Interview with Sabra Lane

ABC Radio Saturday AM Program

14 June 2008

SUBJECT: G8 Finance Ministers' Meeting; Oil Prices; Tax Cuts

PRESENTER:

Finance Ministers from eight major industrialized nations are meeting in Japan to discuss the major economic challenges facing the world, including the high cost of oil. Australia's not a G8 member but is still taking part. The Treasurer, Wayne Swan, says they'll discuss what can be done to encourage oil producers to increase supply. He's also responded to renewed warnings by Australia's Reserve Bank Governor about the inflationary risks confronting Australia. Mr Swan says next month's tax cuts won't add to those pressures. The Treasurer is speaking here with Sabra Lana.

TREASURER:

Well, firstly Sabra, I've been talking about a range of issues in both the OECD, London, Beijing and Osaka that are both national challenges when it comes to policy at home in Australia, but global challenges, and of course the price of oil is but one of those. And that is a topic which is on the agenda for the G8 Finance Ministers' Meeting, but it was on the agenda in other capitals around the world because it is impacting around the world, particularly in many of the emerging economies as well. It involves supply factors on the one side, and demand factors on the other. What we will be exploring here at the G8 meeting is are there any further things that can be done to increase supply, but also to look at the demand side of the equation as well.

LANE:

Is there really much you can do other than complain about it?

TREASURER:

Well, it's not a question of complaining about it. It's a question of understanding what's going on. It's a question of understanding the constraints on the supply side, and that's important because if we are going to have a period of permanently higher oil prices, it's critical to lift supply, but also how we deal with it on the demand side and the efficiency of use. These are all factors that need to be dealt with for the long term on a global basis.

LANE:

From motorists through to major companies like Virgin Blue, the surging oil price is battering the Australian economy. The Reserve Bank Governor, Glenn Stevens, says the terms of trade shock from rising commodity prices could be seriously destabilising to the economy.

TREASURER:

Well, I think the Governor was really highlighting the countervailing forces that are impacting on our economy. On the one hand, you've got slowing world growth caused by the US sub-prime financial crisis and the pressure that puts on borrowing costs, and on the other hand, you've got the significant increase in the terms of trade. Now, all this has occurred at a time when inflationary pressures domestically were already elevated. That's why the Government believes we need to tackle inflation. We need to do it seriously because if we don't, it will strangle growth and wealth creation well into the future.

LANE:

He warns that consumption by Australian families and demand for housing need to be wound back to make room for investment in the mining sector and public infrastructure. The tax cuts that you'll deliver from July the 1st are just going to compound the enormous pressure on the economy, making the Bank's job that much harder.

TREASURER:

Absolutely incorrect, Sabra, absolutely incorrect. We brought down a Budget which restrained public demand, which built a larger surplus and it did this precisely because we wanted to tackle inflation. But on the other hand, you've got to recognise we needed to increase the productive capacity of the economy which is also required to dampen inflationary expectations, but also required because we need to have a buffer to cope with international financial market turbulence.