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

23 July 2008

Press Conference

Commonwealth Parliamentary Offices. Sydney

23 July 2008

SUBJECT: Inflation Data; Carbon Pollution Reduction Scheme; National Party Call for a Royal Commission

TREASURER:

Today's numbers confirm what Australian families already knew - that is that sky-high global oil prices are making our inflation problem even worse. I think anybody who does the shopping or fills up the car knows that inflation has been building for years and, of course, has now been made worse by global pressures.

Now, we know working families are doing it tough. It's not just the 16-year inflation legacy that we inherited, it is eight interest rate rises over three years, and of course, it has been also rises which have been passed through by the banks because of the global credit crunch.

So, I want to be really blunt about this. This is a problem that has been developing for some time and what it requires is long term plans to combat this inflationary problem both here and, of course, the consequences of what is flowing from overseas as well.

So, we have a domestic problem here. And we have a domestic problem which is also impacted upon by global inflationary pressures.

I just want to go through the figures briefly.

The CPI rose by 1.5 per cent in the June quarter, taking the annual rate to 4.5 per cent. This is up from 4.2 per cent over the year to the March quarter. The average of the Reserve Bank measures of underlying inflation rose further in the June quarter, up 1.1 per cent to be 4.4 per cent higher over the year. Both of the RBA's underlying measures are at their highest level in 16 years, and what that indicates is that inflationary pressures are broadly-based.

On top of these broad-based pressures, we've seen global oil prices feeding into higher domestic petrol prices. Rising fuel prices were a significant contributor to the headline inflation in the quarter. Fuel prices rose by 8.7 per cent in the quarter and that contributed 0.4 percentage points to the overall figure.

Financial services costs also rose strongly, with higher funding costs from the global credit crunch being passed on to households. And of course rents rose by 2.2 per cent in the quarter, the largest quarterly increase since 1989.

So, really, that's what it's all about. This is a very significant figure. The truth of it is there in the figures. There's no point in trying to sugar coat it at all. It's a very substantial problem. What we have to concentrate on is those things that we can control, and that's what the Government has been doing through its Budget and through its overall policy settings. So, we have concentrated on building a strong surplus, and we've concentrated on providing assistance to households through the tax cuts, and we've concentrated on putting in place our investment funds, particularly the investment funds when it comes to that critical economic infrastructure.

So, over to you.

JOURNALIST:

I think what working families (inaudible) put up interest rates again?

TREASURER:

That is entirely a matter for the Reserve Bank. What I can say is that we are doing everything that we possibly can to put downward pressure on inflation, and therefore, downward pressure on rates. The Reserve Bank takes its decisions independently. We had some commentary from the Reserve Bank Governor last week, and people will interpret that in a number of ways. But the most important thing the Government can do is to put in place policy settings that put downward pressure on inflation and, therefore, downward pressure on rates. But as I said before, this is a long term challenge.

JOURNALIST:

It does mean that surely, though, the Reserve Bank (inaudible).

TREASURER:

I don't believe you can accurately make that assessment. The Reserve Bank makes its own judgements and it makes them independently.

JOURNALIST:

Irrespective of the Reserve Bank, banks are putting up rates anyway. To what extent can you blame global credit squeeze and (inaudible)?

TREASURER:

Well, there is a global credit crunch which is putting upward pressure on rates outside the official cycle. What I've said here is that the banks have a choice - they have a choice between their shareholders on the one hand, and their customers on the other. And they need to take great care in taking decisions about passing on rate rises outside the official cycle. It also means we do need to have an eagle eye on competition in the sector, and we do.

JOURNALIST:

Treasurer, how do you interpret the Reserve Bank's view (inaudible)?

TREASURER:

I don't go out there and give the Reserve Bank advice. My job is to take pressure off the Reserve Bank - that's what our Budget was dedicated to doing - and I think it's pretty fair to say that if it hadn't been for the discipline in our Budget, there would be further pressure on inflation and further pressure on rates.

JOURNALIST:

But the headline figure (inaudible) gone up (inaudible). What sort of effect has (inaudible)?

TREASURER:

Well, we inherited inflation at a 16-year high. Now, that didn't happen overnight. It's been building for a long time and it will take time to deal with. Putting in place the Budget was just the beginning of the long term battle to combat inflationary pressures in the Australian economy, and that's what we're doing.

JOURNALIST:

How much time? Can you put a figure on how much time (inaudible)?

TREASURER:

It is certainly going to take a significant amount of time to deal with the inflationary pressures in the Australian economy that have been developing for a long period of time.

JOURNALIST:

But you can't say whether inflation problems will (inaudible) this term of government.

TREASURER:

What I can say is that all of our policy settings are absolutely dedicated to putting downward pressure on inflation and, therefore, downward pressure on rates. And on top of broadly-based high domestic inflation, we have now got these international influences which are putting further upward pressure on inflation. What we will deal with is those matters within our control. And that's what the Budget was all about.

JOURNALIST:

Were you surprised by today's figures? (inaudible)

TREASURER:

No, I am not surprised because we all know what has occurred globally in recent times. I am not surprised because underlying inflation is at a 16-year high and has been there for some period of time. We inherited very significant inflationary pressures. We put our hand up on day one to say that we would deal with it, and we have been dealing with it through our budgetary policy and through all of those policy settings that I spoke about before. But from day one we have been open and honest with the Australian people that this is a challenge which will take a significant time and which requires long term plans - long term plans we didn't have from the previous government, but ones which we must put in place to deal with this challenge.

JOURNALIST:

(inaudible)

TREASURER:

Can I just make this point? We have probably the most difficult global conditions in 25 years, there's no doubt about that, and in terms of the global liquidity crunch, that is putting further upward pressure on rates. But let's not forget some of the underlying strengths of the Australian economy in the middle of this.

We have a strong budget surplus put in place by the Government to tackle inflation. We have put in place investment funds that will enhance the capacity of the Australian economy to bring downward pressure on inflation in the long term. It will take some time for those to kick in. And lastly we have high commodity prices.

So, what we can say is given the global circumstances there is perhaps no country better placed in the world to deal with them than this country, but we are not immune from them and that can be seen in terms of the impact, in terms of borrowing costs for business and also for households that flows from the global credit crunch.

That's the circumstance we're in - in a circumstance where domestic inflation has been building for a long period of time. Now superimposed on top of that have been these very difficult global conditions which are adding to inflation and adding to pressure on rates.

What we have to concentrate on is those things we can control and what we can control is a disciplined Budget. We can build a surplus to provide a buffer against international uncertainty. We can begin the task of investing in the capacity of the economy to increase our productive capacity and also to put downward pressure on inflation.

All of these things are things we control and the more disciplined we are with those things we control, the better position we are in to deal with the things that we don't control. And that's why the Budget was so important. There's perhaps no government in the world at the moment that has been in the position that could put in place a substantial surplus but also make provision for investing in the future so we can deal with these problems long term.

If these problems had been dealt with some years ago we would be in a far better position to deal with the fallout from the international economy.

We're doing both. We're dealing with a domestic inflation problem that should not have emerged in the way that it did. It emerged on the back on reckless spending from the previous government, a failure to invest in productive capacity and on top of that, at perhaps the most inconvenient time, we now have these global pressures adding to all of that. It falls to this Government to take the long term decision, to have the discipline to deal with all of those things, and that's what we're doing. But we have to be absolutely open and frank about it. We need to have a conversation with the Australian people about dealing with these issues and dealing with them for the long term because there's been too much short term thinking in the past which has actually produced the outcome that we've got today.

JOURNALIST:

(inaudible) the cost of the emissions trading scheme (inaudible) will you be compensating business?

TREASURER:

Well, what we've said is that we will be providing some assistance to emission intensive export orientated industries. We've made that very clear and we're doing that for very good reason.

But I think everybody should very clearly understand there is not a bottomless pit of assistance. We've said that we would have a disposition to provide about 30 per cent or up to about 30 per cent of permits to those industries which are emission-intensive export-orientated. But for every new business that puts up its hand for some assistance, that may necessarily come off another one. There is not unlimited assistance out there and what the Government has said we will do, through the Green Paper process, is very clear. We will go out and talk to industry about their needs. We will consult with them. We will gather information. We will sift our way through if you like, all the genuine claims and of course in that process we will dispense with some of the hollow claims that have been made.

I just want to make the point that there is no bottomless pit of assistance but we will target assistance to those who deserve it based on sound criteria, and in doing that, protect our economy.

JOURNALIST:

How do you respond to Dr Bob Birrell's (inaudible)?

TREASURER:

That's just not true.

JOURNALIST:

You mentioned the 8.7 per cent increase in fuel prices. What will the Federal Government do to placate truck drivers (inaudible)?

TREASURER:

Well, we understand why they're so upset about petrol prices. I mean, petrol prices have gone through the roof. Petrol prices are up around 30 cents a litre this year, 20 cents a litre since the Budget. But these aren't prices that are in control by the Federal Government. They are set globally and they are putting a lot of people, including a lot of business, under pressure. That's why we fought so hard to deliver the tax cuts in the Budget and the additional assistance in the Budget - to provide some relief. You might recall, the Federal Government was receiving a lot of advice early this year that we shouldn't proceed with the tax cuts, that they shouldn't be given.

They have been given in recognition of the fact that a lot of Australian families are under tremendous financial pressure flowing from a 16-year high in the inflation rate which developed through last year, followed by the impact of the global credit crunch on the cost of money as well. All of those things are putting people under financial pressure and that's why we were so determined to deliver that package in the Budget.

JOURNALIST:

(inaudible)

TREASURER:

That's right.

JOURNALIST:

(inaudible)

TREASURER:

Look, I don't imagine there will be further corrections in that particular component. I have not received that advice but it is important to note that there is a correction in that component.

JOURNALIST:

(inaudible)

TREASURER:

Well, I think the climate change scepticism of the dinosaurs in the National Party is well known and the sad thing is that that is now infecting the Liberal Party as well.

I think you can see in Dr Nelson's commentary today that effectively he is trying to shore up his leadership by appealing to the climate change dinosaurs in both the Liberal Party room and the National Party room.