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

22 August 2008

Interview with Neil Mitchell

Radio 3AW, Melbourne

Friday, 22 August 2008

SUBJECTS: Economy; BCA/CPRS; Jobs; Banks; Interest Rates; RBA; Peter Costello

MITCHELL:

Treasurer, Wayne Swan, good morning.

TREASURER:

Good morning, Neil. Quite an imposing list.

MITCHELL:

Well, it's all hitting the fan for you, isn't it?

TREASURER:

Certainly these are difficult times in the global economy and as you know, eight interest rate rises in three years, 12 on the trot, they've had an impact in terms of slowing the economy, and of course, now we've got the global credit crunch which is having such an impact on stock markets around the world, and of course, locally. All those things are happening but I don't think we should lose perspective here. There are some fundamentally strong things in the Australian economy as well. I think it's important we acknowledge those.

MITCHELL:

Okay. Let's look at this carbon trading thing first. The Business Council says this will, if you go ahead with it as planned, this will force businesses to close and move offshore. You much adjust it, surely?

TREASURER:

I've spent time talking to the Business Council. Indeed I've spent a lot of time in the last couple of months around the business community talking to them about the need for an emissions trading scheme. The Business Council agrees with the Government that we do need one. That's why we published the Green Paper. We said we would take on board the suggestions from the business community. We're working our way through that. This piece of work that they've commissioned has new data in it and our officials will certainly be working through that because we do want to take on board all of the advice we can get and produce a scheme that works in the national interest. We share that objective with the Business Council.

MITCHELL:

Well, they're saying that their pre-tax earnings would be cut 22 per cent. The worst would suffer 136 per cent reduction in earnings. A 22 per cent cut. They can't (inaudible) ...

TREASURER:

Well, it's modelling and the Government will be doing its own modelling and we'll have a look at the data they've used in their piece of work. We'll have a look at the assumptions, because we recognised very clearly in the Green Paper these energy-intensive trade-exposed industries were at risk. We didn't want to see them move offshore. That's why we've put aside additional assistance for those industries.

MITCHELL:

Yeah, but they've taken account of that. They've taken account of that and they've still said that this will drive people to the wall. If they're right, if their figures are right, you can't do it, can you?

TREASURER:

What we will do is we will study the material they've provided us with. We will look at it very closely. We'll work our way through all the issues with the Business Council and other business groups. That's the whole point of having a Green Paper – going through this process, talking to the community – not only the business community but households as well, Neil.

MITCHELL:

Would you agree that if this modelling is right, if these figures are right, you cannot go ahead with this emissions trading scheme as it stands?

TREASURER:

I would agree that I should look very closely at all of the data, all of the modelling they've provided, particularly this modelling is based on information provided to them confidentially by companies. We'll go through it all in good faith. We want a result for this which works for the whole of the country, and that's what we'll do. That's the whole point of having a Green Paper process.

MITCHELL:

If they're right, how many jobs are on the line here?

TREASURER:

They're suggesting there are a large number of jobs on the line. Our purpose here is to put in place a scheme that works in the national interest. Because the one thing that we agree with, and the Business Council agrees with everybody else on, is we have to actually put in place the framework for the future, because not acting in this area will involve even higher costs into the future. We'll work our way through all the issues, Neil.

MITCHELL:

What about in this current environment at least agreeing to looking seriously at a delay? I mean, we've got Ford talking about a 15 per cent cut; Cadbury-Schweppes and others. Jobs are going already without your emissions trading scheme.

TREASURER:

We've recognised the particular circumstances of the car industry, which is why we commissioned the Bracks Review. Basically, the industry has been left swinging in recent years. There's dramatic changes in terms of consumer preference. There's dramatic changes in the structure of the world industry. The Bracks Review really responds to all of those issues and they're currently before the Cabinet. We understand the importance of the industry, what a big employer it is, what a big exporter it is and we are addressing those issues as well. In fact, in terms of climate change in terms of the auto industry, that is part of our approach. We're (inaudible) these issues for the long-term, Neil.

MITCHELL:

Can you save these jobs?

TREASURER:

In terms of the auto industry, we've got to make sure it's got a sustainable future…

MITCHELL:

Can you save these jobs?

TREASURER:

No, I don't think we can necessarily save these jobs today. But what we've got to do is get the settings in place for the long term, because so many of these things have been put in the too-hard basket for too long. The Government is going to front up. It accepts responsibility for doing something for the long term, and that's what we're doing.

MITCHELL:

Okay. What about Cadbury-Schweppes? They're dumping jobs, hundreds of jobs as well.

TREASURER:

Yes, they are, and I haven't spoken directly to that firm but I'm sure Kim Carr will be talking to them. I certainly hope that the firm treats its workers with dignity and respect. We ought to think about all that in the middle of this. But the reason for their changes will be complex and they won't necessarily be just the result of what is going on in the economy today or last week.

MITCHELL:

But Treasurer, how much more of this is there to come? This is just the beginning, isn't it?

TREASURER:

We are in an extraordinary period in the global economy. We've got the worst set of circumstances in over 25 years; that is certainly impacting on world growth which is impacting on us. Unfortunately for us, it comes on top of the fact that domestically inflation hit a 16-year high at the end of last year and early this year, which has prompted all those interest rate rises. What we've got to do is get the fundamental settings in the economy right. That's what we did with our Budget, that's why we built such a huge surplus – to give us a buffer against international uncertainty, and to put in place the funds to invest for the future.

MITCHELL:

Are you saying this is the worst economic climate in 25 years?

TREASURER:

Globally, yes.

MITCHELL:

And in that environment, you're fiddling with an emissions trading scheme?

TREASURER:

We can't afford not to front up on emissions trading, and the Business Council agrees with us on that as well, because the uncertainty that is created by not putting in place a framework for the future is also destructive of jobs. That's the whole problem here. This is a diabolical problem. The policy is very hard, and that's why we've gone down the road of having the Green Paper.

MITCHELL:

Now, you haven't been conned by the National Bank, have you?

TREASURER:

What I do…

MITCHELL:

They're having us on. They're not Santa Claus. I mean, they're giving us back 0.25 per cent they've taken at double the official rate.

TREASURER:

Neil, I've made it very clear over the last few weeks, very loudly clear, that there is absolutely no excuse at all from any bank not to pass on any official rate cut. They passed on the costs when they went up on in a nanosecond, and as they come down there is no excuse whatsoever. And that's what my advisers from the Reserve Bank and the Treasury tell me – none, none at all.

MITCHELL:

That's part of the problem, though. They didn't just pass on the official rate, they passed on the official rate-plus. They passed it on at double the official rate. Why are we all falling at their feet in delight when they say, oh, we might pass on the official reduction? They should be giving us more back.

TREASURER:

I'll go through both those points. I'm not falling at their feet for making a commitment to do something they should be doing anyway. But what stuns me is the other major banks can't make that commitment. And I'm challenging them to make that commitment now. Because when the Reserve cuts rates, Neil, what actually happens is that there's a very big benefit to their loan book, a very big benefit, and for them not to admit that publicly, I think is arrogant in the extreme. So, I'm delighted the National has made the announcement for whatever motive they may have.

MITCHELL:

If the Reserve rate comes down 0.25 per cent, shouldn't the National be giving us more than 0.25 per cent?

TREASURER:

Well, can I come to that second point? This is where the global credit crunch impacts as well, because it is true, as the NAB said yesterday, that for a long time this year funding costs have been pushed up by global factors. Borrowing costs internationally have gone up which is why the banks added additional to the cash rate. Now, I had…

MITCHELL:

Yeah, and what, they've had $1.2 billion in dodgy loans?

TREASURER:

Well, I had a brawl with the banks, you might recall, Neil, back in January over this very point. Some of those rate increases over and above the cash rate I've said are justified and some, I think, are a real stretch. But the one thing that I do know about the banks is that in addition to passing on the cash rate, as long as these borrowing costs internationally continue to come down, they should also be in the position to pass on further rate cuts over and above what has happened with the cash rate.

MITCHELL:

I get the point. Just the point I'm making is the National is not being particularly generous here. They've screwed a lot extra. I mean, the official rates gone up, what, 0.5 in the year, this year, and they've gone up 1.04. So, they've gone up at double the rate.

TREASURER:

Well, they all have.

MITCHELL:

Yeah, they have. But they're not giving back much here.

TREASURER:

We shouldn't be clapping for the fact that they're doing what they should be doing anyway. I absolutely agree with you on that and I've been making that really clear. And if they're not going to do the right thing, I've also made it really clear that we'll go back to having a good, hard look at the competitive nature of the industry and whether there's other things that can be done to encourage them to do the right thing.

MITCHELL:

We're just getting the unofficial word that the Commonwealth is going to agree to do that as well…

TREASURER:

So they should.

MITCHELL:

You haven't heard that officially, have you?

TREASURER:

No, I haven't heard that officially. But they are…

MITCHELL:

I think they will.

TREASURER:

Let me just say this about the Commonwealth. Of all the big banks, they are in a better position to make this commitment than any other.

MITCHELL:

Okay. Now, you must be grumpy with the Reserve Bank, because they've got it wrong, haven't they?

TREASURER:

The Reserve Bank acts independently…

MITCHELL:

I know. They pulled Paul Keating's levers so hard they put us backwards. They haven't just slowed us. They've driven us backwards.

TREASURER:

Let's just have a look at that for a minute. I mean, why is the Reserve Bank putting up rates? Why have there been 12 on the trot and eight rate rises in three years? Because inflation got out of control on the back of some pretty reckless spending by the previous government, and on the back of their inattention to solving some of the problems in the economy, particularly skills and particularly infrastructure. So, all of those things were happening and the Reserve Bank was put in that position by the government.

MITCHELL:

They went in too hard and fast.

TREASURER:

What I will say is the Reserve Bank was put in a very difficult position by the previous government.

I see Peter Costello was out there yesterday saying what a brilliant economic manager he was. I mean, he must have severe memory loss of the 16-year high inflation and the fact that he even admitted publicly to Mr Howard's biographer that Mr Howard went on a spending spree and he didn't stop him.

MITCHELL:

Okay. But the Reserve Bank, this year, has gone too hard, hasn't it?

TREASURER:

Well, the Reserve Bank takes its decisions independently. It's flagged some cuts. It said very clearly and publicly that there is no excuse by the major banks not to follow, and that's a good thing.

MITCHELL:

Thanks for your time.

TREASURER:

Good to talk to you.