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

2 September 2008

Interview with
Kieran Gilbert

Sky News AM Agenda

2 September 2008

SUBJECTS: Interest Rates; Economic Growth; National Accounts; Budget Blocking in the Senate

GILBERT:

All eyes are on the Reserve Bank today, tipped to announce its first cut in official interest rates in 6½ years.  I spoke to the Treasurer, Wayne Swan, a short time ago, began by asking him does he think that mortgage holders have turned the corner of interest rates.

TREASURER:

First of all, we can’t necessarily predict the outcome of the meeting tody.  But should the Reserve Bank decide to reduce the official rate today, you’re right, 740,000 people or families with mortgages have never seen an official RBA cut.  So, that will be very welcome relief for them.  There were something like 10 interest rate rises on the trot under the Liberal Party, and of course, families have been doing it really tough.  The cost of servicing a mortgage has gone up and that’s made it really difficult for a lot of people to get by.  You will recall some of the people we’ve heard from at Community Cabinets talking about just what a squeeze that’s put on the family budget.  So, any rate cut today will certainly be welcomed by families with a mortgage.

GILBERT:

Have they turned the corner?

TREASURER:

Well certainly, I don’t think we can say we’re out of the woods yet.  But it’s certainly a good sign that the Reserve Bank is deciding to loosen monetary policy, should they take that decision today. But of course, as you know, we have an inflation challenge in this country.  It’s a challenge that took a long time to develop and it will take some time to deal with.  But certainly, this will be a welcome start from the Reserve Bank.  As you know, the central purpose of our Budget delivered in May was to tackle inflationary pressures in the economy so we could put downward pressure on inflation and downward pressure on interest rates.  I’m just pleased to see that the Reserve Bank thinks it’s got some room to move now.

GILBERT:

How important was the Budget in slowing economic growth down?

TREASURER:

Economic growth has been slowed by 10 interest rate rises in a row under the Liberal Party, and then on top of that, you’ve got the impacts of the global credit crunch which is also pushing up borrowing costs around the world and domestically, particularly for households and businesses.  So, those two things have been happening at once.  Inflation hit a 16-year high last October and November and December.  On top of that, we’ve now had the global oil price shock and also the impacts of the credit crunch on borrowing and further increases in interest rates.

GILBERT:

Wasn’t the Budget also about easing conditions as well, though?

TREASURER:

The Budget was certainly about tackling those inflationary pressures, but also striking the right balance between tackling inflation on the one hand, and realising that we had these adverse international circumstances occurring.  So, the Budget, I think, struck the right balance between tackling inflation on the one hand, building up a surplus which could act as a buffer against adverse international conditions.  That’s precisely what we did.  We think we struck the right balance in the Budget.

GILBERT:

We’ve got this likely rate cut today.  How worried are you that the RBA might tighten financial conditions too much, more than they’d anticipated?

TREASURER:

These are decisions that the Reserve Bank takes independently.  The job of the Government is to do everything that it can with fiscal policy to create room for the Reserve Bank to move, and that’s why we have been so focussed upon building a significant surplus, so focussed on cutting out all the reckless spending that the previous government put in the Budget, and so focussed upon dealing with the capacity constraints in the economy which have also been putting upward pressure on inflation and upward pressure on interest rates.

GILBERT:

You’ve been putting a lot of pressure also on the banks to pass on any cut in the official rate.  We’re seeing numbers that every day that they delay will cost their customers millions and millions of dollars every day that is delayed passing on this rate cut.  Would you call on the commercial banks to pass on any cut immediately?

TREASURER:

Well, first of all, there’s no excuse for any bank not to pass on any cut, if that’s what the Reserve Bank decide to do today.  And secondly, I would certainly call on them to pass on any rate cuts as quickly as they passed on any rate rises.

GILBERT:

Which is pretty much straight away, from memory?

TREASURER:

It will vary from bank to bank.  But I would expect to see them respond in the same way when rates come down as they did when rates went up.

GILBERT:

The ANZ and NAB say they will wait six days to Monday when it’s the normal day for rate alterations.  That would cost their customers $8 million, though.

TREASURER:

Well, I’d have to check how long it took those banks to actually push rates up when the Reserve Bank moved.  But I’ll have a look at the data.

GILBERT:

Okay.  Well, Brendan Nelson’s calling for a rate cut of 0.5 per cent.  Is there anything really wrong with that?  Most people probably empathise with that sort of suggestion.

TREASURER:

Yes, but then Brendan Nelson went on to say that if he was Prime Minister he wouldn’t make those statements.  I mean, the Liberals are all over the shop here.  Brendan Nelson, Malcolm Turnbull, Peter Costello presided over 10 rate rises in a row, sat around the Cabinet table and went on reckless spending sprees and now want to come out and lecture others about what should be happening.  I mean, they’re part of the problem, they’re not part of the solution.

GILBERT:

But isn’t it just commonsense that he’s Opposition Leader, he doesn’t have control of the levers – that’s you and Mr Rudd – why can’t he make suggestions like that?  He has no control over…

TREASURER:

Because he’s supposed to be the alternative Prime Minister and until now, I thought there was a bipartisan agreement in this country supporting the independence of the Reserve Bank.

GILBERT:

Okay.  We’ve got the GDP growth figures out tomorrow, expecting the economy to be slowing further.  It’s really a mixed outlook for you.  How worried are you that we’re going to see more job losses, and good news today with this likely rate cut, but tomorrow growth numbers likely to show a slowing economy? 

TREASURER:

The Government has been upfront and frank with the Australian people about the fact that our economy is slowing.  It’s slowing on the back of those 10 interest rate rises in a row, but most particularly and more recently, the impact of slowing world growth and the impact of the credit crunch particularly on the financial markets and most particularly the impact upon stock markets.  All of these things are certainly going to lead to slowing growth, a slowing in employment growth and they will certainly be leading to a slight tick-up in unemployment.  This is all occurring against the backdrop of the most uncertain global conditions in over 25 years.  So, what the Government is going to do is continue to put in place a disciplined fiscal policy and fortunately, the investment funds that we put out there for our nation building obligations when it comes to building roads, rail, port and doing something about our education system, fixing up our hospital system, those funds are there and I think it will be timely for a program of nation building, given the international conditions that we are in at the moment.

GILBERT:

You’ve got some big spending initiatives coming up – the aged pension review, the automotive industry support package, the CPRS – there’s quite a few big spending initiatives coming up.  Do you have to make further spending cuts to fund all these things or is that slower growth giving you room to, I suppose, suggest that the need for reduced spending is diminished?

TREASURER:

As you understand, we do need to continue with disciplined fiscal policy but we made room in the May Budget for the tax cuts which had been needed by so many people out there who’d missed out in the past, and they’re flowing through into the economy now in a very timely way given the global conditions.  But we will still need to maintain discipline when it comes to fiscal policy, and that’s what we’ll do.

GILBERT:

But for all those measures, do you need to find commensurate cuts?

TREASURER:

Lindsay Tanner has made it very clear that we will continue to look for alternative savings in the Budget over and above the very significant savings that we found in the May Budget to make room for every single one of our election promises that we are now implementing.

GILBERT:

The Opposition has called for an economic statement.  Things have changed quite substantially since May when you handed down your first Budget.  Why not give a clarifying statement, even a mini budget, given that economic circumstances have changed so dramatically?

TREASURER:

The Opposition is actually refusing to pass through the Senate our May statement – that is the Budget – and we will continue to pursue the May Budget in the Senate to ensure that they do not succeed in blowing a $6 billion hole in the $22 billion surplus, which is so important on the one hand to tackling inflation and keeping downward downward pressure on interest rates, but on the other hand, having the monies available for the nation building programs that are so important to lifting our productive capacity and tackling inflation in the long term.

GILBERT:

So, as Treasurer of the nation, you don’t see any need to put out a clarifying statement, because circumstances, by your own measure, have changed a lot since May?

TREASURER:

Well, we do a regular update.  We do a Mid-Year statement, and that will be towards Christmas.

GILBERT:

Okay, Treasurer, Wayne Swan, appreciate your time.

TREASURER:

Thank you.