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

4 September 2008

Interview with Fran Kelly

ABC Radio National Breakfast

4 September 2008

SUBJECTS: Budget Blocking in the Senate; National Accounts; Banks/Interest Rates; Global Economy

KELLY:

Treasurer, good morning.

TREASURER:

Good morning, Fran. How are you going?

KELLY:

I'm going very well. I'm wondering how you're going after last night in the Senate watching Senator Fielding vote against your luxury car tax. Why did you fail to get him on side in this?

TREASURER:

Fran, it's not about Senator Fielding. It's not even about the Greens. It's actually about the Liberal Party and their failure to act responsibly in the Senate. They are being absolutely reckless by trying to blow a $6 billion hole in the surplus that we need at a time of global uncertainty. So, the reason these measures may be defeated - and I say may be defeated - really lies in the actions of the Liberal Party and the fact that they are being so irresponsible when it comes to the economy.

KELLY:

Well, be that as it may, you still need, if the Opposition is voting against something, and that's their right, you still need to try and convince the independents and the minor parties. You've clearly failed to convince Senator Fielding. What was wrong with his request for exemptions, for instance, on four wheel drives for farmers and tourism operators?

TREASURER:

Because his request simply couldn't be implemented. They would have been a compliance nightmare. But it's not too late for the Liberal Party to actually demonstrate some economic responsibility in the Senate today and support these measures. Because essentially, what the Liberal Party's doing is supporting a tax cut for owners of luxury cars against the interests of working families who really want lower interest rates. That's the choice.

KELLY:

Steve Fielding made the point on this program that a four wheel drive for a farmer is not a luxury car. He said he was going to have talks with you and others yesterday. Are you still talking with him?

TREASURER:

No, I'm not still talking to Senator Fielding. But as we go through all of these Budget measures we'll keep an open dialogue with all of the minor parties and the independents in the Senate. But at the end of the day, what we need is our surplus, and we need that surplus intact as a buffer against global uncertainty and as a critical part of tackling inflation and bringing down interest rates in the longer term. So, what the Liberal Party have clearly done here is to side with the luxury car industry. What they've done here is they're siding with the alcohol industry, and the people who will lose are all of those people around this country who are looking forward to lower interest rates into the future.

KELLY:

And we'll get to the hole in the surplus and the general economy in a moment. But just finally on the Senate, the Medicare Levy Surcharge is up today too. Are you expecting another defeat there?

TREASURER:

I'm not sure what the outcome will be there. We'll see how it goes in the Senate. But this is a very clear measure which will provide substantial tax relief to a lot of people who have been bearing this surcharge and they should not have had it. When Mr Howard put this is place over a decade ago it was not meant to hit people on average incomes. So, if you're on an average income now and you're a couple with two average incomes, you could save $1200 if this measure passes. And of course, that same family would've had a measure of interest rate relief the other day to the tune of almost $600 - it goes in one pocket and the Liberals will take it out of the other.

KELLY:

Let's come to the growth figure released yesterday. You described the 0.3% growth figure as solid. It's not that solid, is it, 0.3% growth between April and June? It's pretty flimsy, really.

TREASURER:

It's pretty solid considering what's going on around the world. I mean, five of the largest developed countries in the world have zero or negative growth. International conditions are perhaps the worst we've seen in over 25 years. The impact of the international credit crunch sees fallout in terms of business confidence and so on. But the other thing in these accounts that people don't tend to discuss enough is the fantastic figures that are there in terms of business investment for the future. I mean, business is investing. Money does talk, Fran. So, there is strong business investment in these figures, and when you see the CAPEX figures from last week, about $100 billion of investment in this financial year. So, business is investing. It's doing it confidently. That's good for growth. And although the figure was 0.3%, the non-farm figure was 0.5%, it's 2.7% for the year and it stands out in terms of all international comparisons.

KELLY:

Okay. Yet even you said yesterday we can't defy gravity - 2.7% for the year and the trend is down, you would think given the global slowdown - could we be looking at zero or negative growth in the coming quarter? Are you worried about that?

TREASURER:

Well, we're certainly not out of the woods because the economy is feeling the impact of those 10 consecutive interest rate rises under the Liberals. And on top of that, we've had the impact of the credit crunch. And on top of that, we've had the impact of increased petrol prices and slowing world growth overall.

But there are things running in our favour, Fran. If I wanted to be in any country in the world in these international circumstances, Australia's where you would want to be. And we are bringing forward tax cuts - they started on the 1st July. We've got our investment funds out there for nation building. We've got a healthy financial sector, a well regulated financial sector and healthy banks. All of those things are running in our favour.

KELLY:

Okay, the national accounts, as you said, showed strong business investment, but it showed household spending has really been reined in, in fact it's been reined in into the negative for the first time since the recession ended in 1993, and there is more pain ahead for consumers, isn't there, because unemployment will rise on 2.7% growth? There's no choice but for it to go up, is there?

TREASURER:

I think what the consumption figures really show is the weight of interest rate rises and how they've impacted so markedly on families who've got significant debt. That's what you're seeing out there. We were upfront about all of this in the May Budget. We said growth would slow. Employment growth would slow and there would be a slight upward movement in unemployment. That's the consequence of having 10 interest rate rises in a row and it's the consequence of a slowing world economy. But as I said, other things are working in our favour. We've got to keep all of this in perspective, Fran.

KELLY:

It is true, isn't it, that unemployment is going to head up? Do you think it's going to go as high as five per cent or over five per cent?

TREASURER:

Well, the forecast in the Budget was 4.75%, Fran, so we will just have to wait and see. But I'm confident, given the tax cuts, given the investment funds we've got out there, given the investment we're making in nation building, given the strength still in emerging economies around the world, given the significance of the terms of trade, all of those things are working in our favour to power growth.

KELLY:

Treasurer, on Tuesday we got a rate cut and importantly all the major banks responded almost immediately by announcing a cut to their lending rates. Did you have a word to the heads of the big banks privately, getting them to move so quickly on this?

TREASURER:

Fran, I've made it very clear publicly and I've made it very clear privately that there was simply no excuse for any major bank not to pass on a Reserve Bank rate cut and that I expected to see rates come down as quickly as they went up. And I'm pleased to say, in terms of the major banks, that's exactly what has happened. I'm delighted with that outcome.

KELLY:

Okay, economists are predicting more cuts ahead from the RBA but the heads of some of our big banks aren't necessarily guaranteeing they'll pass those on. In the Telegraph today the CEO of the Commonwealth Bank said he couldn't guarantee that rates would fall if the RBA cuts rates, and the ANZ indicates something the same. Should the banks get in lockstep with the RBA and re-couple with the RBA?

TREASURER:

Well, Fran, can I say that when there is an official rate cut from the RBA the banks' borrowing costs go down, and that should be reflected, therefore, in the rates that they are charging their customers for mortgages. All of my advice from both the Reserve Bank and from the Treasury is that they do have the capacity to pass on those official rate cuts. It is true that the banks are under pressure in terms of their term funding that they raise on international markets, and that is subject to volatility given what is going on internationally. But there is simply no excuse, in terms of the advice that I've received from the Reserve Bank and also from the Treasury, for banks not to pass on official rate cuts when those decisions are taken by the Reserve Bank.

KELLY:

And finally, Treasurer, I mean you must be pretty nervous obviously about the signs in the global economy and the flow on effect here. How worried are you, or how dangerous is it for our economy to be so reliant on really one sector for growth - and that's the commodities sector and the mining boom, because it can be turned off like a tap? We're all reliant on China, aren't we?

TREASURER:

Well, one of the reasons why the Government is going back to basics and strengthening the foundations is that we've got to attend to all of those things that the government ignored in previous years. We've got to do something about the capacity constraints in our economy. We do have to tackle the inflationary challenge. That's why we need a significant surplus. We need that significant surplus to tackle inflation, to end the reckless spending of the previous government, and on the other hand, we've got to make those long term investments, the productive capacity of the economy. That's what we're doing. They're the things we can control. There are some things we can't control, Fran.

KELLY:

Treasurer, thank you very much for joining us on Breakfast.

TREASURER:

Thank you.