The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

17 September 2008

Interview with Fran Kelly

ABC Radio National Breakfast

17 September 2008

SUBJECTS: US Banking Sector; Global Economy; Malcolm Turnbull; Pensions; Luxury car tax

KELLY:

Wayne Swan, good morning.

TREASURER:

Good morning, Fran. It's good to be with you.

KELLY:

Treasurer, let's start with the global economic crisis. What are the immediate implications of the turmoil on Wall Street for our economy and for Australians?

TREASURER:

I think the good news, Fran, is that in terms of direct exposures of our major banks, they are only modest, and this underscores the fact that we have a well capitalised and well regulated banking system. I think it's always important to keep that in perspective. But we are certainly not immune from the fallout of what is happening in international financial markets, and in particular on Wall Street. But we just have to keep in mind that the fundamental strength of our system is in our regulatory system here, which is vastly different from what has occurred in the United States and serves us well during this time of global financial turbulence.

KELLY:

Are you confident that our banks here in Australia have limited exposure to the problems unwinding in the US banking sector, in particular to Lehman Brothers?

TREASURER:

Well certainly there are modest exposures. But I'm advised by APRA, which is the regulatory body, that those exposures are modest, that our banks are well capitalised and well positioned to cope with the fallout. But they're not immune either, and there will be many other companies across the country which in some way or another have some exposures. But when it comes to the centrality of our banking system, APRA advises me that in terms of our major banks there are only modest exposures.

KELLY:

Can you tell us whether APRA and the Government are actively engaged at the moment in conversation with the banks to make sure we have the full disclosure of this level of exposure?

TREASURER:

We most certainly are. In fact, we have been involved in discussions basically since the Government came to power, and most particularly since last January. I have been in constant contact with APRA, the Reserve Bank, I've been working through the Council of Economic Regulators. All of those have been in constant contact with all of our major financial institutions as we've been through the various iterations of this financial crisis which has engulfed parts of the world financial system.

KELLY:

Does the Federal Government hold any of these dud mortgage-backed debt instruments that we're hearing so much about now?

TREASURER:

I'm advised we have negligible financial exposures in that area but there will be financial exposures across the system. But most importantly, our banking system in particular is well capitalised. It's important to remember that when you consider what's going on in the United States and elsewhere in the world.

KELLY:

Just on the issue of limited exposure, is there a figure on that? Is it millions of dollars?

TREASURER:

The banks themselves have disclosed. We've been very active in implementing the recommendations of the Financial Stability Forum all year and one of those key recommendations was for us to encourage institutions to publicly declare their exposures as soon as they possibly could. And our regulators have been working with all of those institutions to do precisely that.

KELLY:

Many local councils, we're now finding out, have been investors in debt instruments sold to them by Lehman's, Lehman's Australia, and they now apparently stand to lose millions of dollars. Is the Federal Government considering any kind of measure to assist councils caught up in this sub-prime mess?

TREASURER:

No. These are decisions that councils and other entities will make from time to time and they will, of course, have to wear the liabilities.

KELLY:

The collapse of Lehman Brothers has forced central banks to pump billions into credit markets to avoid a liquidity crisis. Already bank to bank lending rates are heading back up quite rapidly. What could that mean for further interest rate cuts here and what the banks might do?

TREASURER:

I don't want to speculate on that. I don't speculate on the future course of official rates. But we do know that at various stages of the year events in international financial markets have pushed up borrowing costs for both households and for companies and this has been a feature of various episodes as we've gone through the year. But I don't intend to speculate about what those future impacts may be.

KELLY:

The banks will have an argument, though, for not cutting rates even if the Reserve does, won't they, if the cost of borrowings for them is higher?

TREASURER:

There are two separate issues here - whether the banks pass on official changes or reductions in the cash rate, and when they may also pass on cuts in other interest rate rises they've passed on in addition to the cash rate. So, it's a complex argument. Borrowing costs may go up, particularly term borrowing costs may go up for the banks, but at the same time, when the cash rate comes down there's a very significant benefit to the banks and the Government does expect that they pass that on.

KELLY:

At this time of turmoil on the global markets, we now have a former merchant banker in charge of the Opposition, and Malcolm Turnbull went straight to the economy yesterday. He accused your Government of mismanaging its response to the sub-prime crisis, he said begging the Reserve Bank to put up rates earlier this year. In hindsight, do you think you might have put too much emphasis on the inflation threat given the global economy was really clearly slowing?

TREASURER:

Not at all. For Malcolm Turnbull to go out and [deny] inflation, as it hit a 16-year high and was then pushed up further by an oil price spike, is the height of economic irresponsibility, but it also shows just how out of touch Malcolm Turnbull is with average Australians in their daily lives. That's why we say he doesn't really have a clue about life around the kitchen table.

It's not that he's a former merchant banker, it's not that he's rich, it's just that his policies and his values don't match his rhetoric. He is putting forward at the moment a huge smash-and-grab, a $20 billion smash-and-grab on the surplus, at a time of global economic uncertainty. If he wants economic leadership, that is the direct opposite of economic leadership. What economic leadership demands at the moment is a strong surplus to act as a buffer against global economic uncertainty, not a smash-and-grab from Malcolm Turnbull who's just ticked every act of Brendan Nelson that was economically irresponsible.

KELLY:

You keep describing Malcolm Turnbull as out of touch. The sub-text, and not very thinly veiled, is clearly that you think he is partly out of touch because of his wealth. You said in Parliament yesterday, here's the man who thinks alcopops is the noise that's made when he uncorks the Moet. What's wrong with being wealthy?

TREASURER:

There's nothing wrong with being wealthy. No, absolutely not, nothing wrong with being wealthy, nothing wrong with earning a quid and doing well in life. The Labor Party and myself in particular support that objective all the way. It's the values and the policies that are then adopted. Malcolm Turnbull at the moment is supporting lower taxation for Porsche drivers but supporting their pension proposal that leaves behind 2.2 million pensioners, and at the same time, is mounting a $20 billion raid on the surplus in the middle of global economic uncertainty. That is the height of economic irresponsibility.

KELLY:

He's also leading a push for your Government to give more money to pensioners?

TREASURER:

He's on both sides of the case now. He's now apparently supporting a $30 rise in the single rate of pension and supporting our comprehensive review of the pensions. I mean, he is all over the place. This was a guy who, during the Budget, couldn't produce one costed policy in his Budget Reply. He said before the Budget that there was no need to cut. He said after the Budget we should have cut harder, and now he's saying we need a smaller surplus. He is consistently inconsistent.

KELLY:

Deputy Liberal Leader, Julie Bishop, describes you as a nervous man. Are you a little more nervous now with Malcolm Turnbull in charge of the Liberal Party?

TREASURER:

No, I'm not worried about Julie Bishop or Malcolm Turnbull. What I'm worried about is the long term national interests of this country and the long term policy settings that we need particularly at a time of global economic uncertainty. And I'm worried about what Julie Bishop and Malcolm Turnbull want to do to the surplus - which is a smash-and-grab of $20 billion - $6 billion on Budget measures and a further $14 billion of additional spending measures all announced in one press conference in 20 minutes yesterday.

KELLY:

And just on that, how are you going in your discussions with Steve Fielding in the Senate over the Luxury Car Tax? Have you made...

TREASURER:

Fran, we're conducting our discussions in good faith. We hope to get a constructive outcome but we'll just have to wait and see.

KELLY:

Wayne Swan, thank you very much for joining us.

TREASURER:

Good to be with you.