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

30 September 2008

Interview with Greg Cary

Radio 4BC, Brisbane

30 September 2008

SUBJECTS: US Financial Crisis; Interest Rates; Paid Maternity Leave

CARY:

Wayne Swan, good morning.

TREASURER:

Good morning, Greg. How are you going?

CARY:

Let's say we might live in interesting times. I think it's a Chinese curse, isn't it? A couple of things we need to deal with today, I guess. Obviously the meltdown in the United States, ramifications here etc, then we'll get into maternity leave.

TREASURER:

Sure.

CARY:

Your initial observations on what happened in the United States overnight and what happens next?

TREASURER:

Well, certainly a disappointing decision in the United States overnight and I certainly hope that the package is recommitted back through the Congress as soon as possible, because I think it is true that, not only the United States, but the globe does demand some substantial action to put a floor and stability back into the world financial system because when the system is as unstable as it is now, then the fallout impacts around the world, and of course, we're not immune from that here. But the one thing that makes me so pleased to be an Australian is that if there was any country in the world you wanted to be in in these circumstances, it is of course Australia.

CARY:

That's true but there will obviously be an impact here. Most people will be impacted either in terms of mortgages, interest rates, superannuation, self-funded retirees, all kinds of people. I see the share market is open almost four per cent down today. What's your thinking there?

TREASURER:

Greg, these things have been happening for some time. These events first commenced in August last year and we have been living with the fallout of these events in terms of confidence, in terms of stock markets, in terms of slowing in the world economy for most of that period. But the thing is that these events don't change the fundamental stability of the Australian banking system. We've all got to remember that. Our banks are in good shape. Our banks are in good shape and that's one of the strengths that we have. We also have many other strengths. We have a strong Budget surplus. We still have very good prices for our commodities. We still have strong business investment. So, we're not immune, but the underlying strengths have to be highlighted here. We do need to keep this in perspective. But of course, households do feel the impact over time and many of those people close to retirement or in retirement are affected.

CARY:

How do you think long-term, though? Let's start in the short-term. How will Australia be affected, and maybe to the medium-long term? How does it impact on you, as a Government, doing the kinds of things that you might otherwise like to be doing?

TREASURER:

Way back at the beginning of the year both the Prime Minister and I became aware of how serious these events were in the United States and we began taking the steps then to do everything we could to further strengthen our economy and to further strengthen our financial system. The reason we came down with the settings we did in the Budget in May was that we were acutely aware, following visits to the United States in April, that these events had some way to go. So, we decided, for example, to deliver the tax cuts. We thought that was important. Households were under pressure because of 10 interest rate rises in a row under the previous Government and then further pressure on rates. We were acutely aware that these events would impact on stock markets and confidence around the world. So, we had our Budget settings which recognised the countervailing forces on the Australian economy and, of course, they've now played out substantially in the international economy.

CARY:

What do you think they need to be doing in the United States? They seem, in the Congress, to have taken the attitude that the average Joe, as I heard one Congressman say, didn't want Wall Street to be bailed out for their losses. How do you think they are going to get this thing together and change that kind of attitude?

TREASURER:

Well, first of all, there has been a very big problem in the financial system in the United States and many people at the top end have made a lot of money and now many other people are suffering the misfortune of some of that greed. That is the case. But it shouldn't blind us to the need to put in place an enduring solution to these problems so that the average person in the street doesn't continue to suffer from these sorts of activities. So, that means in the United States, substantial reform of regulation. They've recognised that now, but it also means very big reforms in the international system.

Both the Prime Minister and I have been very active internationally through the G20 and the G8 pushing other countries to come together so we can put in place an international system which means that these sorts of systems don't spread such as they have around the world and impact on hard working people in countries like ours who, in the end, pay some of the price for the greed of some of these people and the lax regulation in other countries.

CARY:

Exactly. Just on to interest rates for a moment. I think this time next week the Reserve Bank will reassess those and most have been predicting a fall, maybe a quarter of a per cent, maybe a half a per cent, and some are now predicting that even should the Reserve Bank say that, that the banks will then say, we won't have the liquidity to pass that on. What are you hearing on that?

TREASURER:

As you know, I was very insistent that the banks pass on any official rate cut in full last time because when borrowing costs go down, rates should follow, and the banks did on that occasion pass them through, as they should have. I made a very strong case - you and I have discussed that many times - and I also talked about the need to get a lot more competition in our banking system, about a bank-switching package. And the other thing that I talked about was other measures to put more competition into the system and, as you know Greg, I announced further measures last Friday to assist the smaller banks and the non-bank lenders to compete in the market.

Now, of course, what we've got here is a substantial event in world financial markets that is pushing up rates around the world and, of course, that will impact here.

I think the banks would want to have a very good case to demonstrate to the Australian people if they were not intending to pass on any particular cut in the cash rate from the Reserve Bank. But as you know, I don't speculate about future Reserve Bank decisions.

CARY:

So, they'd need a good argument but you'd be more understanding this time around...

TREASURER:

I'm not speculating about future decisions. But let me make this point: that in the normal course of events a Reserve Bank rate cut is one that should be passed on by the banks. In the situation we're in at the moment, it is much more complicated and if the banks think that they don't have to necessarily pass on that official rate cut, they'll want to put forward a very good case for that decision.

CARY:

Okay. On maternity leave - I know you're busy this morning so we won't keep you too long - if I could just put you a thought from Darren, which was replicated by Stephen and various others and I think various academics yesterday and the Australian Industry Group related to maternity leave. (inaudible) writes, "I find it ludicrous that employers or taxpayers have to pay for someone else's decision to have a child". That, in simple terms, is probably what a lot of people might be saying. How do you respond to that?

TREASURER:

Pretty simply, Greg. We've all got a stake in the birth of a child in this society. Young children grow up to become taxpayers and are a vital part of our society. I think we've all got an interest in ensuring that couples bring up the next generation of young Australians so oldies like you and I can be supported in our retirement. So, I think we've all got a stake in the birth of a child. It's something that's very fundamental to a society. The birth of a young child is something that's very special and they grow up to become young adults, they become a vibrant part of our society and they become the workers of tomorrow. And of course, the central question here is how do we have more family friendly workplaces, given that the demands of the economy and the ageing of the population mean that we need more people in our workforce.

CARY:

As you know, though, I understand that point, but you understand the argument of many of our listeners, plenty have come from a time when there was very little government support, often times no government support for this kind of thing. So, they will argue, what has changed that people still can't...

TREASURER:

The answer, Greg, is a hell of a lot because when I grew up, Mum stopped home and Dad went to work and he got the basic wage and that was enough for a family to survive on. These days in most households, both parents need to work.

CARY:

Do they need to work or are they making a choice to work to fund the kinds of things...

TREASURER:

If you're on a modest income and you want to put a roof over your head and you want to give your kids a good education, then generally you need maybe not two incomes, maybe one and a half, one and a quarter, one and three quarters. So, the reality of modern society is that both parents are working, and we've all got a stake in ensuring that kids are brought up in the best possible circumstances. And the thing about paid maternity leave is that it encourages mum particularly, but also dad to some extent, to spend longer after the baby is born nurturing that young child. And as we all know from the research nothing is more important to the progress of a child's life than the care, the love and good parenting they receive in the first few months of that life.

CARY:

Stephen, another Stephen, makes the point - and he's an employer of 30 casual employees - and he's wondering why he should be asked to pay the superannuation at a time when he's going to have to get fill-in casuals for those he's lost on...

TREASURER:

The thing is what we've had out there in recent years in Australia is endemic labour shortages, and that's going to happen in this country for a long time to come irrespective of how the economic cycle moves around because we've got an ageing population. We've got less young workers coming through. The country's got very much an interest, and all employers have got very much an interest, in conditions which encourage people to participate in the labour market. And that's where paid maternity leave really fits in. It's a very important measure to enhance labour force participation; very important for the economy in the long-term given the ageing of the population. But more importantly than that, it's very important to society that mum and young bub get time together in the first few weeks of life, and for many families that's not possible.

CARY:

That's quite right. I think most of us would appreciate the philosophy of that but I'm not sure that Steve, listening to us now, would necessarily cop that on the chin.

TREASURER:

No, I understand that.

CARY:

He's paying for that, isn't he? He's paying for that at a time when he's making less profit.

TREASURER:

The fact is if he can't get workers in the next 20 years that'll be a problem for him as well.

CARY:

No, he'll get workers.

TREASURER:

No, you won't necessarily. I mean, this is the point. We've got an ageing population. We've all got an interest in ensuring that Australians are working in Australian jobs. We've all got an interest in ensuring that families are healthy and have family friendly working conditions. So, those two things happily do coincide in something like paid maternity leave.

CARY:

Okay. Finally, a similar kind of problem the Australian Industry Group, just on the point of employment, they're saying that in a tighter employment market the measure could backfire, providing a disincentive for businesses to hire women of child-bearing age knowing they're going to lose them.

TREASURER:

That is one of the arguments. I'm not going to buy into the individual detail of this draft report because the Government is yet to take decisions about where it is going in detail on this. But I would've thought that industry would be generally pretty happy with the model that has been put forward by the Productivity Commission, because overseas these types of measures are paid for almost entirely by the employer. Here, the proposal is for it to be met by the taxpayer.

CARY:

You've got plenty on. Good luck today. Are you going to be talking to your counterpart, by the way, in the United States?

TREASURER:

I have been talking to my counterpart in the United States. The first conversation I actually ever had with him was on the 1st January this year when the second iteration of this crisis actually began. He's a pretty busy bloke at the moment and probably hasn't slept for the last three or four days. But I'm talking to a number of important people in the Administration pretty regularly in the US, as indeed Greg, I'm talking to our regulators here all of the time.

CARY:

You have confidence that they will sort this out in the near future?

TREASURER:

I'm very hopeful that they will sort it out in the near future, yes.

CARY:

Treasurer, Wayne Swan, good to talk to you.

TREASURER:

Thanks, Greg.