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

9 October 2008

Doorstop Interview

New York Stock Exchange

9 October 2008

SUBJECTS: Global Financial Crisis, G20 Meeting

TREASURER:

Being here in New York at the epicentre of the Global Financial Crisis really underscores the challenges Australia faces. Of course, the key challenge facing Australia is a global challenge and global challenges require global solutions. That’s why I’m pleased to see that there’s been a meeting of the G20 economic ministers called in Washington for Saturday afternoon. It is absolutely critical that we have decisive and coordinated action from G20 countries. The Prime Minister has been arguing for some time, and I’ve been arguing for some time, that we did need to engage the G20 on this vital cause - that is decisive, coordinated, international action, because after all, everyone in Australia has a stake in making sure that these issues are sorted out for the long term and also, in the short term. That’s why the meeting in Washington this Saturday is quite important.

JOURNALIST:

How realistic is it to expect there will be decisive action from Saturday’s meeting?

TREASURER:

Well, I think that it’s important that we all come together and consider these issues, and consider these issues in terms of developed countries and developing countries. That’s the advantage the G20 brings - it brings together the developing countries and developed countries. That has not been the case, because these matters have to date been handled by the G7. What we need is to engage the International Monetary Fund and we also need to engage the G20 so we can get some decisive action.

JOURNALIST:

Have you got a prescription for what should come out of that meeting?

TREASURER:

Well, the Prime Minister outlined at the United Nations a couple of weeks ago the fact that we must first of all implement in full all of the recommendations of the Financial Stability Forum. He also argued the case for there to be better supervision and regulation of internationally important financial institutions. He also argued the case for better capital adequacy and he also argued the case for engaging the G20 in this process so we can get some action. So what I see this weekend in Washington is the beginning of a further attempt to bring together countries on a global basis to put in place long-term and lasting solutions, because from Australia’s point of view, these are big challenges. We’re not immune from the fallout of the global financial crisis, but what we do require is global solutions.

JOURNALIST:

You just took a tour of the trading room floor, what is the mood or feeling down there?

TREASURER:

I think it’s pretty fair to say from the discussions I’ve had this morning with the banking community, and also moving around here at the stock exchange, that people still see a rocky road ahead. There is no doubt that there is substantial fallout, not just in terms of the financial sector, but also in terms of the real economy. What happens here does impact on families right around the world, it certainly impacts on businesses right around the world, including in Australia. That is why it is absolutely vital that we have some decisive and coordinated international action to stabilise the system and to put in place solutions for the long-term.

JOURNALIST:

You met with the CEO a short time ago, what did you take away from those talks?

TREASURER:

Well, I think my talks with the banking community today underscored the need for coordinated, decisive action. As you know, regulators have been engaging and discussing these matters more regularly in recent times, and certainly important institutions like the stock exchange have been exchanging information. So we had a good discussion this morning about some of the challenges that lie ahead.

JOURNALIST:

The OECD has a report on Australia due out tomorrow. On their website they’re flagging better fiscal management as one of the issues they’re going to raise. Does that surprise you and are we looking at the possibility of a mini-budget?

TREASURER:

Well, the IMF has given the Australian economy a very big tick in recent times, and of course we have seen the world economic report that has just come out from the IMF which has predicted or forecast 2 per cent growth for Australia in the current year. So, Australia is travelling pretty well compared to the rest of the world. One of the reasons we’re travelling well is that there has been strong and responsible economic management. What we have to make sure we do both domestically and internationally is the hard yard - the hard yards for reform internationally and domestically to make sure we continue to have strong economic management which meets the economic challenges of the future – and that’s what we’re doing.

JOURNALIST:

So you won’t have a mini-budget?

TREASURER:

What we are doing is putting in place a suite of policies, and we did that during the May budget.  We put in place tax cuts. As you’ve seen we’ve now had decisive action from the Reserve Bank in terms of monetary policy. But there’s a fair bit of flexibility for the Australian Government to respond in the future should conditions change.

JOURNALIST:

The IMF Managing Director did say this morning that countries with scope for fiscal stimulus, as in very large budget surpluses, should be using them at this point. Are you going to be heeding his call?

TREASURER:

I won’t be standing here in New York making announcements about domestic fiscal policy. But it is absolutely the case that Australia is in a strong position and if you were in any country in the world in these circumstances, you would want to be in Australia, because we do have plenty of room to move. But part of that is to continue to have strong and prudent fiscal policy. Our tax cuts are flowing through the system. There has been a substantial easing of monetary policy and on top of that the Prime Minister has outlined an investment program by bringing forth critical investment in infrastructure.

JOURNALIST:

You were taking a look at Westpac stocks when you were down on the floor there. When might the banks pass on the interest rate cut to consumers?

TREASURER:

We’ve made it very clear that we expect the banks to pass on any additional interest rate cut that they have not passed on at the moment when financial conditions normalise. But as you can see here today and you can see in this country, financial positions have not normalised, but in fact the cost of money has continued to go up. What we expect to see from the banks is a full pass through when financial conditions normalise.

JOURNALIST:

That could still be some time away though.

TREASURER:

Well, I am not going to predict when financial conditions will normalise. What I will do and what the Australian Government will do will be to work as hard as we possibly can to do the hard yards to get the international solutions in place so financial conditions do normalise. Because these events are externally induced into the Australian system. The Australian banking system is in good shape. The problem we have experienced has been international - pushing up the borrowing costs.

JOURNALIST:

Mr Swan, are you concerned about the exposure of Australian financial institutions to credit default swaps? What’s your read on that?

TREASURER:

All the advice that I have received from the Australian regulators is that our deposit taking institutions are well capitalised, they are well run and they’re in good shape.

JOURNALIST:

 (inaudible) but the credit (inaudible).

TREASURER:

But our deposit taking institutions are supervised by APRA and I’ve been advised by APRA that our deposit taking institutions are in good shape.

JOURNALIST:

The jobless rate has risen to 4.3 per cent. Is this a trend that we could see and how bad can it get?

TREASURER:

Well as I said before, the global conditions of recent times are slowing world growth. This will certainly have an impact on the Australian economy and growth will slow. The Budget forecast a slight rise in unemployment as a consequence of slowing world growth and high interest rates domestically. Never forget that one of the things that was slowing growth in Australia were ten interest rate rises under the Liberal Party.  We’ve now had a substantial easing of monetary policy by the Reserve Bank and that will certainly assist with domestic growth well into the future.

JOURNALIST:

The US is willing to follow Britain’s lead in re-capitalising American banks. What does that say to you about the extent of this financial crisis?

TREASURER:

Well, there is no doubt that we are looking at a financial upheaval the likes of which has not been seen since the Great Depression. What that means for Australia is that we’re not immune from the fallout of those events. But we are well placed to withstand the fallout. As I’ve said before, we have good fiscal policy in place, the Reserve Bank is easing monetary policy, and that means for Australia that we should continue to grow.