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

12 October 2008

Interview with Barrie Cassidy

ABC TV Insiders Program

12 October 2008

SUBJECTS: Global Financial Crisis, G20 Finance Ministers' Meeting, Economic Growth, Unemployment, IMF Meeting, Financial Claims Scheme, Australian Banking System, Stock Markets, Superannuation, Pensions, Interest Rates, Budget, Climate Change

CASSIDY:     

Treasurer, good morning and welcome.  You've already said that decisive, coordinated action is needed.  Do you get a sense that the mood is there for doing just that?

TREASURER:          

I certainly do, Barrie.  The mood here is sombre but it's also determined.  I've just come from the IMF meeting and there is a determination for there to be coordinated action and, as you know, I've yet to attend later this evening the meeting of the G20 Finance Ministers.  But the G7, the IMF and I expect the G20 Finance Ministers are all singing from the same song sheet.

CASSIDY:     

They may be singing from the same song sheet but which one is the most significant group?  Which one should we be looking to for direction?

TREASURER:          

I think we need all of these bodies to be working in tandem.  From our perspective the G20 is very important because it brings together both developed and developing countries, but the IMF is important as well.  It has a broader representation.  So, I'd like to see this being driven by the G20 Finance Ministers.  And I think there is also a role for the G7, because what we're dealing with is really a crisis of immediate proportions, plus we also have the need for long-term reform. 

I guess the thing that I've taken out of the meeting here is that the global financial crisis has entered a new phase.  It's a new damaging phase which is producing increased borrowing costs, a contraction in credit, and it is now beginning to enter the real economy.  And the consequence of that was a very sombre assessment from the Chief Economist of the IMF this morning – zero growth for developed countries and, of course, slowing growth for emerging countries.  Much slower than anybody had anticipated up until now.

CASSIDY:     

And based on that, do you revise the growth prospects in Australia?

TREASURER:          

There's no doubt that these recent events will have an impact on Australian growth.  It's too early to tell by how much.  But I gathered from the mood of the room today that many people anticipate that the events of the last couple of weeks which have been so damaging for confidence and which have been impacting so dramatically on share markets, will further slow growth and that, in time, we will see those forecasts adjusted down.  And that's terribly important to understand, because what we've got out there now is an external shock which will impact around the world, including on the Australian economy.

CASSIDY:     

So, a growth rate in Australia to zero?

TREASURER:          

All of our advice at the moment, Barrie, is that we will continue to grow, because if you were to be in any country in the world at the moment in these circumstances, you would want to be in Australia.  But we are not immune and it certainly will have a further impact on Australian growth.

CASSIDY:

Well, you say the mood is sombre, so the situation is likely to get worse before it get's better?   

TREASURER:          

Well, certainly there's an expectation that the events of the last couple of weeks have been fundamentally damaging to confidence and that these impacts are now spreading particularly to emerging economies and, of course, it has been emerging economies that have been the source of so much strong growth throughout the world in recent years and, of course, that will have an impact upon Australia.  The one bright spot still, I think, that people see is they do expect Chinese growth to still – be lower – but relatively strong.

CASSIDY:     

But China does seem to be feeling the pinch just the same.

TREASURER:          

Certainly these events are dramatic.  And as I said before, there will be an impact upon growth.  You've seen the evidence of that in the way in which stock markets have been affected.  That has a flow-on to consumer confidence.  It has a flow-on to business confidence.  All of those things affect growth and all of those things affect government budgets. 

CASSIDY:     

And inevitably, unemployment will go up?

TREASURER:          

Well, certainly we forecast in the last Budget a slight increase in unemployment and, of course, I would think that would be adjusted up when we see the full consequences of what's occurred, but too early to say by how much at this stage, Barrie.           

CASSIDY:     

And you talk about the need for confidence, the Central Bank initiatives taken so far, they don't seem to be working, they don't seem to have made a lot of difference.

TREASURER:          

I think they are – and will continue to – have an impact, but they do need to be complemented, they do need to be complemented across the globe by further initiatives to strengthen the financial system, particularly the banking system.  But one of the other conclusions that came through very strongly at the IMF today was that there is also a strong role for fiscal policy, for fiscal stimulus, and certainly a number of nations will be considering that, as well as other direct interventions into their economies.

CASSIDY:     

And how does that apply to Australia?  What's the lesson there for Australia?

TREASURER:          

I think the lesson here for Australia is that we’ve started this episode in pretty good shape and, of course, we have the flexibility to respond to these circumstances because we have a very significant budget surplus.  Back in May, Barrie, we anticipated that events in the global economy could take a turn for the worse so we built in flexibility in our Budget to respond and, of course, any responsible government will take all of these matters into account and respond as appropriate.

CASSIDY:     

But when you talk about a fiscal stimulus, what do you mean?  What is available to Australia?

TREASURER:          

Barrie, what I'm talking about is globally here, there are many international governments that are looking to stimulate their economies, they're looking to use budgetary policy, they're also looking to use monetary policy.  And, as you're aware, we had that significant decision from the Reserve Bank in terms of monetary policy, and there is still significant room to move there, but we also do have the capacity, should we deem it necessary, to provide some stimulus to the economy.  But it's too early to predict by how much and when.           

CASSIDY:     

Now, governments around the world are starting to guarantee bank deposits to at least $100,000, and it does seem Australia is set to follow suit?

TREASURER:          

Well Barrie, we are looking at broadening that scheme, and that's one of the things that I've been looking at here both in New York and in Washington because there are governments around the world that have taken particular initiatives.  I've had a look at those initiatives and I'm providing feedback to the Government on that, and we expect to finalise those deliberations in the near future.

CASSIDY:     

Malcolm Turnbull has suggested you can go to $100,000.  Does that figure sound right?

TREASURER:          

Well Barrie, Malcolm Turnbull is a member of the Liberal Party that had such a scheme recommended to it in 2003, which was an outcome of the HIH Royal Commission.  We are looking at broadening the scheme and we are getting feedback on what's occurring elsewhere in the world because we can't operate separately from the rest of the world.  We have to have a scheme which is broadly compatible with the rest of the world, and that's what I've been providing the feedback on.

CASSIDY:

Now, you say don’t panic, but we’re going to guarantee your bank deposits.  It does seem to be a mixed message.

TREASURER:          

Barrie, our banking system is well-capitalised and deposits in that system are safe.  We have depositor preference and we also have this scheme which will be finalised in the near future.  Our banking system is vastly different from banking systems elsewhere in the world and what has happened to them.  But what we have to do is to have an eye on strengthening those systems, and really, Barrie, that’s what we’ve been doing from the beginning of this year and that’s why we decided early this year to strengthen and put in place a financial claims scheme.

CASSIDY:     

So, what are you saying, that even though you’re putting this scheme into place, you don’t expect that you’ll ever need to put those guarantees into effect?

TREASURER:          

No, I don’t expect we’ll need to put those into effect at all, Barrie.  I certainly don’t expect that.  But one of the recommendations of the Financial Stability Forum which the Government received in April this year was to establish a Financial Claims Scheme.  There are only two countries in the OECD at that stage that didn’t have one, so we took that recommendation seriously and have been progressing it.

CASSIDY:     

Now, here in Australia the impact hit with a real thud on Friday of course when the stock market crashed.  You keep saying that Australia is travelling well compared with the rest of the world.  But that suddenly sounded a whole lot less convincing after Friday.

TREASURER:          

Well, the impact on stock markets was significant.  Our stock market is down significantly in one week and so is the US stock market.  And unfortunately, that does have a significant impact particularly on many people who are retired or about to retire.  All that demonstrates is we have to take every step we possibly can to strengthen our economy in these circumstances.

CASSIDY:     

But superannuation, of course, is supposed to guarantee income in retirement.  Can people ever again trust a system that relies so heavily on the stock market?

TREASURER:          

Barrie, I think there are swings and roundabouts.  We happen to be involved in an episode which is perhaps the most significant episode since the Great Depression.  But superannuation is a long-term investment.  What we’ve got to concentrate on is the things that we can control, and that’s what we’ve been doing.  We can do that by fiscal policy, we can do it by monetary policy and we can do it by other interventions if necessary.

CASSIDY:     

It has been suggested here that one intervention could be that the Government buys stock on the share market to restore some confidence.  They say you need stability, you need some buying – nobody’s buying – perhaps the Federal Government can.

TREASURER:          

I think the suggestion is that we buy shares in financial companies and particularly banks.  But Barrie, our banks are well-capitalised and our banks are very profitable.  So, I don’t think that particular suggestion will necessarily be one that we will be following through on.  But in these times, we have every suggestion on the table because, Barrie, these are extraordinary times.

CASSIDY:     

Now, it seems that everybody agrees that pensioners need help but their incomes have remained stable at least while the incomes of self-funded retirees have gone backwards.  Can you improve the lot of pensions and pensioners while ignoring the hit that self-funded retirees have taken?

TREASURER:          

We certainly won’t be ignoring the hit that they’ve taken on the stock market.  There are significant issues involved here, Barrie.  We’ve indicated that we will deal with those issues and we will deal with them through the Harmer process.  As the Prime Minister indicated yesterday, we will do that in the Budget process, and that’s what we’ll do.

CASSIDY:     

Does that include self-funded retirees as well as pensioners?

TREASURER:          

Barrie, the Harmer process is looking at retirement incomes across the board.  But I’m not going to pre-empt what it may say to us or what the Government may or may not do.  We’ve said we’ll deal with it in the Budget context, and that’s what we’ll do.

CASSIDY:     

Now, on homebuyers or homeowners, imagine if you brought a house in Sydney’s west and your mortgage is now worth more than your house and suddenly your job is not as secure as it once was.  It’s a terrible situation to be in.

TREASURER:          

It certainly is and that’s why getting interest rates down is so important.  That’s why that Reserve Bank decision a week or so ago was so important, because 10 interest rate rises in a row under the Liberals had a very, very big impact in Western Sydney.  And that’s why an easing of monetary policy really helps people out there in places like Western Sydney, and I would hope over time, we could see some more relief there.  And that’s also, Barrie, why we put in place the tax cuts last May, when many people were advising us not to deliver those tax cuts.  Well Barrie, those tax cuts are arriving precisely at the right time.

CASSIDY:     

Given what has happened in recent months – and it’s still moving very, very quickly – can you keep all of your spending commitments that you had in the last Budget or is it time to go back and put everything on the table?

TREASURER:          

Barrie, in a situation like this we will put everything on the table because our bottom line is responsible economic management.  But all of our promises were affordable and I believe that we have implemented them in line with our election commitments.  But any prudent government will look at our current situation, assess what we do next given the global shock, and then announce those decisions in good time.  But I don’t foresee us in any way needing to move away from any of those important election commitments that we gave and have implemented.

CASSIDY:     

And that prudent approach, does that include taking another look at climate change and the timetable that you’ve put in place there?

TREASURER:          

I’m not going to speculate about that.  We’ve got a Green Paper out there, Barrie.  The White Paper is yet to come.  That’s a very significant issue for the long-term as well.  We’ll deal with it in a measured way. But beyond that, I don’t intend to speculate.

CASSIDY:     

But you would keep an eye on what other governments are doing, too, wouldn’t you, because the mood just might change very quickly, given that this is going to be an economically damaging initiative?   

TREASURER:          

Barrie, as you are aware, we need to act locally and we also need to act globally.  Both of those aims have been on our agenda from day one and nothing has changed.

CASSIDY:     

Malcolm Turnbull has talked about delaying it for 12 months or so.  You wouldn’t rule that out?

TREASURER:          

Well, Malcolm Turnbull’s become a climate change sceptic.  He used to behave like he believed in doing something about climate change.  We’re serious about it.  We’ve got a measured approach to dealing with it, but we are committed to dealing with it for the long-term economic and environmental health of the country.

CASSIDY:     

But based on the talks you’ve had so far, is it your fear that there will be less enthusiasm at Copenhagen for measures that will, I suppose, further damage the economies in one respect?

TREASURER:          

Well Barrie, at the moment the global community is immediately focused on the fallout of the global financial crisis so I haven’t been having discussions about climate change.  But as we move through and put in place solutions and take decisive action, the broader agenda will still be there and will have to be addressed.

CASSIDY:     

Treasurer, thanks for your time this morning.  Appreciate it.

TREASURER:          

Good to be with you.