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

15 October 2008

Interview with Alan Jones

Radio 2GB
Sydney

15 October 2008

SUBJECTS: Economic Security Strategy

JONES:

Kevin Rudd's announced it, and Wayne Swan, this $10.4 billion package to stimulate spending. The Treasurer's on the line, Treasurer, good morning.

TREASURER:

Good morning, Alan.

JONES:

Good to talk to you. Thank you for your time. Well you've had some tough times. I just wonder whether, firstly I would ask this question, are these one off payments?

TREASURER:

Yes, they are.

JONES:

So, there was a date mentioned in the statement?

TREASURER:

The 8th of December.

JONES:

For payment, right, and then June next year?

TREASURER:

Well, as they run out, well they go through to June next year, but June next year is when the new financial year begins. That's all. So for accounting purposes, therefore, this nine month period basically.

JONES:

So, the carers get $1,000. Congratulations by the way. The carers provide $30 billion worth of unpaid care every year.

TREASURER:

And do it tough.

JONES:

And do it tough, and they'll get $1,000 for each person in their care. Now, the First Homebuyers Grant, you mentioned that ends on the 30th of June?

TREASURER:

That's right, for contracts entered into by the 30th of June.

JONES:

Right, and that won't be reinstated after the 30th of June?

TREASURER:

No, no, this is to give an immediate boost to what we all know is a pretty flat housing market in terms of those that are buying established homes or, necessarily, building new homes.

JONES:

So I just want to, so it's a one-off payment and it won't affect anything you're likely to do in the Budget? So the single pensioners, the self-funded retirees, the carers and the families on Family Tax Benefit A, will get this by December 8?

TREASURER:

Yes, the other thing Alan is that it's not a substitute for long-term reform of the pension system which we committed to in the Budget. So, we will also be coming forward in the Budget with our long-term proposals for reform to the pension system. But this is an immediate boost. We recognised in the last Budget that we would have liked to have done more but we didn't think the overall economic conditions at that stage would permit it. But of course, as you know, world growth is now slowing markedly, advanced economies have zero or little growth, emerging economies are now going to grow much more slowly. There's a real shock in the system and that certainly justifies, in economic terms, a boost to the economy and when we felt in the position to do that, pensioners were the first people we thought of.

JONES:

Okay now, coming back to that First Homeowners grant. So it will double to $14,000 and triple for a new constructed home. That will have to be entered into between now and the 30th of June 2009 and on the 30th of June 2009 that'll be taken off.

TREASURER:

Yes, it'll revert to the normal grant.

JONES:

Which is the $7,000. Now I'm just wondering in all of this, given I'm talking about New South Wales I suppose now, that's true in other parts of the State but not as bad as it is here, don't you worry that this First Homeowners Grant will be inflationary? I mean they aren't building houses in New South Wales. We'll have people queuing up for a limited number of houses, jack up the price of houses and that is the very inflationary issue that you're seeking to address.

TREASURER:

Oh, well there's a couple of issues here. I think the market is so flat that it will give a boost to it. I don't expect it to be inflationary and also, bear in mind, Alan, that 100 basis point cut from the Reserve Bank is also an important move which will help to stimulate…

JONES:

Yes.

TREASURER:

Particularly the New South Wales economy across the board, because higher rates have been felt more in New South Wales simply because of the cost of housing in New South Wales compared to the rest of the country.

JONES:

But if I was to be critical of the Prime Minister yesterday, I thought it was the emphasis on this business that times are tough. Now you know yourself because you've been briefed by everybody. I mean, we're not short of money. I mean, the banks have got money, the superannuation funds have got money, basically we're short of trust in those people to whom the money is being lent and so money is going to be dearer and tighter. If times are tough Treasurer, mightn't these people just button up their pockets and shove it in their pockets and save it?

TREASURER:

Well, the people that we're giving it to are those who have got the greatest propensity to spend it because, as you just indicated, pensioners are doing it really tough and I think that just getting the basics of life has been a real struggle for them and, of course, this has been particularly the case with the price of oil and the same for families. So, we've actually delivered the increase in the area where we think it is more likely to be spent by people who've been under a lot of financial pressure. But just on the general point, Alan, the world changed in the last three weeks. A very dramatic change, and you're right, there's no trust left in the financial system internationally which is why governments around the world are moving to rebuild that trust. Fortunately here we still have that trust because our financial system is in a much healthier state. The problem we've had is that what's going on in the rest of the world is pushing up the cost of borrowing money and that's why we had to move with our guarantee on the banks.

JONES:

Just talking about the guarantee on the banks and that was the correct thing to do. You had no choice. It doesn't mean to say that our banks were unstable.

TREASURER:

No, they weren't.

JONES:

But they would have been taking deposits and everything out and pushing them into other banks and so..

TREASURER:

Worse than that, worse than that, they would have found it very hard to borrow on international financial markets.

JONES:

Because the money wasn't guaranteed.

TREASURER:

Which is pushing up the cost of money.

JONES:

Just on that on that issue, because the guarantee exists with the banks, how do you then control some of the reckless behaviour of banks, which you are familiar with even at the kitchen table level. I mean, there's young people getting credit cards when they've got no credit-worthiness. There's people getting 114 per cent housing loans.

TREASURER:

Can I just take you through a bit of that? In fact, I would like to come back on the program at some stage.

JONES:

You're welcome any time.

TREASURER:

And go through that in more detail. We've already had in planning for some time reform of national credit laws. They haven't been national to this date. So that reform came through the COAG process. So where there has been lax lending, we're going to put in a stricter profile. Fortunately through APRA and our deposit taking institutions when it comes to home loans we haven't had the same sub-prime problem. There is one at the fringes but it is not of the magnitude of anything that's been seen elsewhere in the world and that's because our regulators have been much better here on this question for a lot longer. So our system's been in much better nick but we haven't been able to escape the volatility of what's gone on in financial markets and stock markets and money markets because of events elsewhere. We're now suffering from the fall-out from that and that's why need to use all the levers available to us – the easing of monetary policy through the Reserve Bank and now the use of our Budget surplus – as a buffer against these events.

JONES:

Well, talking about fallout in Reserve Banks, you must be worried that only a couple of weeks ago our dollar against the US dollar was about 98 US cents. It's now about 70. That's increased the price of imports by about 30 per cent. So people putting together Christmas orders and so on are going to have to pay 30 per cent more for their goods than otherwise would have been the case. That's got to be passed on. That is phenomenally inflationary. Given that the first instrument of the Reserve Bank, its first obligation, is to maintain the stability of the currency, has the Reserve Bank taken its eye off the ball?

TREASURER:

No, I don't believe so and its first obligation, actually, is the stability of the financial system in total. That is its first obligation. That's its charter and it makes its decision with that in mind. I don't speculate on the dollar for market reasons, Alan.

JONES:

But take it as it is 70 today, 98 a month ago, if we buy at 70 now and pay at 70, we're paying 30 per cent more than we would have a month ago. That's inflationary.

TREASURER:

You've been observing it for a while. The dollar at 90 or almost close to parity with the US was the exception rather than the rule. So you might make the observation that it was very, very high. But I don't speculate about it, a lower dollar means other things in the economy. It means our tourism industry is much more competitive. It means all our export industries are much more competitive, so it's not a one way street in terms of its impact, but it does have some impact. That's right, on domestic prices but the Government takes that into account…

JONES:

Let me just ask you one other thing, because you're short of time and so are we. What about this gilding the lily, and I like the phrase. In other words, it's very important that the Prime Minister's saying and you're saying, we don't make things look better than they are. That's what gilding the lily means. But doesn't an Australian political leader shortly have to tell voters that we can't keep being more spendthrift than say Americans? I mean, 42 per cent of Australian families are getting more welfare than they pay in tax. So what we've now got in our economy, not your fault or anyone's fault, this is a reality you have to address. We now have the expectation that we, the taxpayer, will pay for people to have babies. We'll pay them for maternity leave. We'll pay for their child care. We'll pay for their health. We'll pay for their university education and we'll pay the deposit on their homes. Now, that can't go on. Who's going to, if times are tough as the Prime Minister says, who's going to say to people 'listen I'm sorry, the gravy train has come to its destination'.

TREASURER:

First of all, Alan, you've got to have fiscal responsibility and this Government's committed to it. It's committed to running surpluses on average over the cycle. It's committed to getting the best value we possibly can from every dollar we spend. That's very important but can I just make one other point when you talk about welfare, I'm a strong defender of the family payments system for kids, because really parents out there that are bringing up young ones are bringing up the next generation of Australians who…

JONES:

What did your parents do?

TREASURER:

They struggled a lot to bring up…

JONES:

Yeah, but they didn't do too badly did they?

TREASURER:

It's a different world.

JONES:

They bought the Nambour High boy to the Treasurers…

TREASURER:

I'll tell you what happened then Alan. My mum didn't work and dad did and they could get by on what was then a basic wage. It's a lot harder these days.

JONES:

Well, they didn't have a plasma TV in every room did they?

TREASURER:

No they didn't, and we didn't get one until…

JONES:

That's the difference, though, isn't it?

TREASURER:

It is…

JONES:

Don't we have to re-orient the psychology of the nation?

TREASURER:

Well, our view is that we've got to, as a nation, lift the productive capacity of the nation. That means a fair bit of investment in things like education and infrastructure and so on and that's our priority for the long term. But we're never going to forget people on modest incomes and many of the people who get family payments are on modest incomes and it isn't possible to actually buy a basic home and bring up kids on a very basic income these days and most families have to have one or one and half incomes just to do the basics of life before you get to all those other things you're talking about. There are a lot of people who've done well and can afford all those things but there's a great bulk of people out there, whether they're pensioners who are surviving solely on the aged pension…

JONES:

Yeah, we don't object to them but it's hard to believe that 42 per cent of Australian families are getting more in welfare than they are paying in tax.

TREASURER:

I don't see it as welfare. When I was a kid and you were a kid Alan, it was child endowment and it still is in my mind.

JONES:

Yeah, but that's just not all is it? But that's a debate for another day. Can I make two points with you. I mean, all this talk about how difficult things are. Although the all ords has fallen to just under 4,000, as recently as 2003 the all ords averaged about 3,000 and even taking Friday's close into account, which was Friday's best, into account, the all ordinaries index is still 33 per cent higher than it was in 2000. We've got to be careful, while telling them how tough it is that we don't really present a picture of doom. We want people to roll up their sleeves and be positive don't we?

TREASURER:

Oh, we do and we're in a better position than most other countries, but the problem isn't just what's happening on the share market.

JONES:
No, that's it.

TREASURER:

The real problem here is in the financial markets where credit has been choked.

JONES:

Mightn't be a bad thing though.

TREASURER:

Well, not if it shuts down a large part of the economy Alan.

JONES:

No, not entirely, not quite.

TREASURER:

And that's what we're trying to do,

JONES:

I agree.

TREASURER:

We're trying to get through this temporary phase so financial markets are repaired and don't endanger so much of the productive capacity of the economy and that's why we acted early.

JONES:

Okay, one final thing. The International Monetary Fund said last week that allowing banking takeovers will lead to excessive power being concentrated in too few institutions. I know you're going to say I can't answer the question. So are you going to allow Westpac to take over St George and the Commonwealth Bank to take over BankWest?

TREASURER:

I can't speculate on those decisions that are before me but let me make this point and I've said it a lot…

JONES:

Ah, Nambour blokes have a bit of guts. Come on! Sorry, get into it!

TREASURER:

I want a competitive market and that's one of the reasons we've put that initiative out there to provide some back up support for the non-bank lenders and the smaller tier banks and we've just doubled that in the recent package.

JONES:

Okay, good to talk to you. You're welcome any time.

TREASURER:

Good to talk to you. Thank you.

JONES:

Wayne Swan, the Treasurer.