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

15 October 2008

Interview with Lyndal Curtis

AM Program, ABC Radio

15 October 2008

SUBJECTS: Economic Security Strategy

CURTIS:

Wayne Swan, welcome to AM.

TREASURER:

Good morning Lyndal.

CURTIS:

The package you released yesterday was put together quickly and was big. Did the US stock market plunge last Friday and what you were hearing in Washington put the fear of god into you?

TREASURER:

We think that the global financial crisis has entered a new and dangerous phase. That has been coming for the last three weeks. It's pretty fair to say that the dramatic collapse on the stock market at the end of last week was perhaps the most obvious example of this dangerous phase. And of course, as you know we had a very substantial easing of monetary policy by the Reserve Bank a week ago and this boost to strengthen our economy in terms of fiscal policy is necessary because we do believe that growth will slow internationally and there does need to be immediate action taken. Our belief is that the earlier you act, the better. That was the lesson that we learnt from the IMF, World Bank, G20, G7 meetings on the weekend. World leaders resolved to act swiftly, to act decisively and to do so in a coordinated way. That is now happening.

CURTIS:

How will you know if the package you released yesterday is working – creating confidence rather than worrying people?

TREASURER:

The package that we released yesterday is a sizeable package. It's about one per cent of GDP. It is designed to boost demand, to act as a buffer, if you like, to these adverse international events, and it will work in tandem with the easing of monetary policy by the Reserve Bank. So, it is a substantial strengthening of our economy given the ugly turn that events have taken in the international economy. But really it requires governments domestically as well as governments globally to take swift and decisive action.

CURTIS:

Are you confident the package won't push up inflation and reduce the possibility of any further interest rate cuts?

TREASURER:

I think we've now got fiscal policy working in tandem with monetary policy. That's very important to boost demand and to boost growth.

CURTIS:

On the other side, is there a danger this will be a one-off effect and mask for a short time the extent of the downturn?

TREASURER:

Nobody quite knows internationally the extent of the downturn, but the briefing that we received in Washington on the weekend is that growth in advanced economies is around zero and that emerging economies are slowing more markedly than had been previously thought. Those two things combined are certainly a sombre outlook for the future.

CURTIS:

So, do you think that this package will have a lasting effect?

TREASURER:

This is a package which is aimed to give a boost, particularly in the next six months, and it works with monetary policy. The easing of monetary policy by the Reserve Bank will have its biggest effect through the second half of next year. But both these initiatives, I think, will boost growth in the year ahead.

CURTIS:

Because it will be more difficult, won't it, to pull another $10 billion sized rabbit out of a hat given that the surplus is shrinking?

TREASURER:

Well, certainly we will remain comfortably in surplus. We will remain in surplus after this package. As you know, we will publish, through the mid year economic review in a month's time, all of our updated forecasts on the future.

CURTIS:

Is there a chance the budget will go into deficit next financial year?

TREASURER:

I'm not going to speculate about the budget next financial year. What our objective always has been is to keep the budget in surplus over the cycle. We are comfortably in surplus after this package has been delivered.

CURTIS:

Is it a possibility?

TREASURER:

Well, of course we built a very strong surplus to act as a buffer in tough times, and tough times have arrived. But I'm not going to speculate about that. All of our forecasts, Lyndal, will be out there in the mid year economic review delivered in the next month. But I think the one thing that Australians can take comfort from is that we are in a better position than just about any other country in the world in these circumstances and we want to make sure that we take every possible step to strengthen our economy, given the turn of events internationally.

CURTIS:

From what you're already hearing from Treasury, will growth still have a one in front of it?

TREASURER:

Well, as I said, Lyndal, all of our forecasts will be published in the mid year economic review.

CURTIS:

Would we have been going into a recession without this $10 billion package?

TREASURER:

I think that sort of talk is not responsible. What we're aiming to do, given this turn in the international economy, is to strengthen our economy to the maximum possible extent and to keep it growing. That's what we're doing.

CURTIS:

You and the Prime Minister are confident that the downturn won't mean you have to delay or re-prioritise budget or election spending. Wouldn't it be prudent to start thinking about what might have to be put on the backburner given the seriousness of what we're hearing from the United States?

TREASURER:

Our program that we took to the election and that we implemented through our May Budget is a responsible program which does invest in the future. It invests in expanding our productive capacity, it invests in education, it invests in infrastructure. All of that is also critical for long-term growth, and that will proceed.

CURTIS:

Wayne Swan, thank you very much for your time.

TREASURER:

Good to be with you.