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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

4 November 2008

Interview with Lyndal Curtis

ABC Radio AM Program

4 November 2008

SUBJECTS: Global Financial Crisis; RBA Interest Rate Decision; Housing; Business Investment

CURTIS:

Wayne Swan, welcome to AM.

TREASURER:

Good morning, Lyndal.

CURTIS:

The Prime Minister yesterday added the word “ugly” to his descriptions of what's ahead for the economy. What's happened that's prompted that toughening of language?

TREASURER:

I think basically since September 15 when Lehman Brothers hit the wall in the United States the face of the global financial crisis did turn very ugly. It's taken a nasty turn. And the consequence there can be seen on stock markets. It can be seen in borrowing costs and most particularly it can be seen in terms of slowing world growth. You see, all of the major G7 economies have now experienced negative growth, and we're not immune from that. But of course, if you were to be in any country in the world in these circumstances, the country you would want to be in is Australia.

CURTIS:

But the Australian economy does appear to already have caught the contagion, doesn't it?

TREASURER:

There's no doubt that we've been impacted upon by the global financial crisis. It is slowing growth. There has been very substantial fallout on our share markets, and what it is doing is battering confidence. That's why the Government acted decisively to put in place its Economic Security package – additional assistance to families, pensioners and carers. It's why we moved so swiftly and decisively to put in place our guarantee on bank deposits. It's very important in this environment for the Government to be very active. That's what we've learnt from observing what has happened overseas, and we are absolutely determined to do everything we possibly can to bolster growth in Australia in the face of these international events.

CURTIS:

The Reserve Bank is at unbackable odds to cut interest rates today. Will the size of the cut be a good indicator of how sick the economy is?

TREASURER:

I don't speculate about Reserve Bank decisions. But there's no doubt that families and small businesses would welcome some rate relief on Cup day. There's already been substantial relief in terms of official rate cuts – something like 125 basis points have been passed on. But we'll just have to wait until this afternoon to see what the Reserve Bank does.

CURTIS:

Do the banks have any excuse not to pass the cut on in full?

TREASURER:

We'd certainly like to see the banks pass on any official rate cuts, should that occur, as rapidly as possible. They certainly have passed on the last 125 basis points. It is true that funding costs have been volatile but we'd certainly like to see those costs passed on in full as rapidly as possible.

CURTIS:

What do you say to people who are losing jobs, or worried about losing them, and pulling back on spending precisely at the time you need them to be spending, especially in this critical pre-Christmas period?

TREASURER:

That's why we've put in place our Economic Security Strategy. It's why we're providing additional assistance to pensioners and carers. It's why we're providing additional assistance to families and it's also why we've put in place some additional assistance for first home buyers to bolster the housing sector which of course is a very important part of the national economy.

CURTIS:

How concerned are you about housing, because if people don't buy houses, that has flow-ons because they don't buy the things that go into houses and states don't get the stamp duty revenue they need?

TREASURER:

There's no doubt that housing is being impacted upon by the global financial crisis, but our housing sector in this country is holding up much better than housing sectors in any other country. We still have a shortage of houses in this country. We have an undersupply of housing. We don't have the poor lending standards that have been experienced in the United States and other countries. And arrears rates in this country are nothing like they are elsewhere. And on top of that, monetary policy is much more effective in this country and because of the rate cuts that have been flowing through from the Reserve Bank, that, along with the Economic Security package, will bolster the housing sector.

CURTIS:

Business is also pulling back on the things it will need to grow again, things like investment spending, research and development spending. Will that make the downturn last longer?

TREASURER:

We've seen strong business investment. There's no doubt it will be impacted upon by global conditions. But there is still, Lyndal, a lot of investment in the pipeline and of course, as the Prime Minister has indicated, we do intend to bring forward as much as we possibly and responsibly can, some of our nation building projects when it comes to infrastructure. So, yes, business investment will also take a hit, but we are still there, compared to other countries, in a much stronger position.

CURTIS:

You have said you'd take whatever decisions are necessary to support jobs and growth. What more can you do? Will you look at cuts to business taxes, and what more can you do on the consumer side?

TREASURER:

As the Prime Minister has indicated, we will do everything we possibly can to strengthen our economy. You might recall when we brought down the Budget back in May, we built a very strong surplus because we indicated that international conditions were uncertain. We also determined then to bring forward and implement the tax cuts – something that people criticised us for at the time. And what we say now is that we will keep an eye on these international conditions and we will respond as we are required given the circumstances at the time. And of course, in those circumstances, because these are so unprecedented, every option must remain on the table.

CURTIS:

Are you prepared to go into deficit to fund that if you have to?

TREASURER:

Our forecast will be published in the Mid-Year Fiscal and Economic Outlook, which is going to be out in the next week or so, and they'll be there for everybody to see. But we do expect growth to be positive in the year ahead.

CURTIS:

But is going into deficit one of the options you're prepared to leave on the table?

TREASURER:

We've made it very clear that our policy is to keep the Budget in surplus over the cycle. That remains our policy.

CURTIS:

Politically, the Opposition is thinking now it's got a sniff of possibility about the next election. Will how you've handled this downturn determine your political fortunes?

TREASURER:

We don't approach handling the global financial crisis from any other perspective other than bolstering and protecting the national interest. Frankly, the Opposition is the last thing we think about when we sit down around the Cabinet table and determine what we must do to protect this country and our national interest from the global financial crisis. They are simply irrelevant to those decisions.

CURTIS:

Wayne Swan, thank you very much for your time.