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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

11 November 2008

Interview with Ashleigh Gillon

Sky News AM Agenda

11 November 2008

SUBJECTS: G-20 Finance Ministers' Meeting; US President-elect Barack Obama; China's Stimulus Package; Reserve Bank; New Car Plan

GILLON:

Mr Swan, good morning.

TREASURER:

Good morning, Ashleigh.

GILLON:

You've spoken a lot about the need to reform the regulation of international financial institutions. And as we know, the Prime Minister put forward some proposals at a UN meeting in the States last month. In your discussions in this trip so far, what sort of support have you received for those proposals?

TREASURER:

Well, reform is certainly on the agenda. It was fairly and squarely on the agenda down in Brazil over the weekend, and it will be fairly and squarely on the agenda here this weekend when world leaders gather for the G-20 meeting. Because what must be done is first of all, we've got to counter the dramatic slowdown in world growth. And then secondly, what needs to be done is there needs to be agreement on new structures in the financial system that can prevent a repeat of this global financial crisis.

So, as I've held discussions in Brazil over the weekend, then discussions here today, I think there is a determination amongst Finance Ministers, and certainly there will be amongst world leaders, to put forward a plan for coordinated action in the future, to ensure that we can strengthen growth and we can put in place the structures for the future which will prevent a repeat of the sort of events we've seen over the past 18 months.

GILLON:

You mentioned determination at that G-20 meeting in Brazil, but what was the general mood, the feeling there amongst those Finance Ministers? Is the feeling that there is a lot worse to come? That we're going to see the downturn become even more steep?

TREASURER:

Well, certainly the G-20 is the appropriate body to deal with this situation, because it brings together both developed and developing countries. And as we know, there's a marked slowdown in developed countries, and the news emerging from developing countries at this forum was that there is also a marked slowdown occurring in those countries. So, I think there was quite a consensus that we need to see coordinated action across the globe when it comes to fiscal policy, when it comes to monetary policy, and when it comes to dealing with matters such as the Doha trade round, that can strengthen growth in the future and stabilise financial systems in both the developed world and the developing world. And I think there is a consensus around that agenda, and that will be the things that the leaders deal with this weekend in Washington.

Can I also say, Ashleigh, that it's a day for the history books in Washington today. President-elect Barack Obama was at the White House only 30 minutes ago, and I think what that means is there probably couldn't be a more important time to be in Washington, to talk to the new leadership as it prepares for government, but also to talk with all of those that are dealing with the current global financial crisis and put together solutions for the future.

GILLON:

Barack Obama, though, won't be attending the G-20 Leaders' meeting. He's leaving that to his aides. How disappointing is that? Does it undermine the talks?

TREASURER:

No. It's not unexpected at all, because President Bush and his administration are in charge. The handover will not occur until the middle of January. But I believe the Bush administration is determined to work through the G-20 with developed countries and developing countries, to put in place a range of solutions, both short-term and long-term.

But of course it is also important as we go through this process, to make contact with those that will play important roles in the new administration. Because dealing with this global financial crisis is going to take some time. It's going to take a lot of goodwill. And it's going to mean that every citizen in every country, and every government in every country, has got a stake in working together. So, the G-20 meeting this weekend will be an important part of an ongoing process which will, in the end, involve the new administration in solving this crisis for the long-term.

GILLON:

Well, at the meeting this weekend, are you confident that the diplomatic reaction to Mr Rudd will be positive? That the Americans will be forthcoming with the Prime Minister despite this whole controversy over the leaked phone call between him and George W Bush?

TREASURER:

I don't believe that that controversy will have any impact. We are very strong supporters of the American alliance, and we are well received in Washington. I have been engaged in talks with senior US representatives, both in Brazil and here in Washington today. We are having a constructive dialogue and very substantial input into what is occurring.

GILLON:

And none of those people you've been speaking with have raised this issue with you?

TREASURER:

No. Most certainly, I believe both the President and the Prime Minister have absolutely refuted what has been put forward in this so-called controversy.

GILLON:

Okay. Well moving on, China has unveiled an $855 billion stimulus package. How important is it that that package works for the region's economy, and in particular Australia's economic growth?

TREASURER:

Well, I think this is a very good example of what other nations can do to strengthen their economies in the face of the global financial crisis. As you're aware, the Rudd Government put in place a month ago our Economic Security Strategy, which is a pretty strong fiscal stimulus in Australian terms. And it's great to see the Chinese now doing the same, because that will have an impact on confidence around the world, and it certainly will have an impact on the growth prospects for emerging countries in our region, and I believe in the end, flow-on consequences for Australian growth as well. And that was one of the central conclusions that we saw at the conference in Brazil over the weekend - that fiscal policy has a very important role to play in combating the global slowdown in growth.

GILLON:

The Reserve Bank's now forecasting growth to drop to 1.5 per cent in the June 09 quarter. The IMF predicted it would reach 1.8 per cent. Treasury estimates a figure of 2 per cent. Do those different figures represent a conflict? And which forecast do you think is going to be closest to the mark?

TREASURER:

No, Ashleigh, they don't represent a conflict at all. In fact, they are broadly similar. There is a difference in terms of the Reserve Bank and the Treasury forecasts because the Treasury forecasts do take into account a loosening of monetary policy for obvious reasons. The Reserve Bank forecasts do not. And there's not a great difference between the IMF forecast and the Treasury forecast. They are all broadly similar, and they demonstrate the dramatic impact on the Australian economy of the slowdown in the international economy.

And that is why, over a month ago, the Government put in place its Economic Security Strategy to boost growth, and it is also why the Reserve Bank has been dramatically cutting monetary policy, or loosening monetary policy. And what we now have in Australia is a situation where monetary policy and fiscal policy are working in tandem to strengthen our economy.

GILLON:

Well interest rates will almost certainly be slashed again in the coming months. Does that mean the RBA's forecast is unrealistic by not factoring that in? Or is Treasury being overly optimistic...

TREASURER:

No. Not at all.

GILLON:

...by assuming that there will be cuts?

TREASURER:

Well, none of the above. I don't speculate on what the RBA will do in terms of future interest rate decisions, but they have cut interest rates in a space of a couple of months by 200 basis points. That is certainly going to stimulate growth in Australia, just as will our economic security package. And both those things happening in tandem is important for strengthening domestic growth, protecting households and protecting jobs. Because after all, that's what this is about. In the face of a global financial crisis, the Australian Government must do everything that it possibly can to protect households from the impact of this financial crisis, which they did not cause.

GILLON:

Yesterday the Government announced it will spend an extra $3.2 billion to assist the local car industry. Was it premature to announce that package when we're still waiting to see what sort of support the US Government is going to be giving the car parent companies there, and how these companies are even going to survive the financial downturn?

TREASURER:

Not at all, Ashleigh. It's very important for us to put in place these measures to strengthen the local industry and to add to its capacity to innovate and to be globally competitive. We've responded to a report which we requested upon coming to Government – the Bracks review. We have now responded and backed that up with concrete initiatives. We do see a future for the car industry in Australia as part of a competitive global supply chain. And these initiatives will strengthen its capacity to innovate, and it will certainly make our vehicles more fuel efficient. And in doing all of those things, I believe we can strengthen our economy and protect the vital interests for the future.

GILLON:

Won't much of that $6 billion or so that the Government is looking at spending over the next decade flow straight into the American operations of the two big US car giants? And aren't there other priorities in these uncertain times?

TREASURER:

No, that is not the case. What this investment will do is that it requires those companies to make investments in Australia, and in return for those investments, the Australian Government will also be a co-investor. It will not be an investment that goes to the bottom line of those foreign companies in another country.

GILLON:

Well, after the withdrawal of GMAC and GE Money, is the Government considering trying to make it easier somehow for car dealers to get credit? Isn't it important they can fill their showrooms, that you're not just helping the manufacturing clients but also the people that deal with selling the cars?

TREASURER:

Well, it's very important that there is an adequate supply of liquidity and credit in the economy. And the Treasury has been working with those in the financial sector, including our banks, to ensure that there is over time an adequate supply of liquidity, particularly for groups like car dealers. The withdrawal from the market here of some big companies is something that has been going on for some time. We are working with the industry to put in place an adequate flow of credit over time.

GILLON:

Today we're awaiting the New South Wales Mini-Budget. We're expecting a deficit to be announced in the range of a billion dollars. The head of the Future Fund, David Murray, says that it's crucial that New South Wales now lifts its game and stops dragging down the rest of the national economy. Do you agree with him?

TREASURER:

I do think it's important that New South Wales lifts its game. I also think it's important that these matters are dealt with by the Government in New South Wales. And of course, the Government of New South Wales has not been immune from all of these events in the international economy, and there will be flow-on effects to its budget bottom line. But I'm not going to pre-empt the announcements that will be made by the New South Wales Government. We're going to have to wait and see what they are later today.

GILLON:

Do you think Labor's mismanagement though in the State of New South Wales could affect your brand and your economic credibility at a national level?

TREASURER:

Ashleigh, I'm not worried about the political fallout from events in New South Wales, or for that matter, what opinion polls will show about our standing or anybody else's. The bottom line for the Rudd Government in Canberra is to do everything we possibly can to protect our country, our households and our businesses, from the effects of the global financial crisis. That is our sole preoccupation as we go through this very difficult period.

GILLON:

Okay. Well just finally, last week you faced some criticism when you didn't have the inflation outlook figures at hand at the announcement of the MYEFO figures. You went on the attack over Julie Bishop when she stumbled over naming the official cash rate a few weeks ago. What's the difference? Aren't they both pretty important numbers?

TREASURER:

Well, the difference was that I'd misplaced one of my papers. It happens in politics from time to time. I'll have to...

GILLON:

But this wasn't just any paper. This was the inflation outlook.

TREASURER:

I went through the inflation outlook, but I was asked for the forward forecasts. I actually gave the correct inflation number. But these things happen in politics. The most important thing is to get on with the job of putting in place policies which strengthen the economy and protect the Australian people. And I'm not going to be diverted from that by any of these sort of sideshows.

GILLON:

Treasurer Wayne Swan in Washington. Thank you for your time.

TREASURER:

Thank you.