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

27 November 2008

Interview with Greg Cary

Radio 4BC, Brisbane

27 November 2008

SUBJECTS: Deficit, Global Financial Crisis

CARY:

Now for the first time you are acknowledging the possibility of a deficit. Why has it taken so long to get around to that? Why did you avoid wanting to mention that?

TREASURER:

The first point is that deficit is not necessary now because we are projecting in our mid-year review modest growth and modest surpluses.  But what’s occurred particularly in the last three weeks or so is there has been a further marked slowdown in the international economy caused by the global financial crisis, and you can see that in a change in estimates which have come from the IMF, the World Bank, the OECD.  You’ve seen further impacts on stock markets around the world, including here.  And of course the Prime Minister, when he was at the APEC Leaders’ meeting, I think got the sense from talking to other world leaders that this global financial crisis has again had an impact which was unexpected.  So, we think that the situation internationally will have an impact on growth, will have an impact on government revenues, will have an impact on employment.  We’ve just said that if the circumstances were to affect growth to the extent that we would go into deficit, that would be temporary but it would enable us to make the necessary investments in our economy to strengthen growth and to protect jobs.  We just said we will not sit idly by.  If that happens, we will take action to protect the Australian economy, to protect growth, and to protect jobs.

CARY:

Yeah, you see, I don’t know that too many people, I’d be keen hear from our listeners on it, but I don’t know that too many people would see any fault in that logic, but if  growth is falling and employment risks falling at the moment, revenues as a consequence of that, they would be falling, so a deficit looms large, so I would have thought most people understand that, as long as whatever that deficit is is used in a positive sense to give the economy the boost that we’re looking for.

TREASURER:

Absolutely.  We’re just being upfront and frank with the Australian people and acknowledging the unpredictability of these global events.  Because you see there have been significant interventions around the world in recent times and many were hopeful that that would have stemmed the tide.  And as we speak there are further interventions occurring around the world.  You’ve seen overnight the European Union propose a 1.5 per cent of GDP stimulus package.  You’ve seen a dramatic cut in interest rates in China.  I’m hopeful that that sort of coordinated action, along with what we’ve done here over the past six weeks particularly – the Economic Security Strategy, the $10.4 billion strategy, the bank guarantee – I’m hopeful all of those events will help strengthen the Australian economy in the face of this very pronounced global shock.

CARY:

Yeah, as I read and try to understand what’s going on around the place, a lot of the experts still seem to be a little bit puzzled as to actually what is going on.  Are you sure we know what’s going on?

TREASURER:

What we’re certain of is that there is a dramatic impact on growth prospects that comes from the fallout in the financial sector.  That’s now flowing through to aspects of the real economy.  That then in turn damages confidence and has a further impact on the financial sector globally.  And what that has produced, if you look at all of the forecasts and outcomes that we’ve seen, is a very pronounced slowing.  For example, Greg, Europe is now in recession.  Japan is in recession.  The UK and the US are expected to go there.  And what has been particularly different in the last couple of weeks has been the flow-on impact to a number of emerging economies right around the world.  All of those things combined in the last few weeks are matters that the Government has had to take into account.  And the Prime Minister yesterday was just frank with the Australian people about these circumstances and their possible ramifications for the Australian economy.

CARY:

Okay, let’s talk hypothetically for a moment.  What would Australia look like if we went into recession?  What does that, in a practical sense, mean?

TREASURER:

I’m not predicting that at all.

CARY:

I know that.

TREASURER:

Because these figures have yet to unfold.  One of the reasons we moved so swiftly with our economic security package – the additional payments to pensioners, $1400 to singles, $2100 for couples, the additional payments that are going to parents with children eligible for Family Tax Benefit A, the additional assistance for people buying their first home – all that is about strengthening growth in the Australian economy.  The point the Prime Minister made yesterday was very simply this: if necessary, we would use a temporary deficit to invest further in the Australian economy to protect growth and to protect jobs.

CARY:

I notice as part of the package in the UK, they’re decreasing their version of our GST (inaudible) slightly different, a VAT.  Would you consider having a look at our GST?

TREASURER:

We haven’t got that on the agenda.  The economic security package that we are delivering will arrive for most people on the 8th of December and as you and I have discussed before, there are already tax cuts which are in the system which were delivered from the 1st of July. But what both the Prime Minister and I have said repeatedly is that we won’t hesitate to use a range of policy options to strengthen the economy and to strengthen growth.  We’ve now got fiscal policy and monetary policy working in the same direction.  We’ve had a cut in interest rates of something like 200 basis points over the last couple of months.  They’re two powerful impacts on the economy along with changes to the exchange rate.  All of those things will strengthen our economy in the face of these international circumstances.  The problem is in the last few weeks they’ve just got worse.

CARY:

They have.  That was just one little thing I must say I was surprised when I heard you say to Kerry O’Brien last night that nobody could’ve predicted the share market would go down even further.  I doubt that over the last three weeks you would’ve found one share broker who wouldn’t have guaranteed that the market still had further to fall and those same people would still say now there’s another 300, maybe 400 points to fall.

TREASURER:

I can’t predict the course of the share market.  The point I was making last night is that some time ago I don’t think people would have been predicting that global share markets would have fallen by 50 per cent.  That was my point, fallen by 50 per cent from their peak.

CARY:

With respect, I think the point you were making also was that you didn’t think they’d fall from the 40 per cent three weeks ago to another 10 or 15 per cent over the last few weeks.  It’s hard to get a handle on exactly where it’s all going.

TREASURER:

I’ll tell you why, for part of the reasons I was talking about before, Greg, because we have had a lot of coordinated action around the world which many people were hopeful would stem the tide.  But we’ve just seen what has occurred in the United States now with Citibank in the past week. That’s why governments around the world are moving as swiftly and decisively as they can.  That’s why you’ve got the proposals from the European Union.

CARY:

Okay.  Just a final question.  Lorraine rang a little earlier, and again it was one Kerry put to you last night, I think it was raised in Parliament as well yesterday, this $3 billion Indonesia is wanting, what do they want it for?

TREASURER:

Well, that’s not accurate.  There has been a request which has gone to the World Bank, a number of other international institutions and a number of governments, including Australia, from the Indonesian Government for some loans, which would be repaid with interest.  That request is with the Australian Government.  We haven’t taken a decision on it.  So, there is no question of a grant to the Indonesian Government.  Back in 1998 the previous government and the previous Treasurer did provide a loan to the Indonesian Government in similar circumstances to now – that is, there was much turbulence in the financial system and that government was experiencing difficulties.  But we haven’t taken a decision on that.  There is no grant.  If there is a request for a loan, it is one that would be repaid with interest.

CARY:

How will you balance making that decision?

TREASURER:

Well, we will take into account important national interest considerations in taking a decision, just as the previous government did back in 1998.  But we haven’t processed that as yet.  We are looking at it, and looking at it seriously, because it does have serious implications for the region.  It’s a very big neighbour and its economy is important to the future of this country and the region.  But I stress we haven’t taken a decision on it as yet.

CARY:

Okay.  So, in terms of how you balance that to those who would be a little bit concerned at this time when obviously we’re doing it tough as a nation, that you’d even look at a $3 billion – you’re calling it a loan?

TREASURER:

It was a loan last time.  It was repaid, and it was repaid with interest.

CARY:

No, that’s fine.  For those who are going to be uneasy with it, and a lot of people will be uneasy with it, you’re making the point that Indonesia is important to us, it’s a loan, we’ll get the money back.

TREASURER:

Well, if we take that decision, yes.

CARY:

Okay.  It’s good to talk to you.

TREASURER:

Good to talk to you.