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

2 December 2008

Interview with Philip Clark

Radio 2GB, Sydney

2 December 2008

SUBJECTS: RBA Interest Rate Decision

CLARK:

Good afternoon.

TREASURER:

Good afternoon, Philip.

CLARK:

So your response to this?

TREASURER:

Well, we certainly welcome this very substantial relief. Families out there and businesses will certainly welcome it. I certainly do welcome the full pass through of the 100 basis points by the National Australia Bank and the Commonwealth Bank of Australia. And I particularly welcome the fact that they're looking at doing that for their variable business loans as well. So, that's some good news. We've had something like a cut of 300 basis points since September. So if you've got a mortgage of $300,000, that's something like an additional $600 per month.

CLARK:

What are you saying people should do with this? Leave it, increase their repayments if they can?

TREASURER:

Look, it's entirely up to them what they do. There are many people out there who have been under financial pressure because of rates in recent years, and they've been carrying a very high debt burden. And that has been particularly the case, and been felt I think most acutely throughout Sydney. So, certainly in a city where it costs a lot to get into the housing market, I think this will be welcome. But what people decide to do individually is entirely a matter for them.

CLARK:

Now, I only ask that because presumably you'd like people to go out and spend it, wouldn't you, rather than save it?

TREASURER:

Well let me put it this way. We've put in place our Economic Security Strategy, and the whole purpose of that strategy is to stimulate demand. We are making payments to people who have a higher propensity to consume. We're making payments to families who are eligible for Family Tax Benefit A. We're certainly making additional payments to pensioners in terms of singles and couples. All of that is there to give them a helping hand, and many of these people have been under financial pressure. And that's the case for many people with a mortgage. I'm sure many of them will spend it, but they'll take their decisions in their good time, in their own interests.

CLARK:

Yes. Right. But we're entering December with this interest rate cut, one last month as well, and as you say, since September nearly 3 per cent's been cut.

TREASURER:

That's right.

CLARK:

Now, for those on pensions and benefits, they'll be receiving a cash grant from the Government next week and the week after. It is a situation where you're putting an awful lot of money, cash, back into the economy. When will we know whether this has worked?

TREASURER:

Well, there's a very substantial event going on - it's called the global financial crisis - which is having a profound impact around the world. We've seen the news overnight that the US is now officially in recession. Most of Europe is there. Japan is there. A number of countries in Asia are there. And a number of countries that we trade with are certainly having their growth rates impacted upon sharply. What the Government decided to do was to get ahead of the curve and get out there and make sure that we could do everything possible to strengthen our economy in the face of these global events.

CLARK:

I know that's the strategy. And there are people who believe, and I note the OECD recently says Australia might avoid recession. Is that the advice you're getting?

TREASURER:

Well, certainly what we're going to do is everything we can to strengthen growth. We are in a better position than most other countries as we battle against these international forces which will slow our economy more than anybody anticipated. You see, even in the last three weeks or so, Philip, the situation internationally has also changed, and that's the point that the Prime Minister made when he came back from the APEC meeting. We've already seen in the last couple of weeks the events of Citibank. And of course we've seen the reportage overnight about where the US economy is. We were acutely aware about the possibilities of things going in this direction, and that's why we moved early with the economic security package. But it's also why we say, Philip, that we don't rule out taking further action if that's required. But what we've got at the moment is we've got the economic security package. Those payments start coming through…

CLARK:

This is the $1,400?

TREASURER:

– that's right – start coming from the 8th of December. We've now got this very big cut in interest rates. So we've got monetary policy and fiscal policy working in tandem. On top of that, as the Reserve Bank has observed today, we've also got the impact coming through into our economy of the exchange rate reductions that we've seen in recent times. And they are three powerful factors that will strengthen demand in this economy in the face of falling demand that's coming to this economy from the international events.

CLARK:

Yeah. Although exchange rate movements, of course, are going to make imported goods more expensive, and that's going to mitigate against some of the spending spree which you might like people to indulge in. Could I just put this to you? Do you think that the, I understand why, I mean indeed I'm probably guilty of it myself here on the program too of talking about the state of the international economy. And, you know, it's a genuine story. It has been a crisis – the biggest in many ways although not comparable to the Great Depression.

TREASURER:

Sure.

CLARK:

And do you think in a way the Government might have overdone, you included, the gloom and doom story?

TREASURER:

I don't want to overdo the gloom and doom story. What I want to do is to call it as it is, and we have called it as it is. And we spoke to the Australian people about the severity of the threat to the economy when we put forward not only our bank guarantee, but the Economic Security Strategy. And unfortunately, since that time, events internationally have moved further to the downside, and we've been calling that as it's occurred. But I would make the point in every interview I do, that if there was one country you would want to be in in these circumstances, it is of course Australia, but we're not immune. That's why the Government has been so alert to this. Because we've got the flexibility because of what we did in the Budget this year. We've got a fair bit of flexibility and room to move when it comes to both fiscal policy and monetary policy. And given the nature of the threat, we're going to use that room…

CLARK:

Well, though you're running out of room though, aren't you? I mean, there's only, interest rates can only go so low, and you've (inaudible) conceded that the Budget may well move into deficit. So, you don't have unlimited room and the room you had is rapidly being used up.

TREASURER:

Well, we have a modest surplus in place. And what we've said is that in some circumstances, it might be the responsible thing to do to move to a temporary deficit to further strengthen the economy should that be required. But that's a decision for further down the track. But what's important here is we've now got monetary policy and fiscal policy working strongly in the same direction, to strengthen the economy in the face of these further adverse events that are occurring in the international economy.

CLARK:

What are you going to say to banks like Westpac, who just help themselves, and don't pass on the rate cut?

TREASURER:

Well, what I say to them is that your competitors have shown that a full flow-on of this cut is possible. Get your skates on and pass it through.

CLARK:

And what do you say also to banks who sit there and help themselves on credit card interest rates, which have not followed the route south that home loan rates have?

TREASURER:

Well, I'd certainly like to see further progress when it comes to credit card rates as well. That's a very competitive market, and what I say to customers out there is have a look around. There's something like 300 different products, and if you think that you're being gauged here, then shop around because there is a fair bit of competition…

CLARK:

It's a case of being, you know, how much you want to be gauged basically in credit cards though, isn't it?

TREASURER:

Well, I think credit card rates haven't come down to the extent that they should have. We have been in a very unpredictable environment over the last six months or so. But these are very strong moves from the Reserve Bank, and they do need to be reflected by the banks in terms of their approach, whether it's mortgages or credit card rates…

CLARK:

Or personal loans.

TREASURER:

…yes, or personal loans, because it is all part and parcel of everyone in the community working together to strengthen…

CLARK:

I spoke to a small business bloke the other day, and he said to me, you know the trouble, that's the trouble he said. You know, I've noticed this. You talk about gloom and doom. You talk about international financial worries. He said people just shut their wallet.

TREASURER:

And that's why it's important that we get the banks on the same wavelength, and we get a full pass through of these cuts. That's why I mentioned to you before that I was very encouraged to see that the CBA and the NAB are doing the 100 basis points on their variable business loans. That's very important…

CLARK:

So Westpac and the others form an axis of evil, do they?

TREASURER:

Well, we'll have to examine them product by product. There may be differences. I'm not out to advocate for one bank over another. But in terms of this cut from the Reserve Bank, two banks have gone out and passed the full amount through. That's a good thing. And I'm certainly encouraging those [others] to get their skates on. If their competitors can do it, surely they can too.

CLARK:

Well, I would have thought so. Alright. Thanks for your time, Mr Swan.

TREASURER:

Good to be with you.