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

3 December 2008

Press Conference

Parliament House
Canberra

3 December 2008

SUBJECTS: National Accounts; Global Financial Crisis; Carbon Pollution Reduction Scheme; Qantas/BA; Banks/Interest Rate Cuts; Credit Card Interest Rates

TREASURER:

Well, today’s National Accounts figures show that GDP increased by 0.1 per cent in the September quarter to be 1.9 per cent higher over the year.  Now, this is a positive outcome for Australia, particularly in the context of a global recession.

Let’s just put these figures in perspective for a moment.  The US, the UK, Germany, Italy, Spain, Japan, Singapore and Hong Kong all recorded negative growth in the three months to September this year.  And of course, something like two-thirds of OECD economies are expected to contract in 2009.  So, while other economies are contracting, our economy continues to grow.  So, there is more resilience in the Australian economy than in the rest of the world.

The National Accounts show that households are pulling back on their spending in the face of the global financial crisis.  Household consumption grew by just 0.1 per cent in the quarter as households continue to rebuild savings.

Businesses are continuing to invest in the economy.  New business investment rose by a solid 1.8 per cent in the quarter, and it’s 12.5 per cent higher over the year.

There is continued momentum in major infrastructure projects which will help to build capacity for the future.

Net exports made a significant detraction from growth in the quarter.  And while import growth was strong, export growth was flat, reflecting the impact of the Varanus Island gas explosion in Western Australia, and of course slowing demand because of the changing global environment.

Now, today’s figures show we can’t completely resist the pull of international economic forces.  But we are better placed than many other nations to deal with this global financial crisis.

We have a strong, well-regulated financial sector and plenty of policy ammunition.  We have a range of factors working for us since the September quarter.

First of all we have the Economic Security Strategy and other initiatives through COAG.  We also have the effects of 300 basis points of interest rate relief, lower petrol prices and of course a depreciation in the exchange rate.  All of this is in our favour.  All of this will stimulate the economy.  All arms of policy are working to buffer the economy from the worst that the world can throw at us.

As you know, we’ve already taken early and decisive action with the Economic Security Strategy - $10.4 billion economic strategy designed to strengthen the economy and to protect jobs, and the payments will begin to arrive next week.  Those will deliver $1400 for single pensioners and $2100 for pensioner couples, and of course, $1000 per child for those eligible for Family Tax Benefit Part A.  And of course, the Reserve Bank has now cut the official cash rate by 300 basis points since September.  For a family on a $300,000 mortgage, this is a saving of around $600 per month.

Now, the Economic Security Strategy payments this month, and the deep cuts in interest rates, mean that monetary policy and fiscal policy are working together to give relief to families and to give relief to business, and most importantly, to protect jobs.

I think Australians can take heart from the fact that their Government and the Reserve Bank are working in tandem to strengthen the economy and to protect jobs.

So, today’s figures are a positive outcome for Australia in the context of a global recession.  I think we all know that the economy has slowed considerably since the beginning of the global crisis, and we’re certainly not out of the woods yet.  This will be a long, protracted global financial crisis and it may well have a long way to run.  That’s why the Government acted so swiftly and decisively by putting the Economic Security Strategy in place early.  What we are trying to do in these difficult times is to build on the nation’s underlying strengths – strengths that many other countries do not have – and a policy flexibility that many other countries do not have.  So, we will continue to take whatever action is necessary to strengthen our economy, to protect jobs, and to protect businesses.

Over to you.

JOURNALIST:

(inaudible) saving the money they already have, why won’t they save the money that you and the Reserve Bank give them?

TREASURER:

Well, I think it’s an encouraging sign, if you go through the data, Australians are saving again.  That’s an encouraging sign because I think Australians who want to take that decision will be more confident about the future.  Some people will save and some people will spend.  But the outcome of what we’re doing – and this is absolutely critical – is to build confidence through having fiscal policy and monetary policy working in tandem.

JOURNALIST:

Given the make up of (inaudible) economic growth, or lack of it, (inaudible) are you confident that the Economic Security Strategy will be sufficient to keep growth positive in the coming quarter?

TREASURER:

We are making every effort, Laura, to strengthen the economy.  It’s why we moved so early with the Economic Security Strategy.  We moved well before many other countries in the world.  We did identify very early the potential for the global economy to slow much more quickly than many people had previously thought.  We can’t view the rest of this year through the prism of the September quarter.  That’s a bit like deciding the outcome of a footy game at quarter time.  What you’ve got to do is view the next few quarters through the prism, if you like, of our Economic Security Strategy, through the decisions that have been taken by the Reserve Bank, through the impact of the depreciation of the exchange rate.  And also I think another factor here is the fact that petrol prices are now substantially down, because they had been also in an earlier period, a drag on growth.

So, all of those things combined are important, and as you know, in terms of the Economic Security Strategy and an easing of monetary policy, they were all factored into the MYEFO forecast that we brought down a short time ago.

JOURNALIST:

Mr Swan, you mentioned the priority of protecting jobs and policy flexibility.  Is there any room for policy flexibility with the introduction of industrial relations laws in relation to unfair dismissals and small business employment and the ETS?

TREASURER:

I certainly don’t accept the categorisation that has sometimes been put on our fair industrial relations laws as being somehow a handbrake on growth.  I don’t accept that at all.  They are very much productivity orientated and they will contribute to the flexibility that we’ve always had in the context of enterprise bargaining.  So, I don’t accept that characterisation.

Now, in terms of the Carbon Pollution Reduction Scheme, we’ve published the Treasury modelling for that and I think that’s very good reading and I would recommend it to everyone in the room.  We’re going to be spending a bit of time talking about that because I think the White Paper is coming down on the 15th December.  I’m sure you’re all overjoyed to be hanging around for that.  But what business says to us particularly when it comes to dealing with climate change and carbon pollution, is they want certainty.  We are absolutely focussed in the construction of our White Paper on a set of arrangements which strengthen the Australian economy for the long term, as indeed we always are.

When global events like this occur, they demonstrate a couple of things to us.  One is how connected the world has become.  Nobody around the world is talking now about decoupling.  That’s largely gone.  And the one thing we can be really sure of for the future is that in one way or another the world will be moving on carbon emissions.  And what we want to do here is give certainty to business and get a bit ahead of the game to prepare our economy for a time when job creation will be driven by the environment, in the international sense, which is driven by a global imperative to reduce carbon emissions.  We’re all on about jobs, and we’re on about jobs when we’re dealing with the Carbon Pollution Reduction Scheme as well.

JOURNALIST:

Treasurer, is this result consistent with the MYEFO forecasts?

TREASURER:

The MYEFO forecast is for 2 per cent and this is 1.9 over the year.  We said at MYEFO, David, that all the risk was on the downside, and we’ve recognised that for some time.  It goes back to the comment I made to you earlier about not viewing the rest of the year through the prism of the September quarter, because what we’ve now got are very substantially different policy settings through the Economic Security Strategy and the easing of monetary policy by the Reserve Bank.  These are big.  These are big stimuluses to the economy, put in place in a timely way because we recognised that the sort of result that you’ve got in September may have well been in the pipeline.  Now, I wish it was otherwise.  But this is what the global financial crisis has delivered and nobody can say with any great certainty how this event will progress except we do know that since MYEFO it’s got a bit tougher.  If you have a look, for example, just at what’s happened on share markets, say, in November.

JOURNALIST:

Treasurer, how do you explain resource rich States like Queensland going backwards (inaudible)?

TREASURER:

Well, I wouldn’t be quick to make that judgement based on a quarterly figure.  The economists will tell you that these figures are pretty volatile and particularly in some States, some States are affected by commencement of, and completion of, very large projects and I think that has more to do with the figures here on a quarterly basis in the case of Queensland and Victoria, than anything else Queensland and Victoria where you do have what appears to be a significant change.  But I’m advised, in the case of one of the States, it simply relates to completion of some large projects.  Can I just draw your attention to the yearly figure for Queensland?  It’s 5.3.  So, I wouldn’t be too quick to draw the conclusion that this quarterly figure is an accurate portrayal over a year of where the State is.

JOURNALIST:

Treasurer, on the Qantas statement today, I think you’ve indicated pretty clearly that the 51 per cent of Australian shareholding limit should be maintained, but there are some other restrictions on the company such as that the directors are Australian citizens, that no other airline can own more than 35 per cent.  Now, given that there are some challenges in global aviation, are those things that can be reviewed by the Government?

TREASURER:

Well, our bottom line is that the flying kangaroo remains majority Australian-owned and based.  Now, there may be some negotiations going on between the parties but we’ve got a pretty firm view about the application of our rules under I think it is both foreign investment rules and also rules within transportation and so on, the Qantas Sale Act, I think.  We’ve got a pretty firm view about those.  We haven’t had a formal proposal put to us so all I can do is indicate the Government’s very strong view that the flying kangaroo remain majority Australian- owned and based.

JOURNALIST:

Treasurer, you’ve said that it’s encouraging that people are saving.  Wouldn’t it show greater confidence in the economy if when people started to get their (inaudible) bonuses from next week they went out and spent it?

TREASURER:

Well, the two aren’t contradictory, Dennis.  The construction of our Economic Security Strategy is on the basis that the payments are going to those who are most likely to consume.  My broader comment before was that it is encouraging that Australians are saving generally, but the payments are directed most specifically at people who’ve done it pretty tough in what has been, earlier in the year, a high inflationary environment, a higher interest rate environment, a higher petrol price environment.  So, we would expect that there would be significant consumption that will flow from the stimulus because you can have your debate about tax cuts on the one hand and payments on the other.  The one thing we know is that when we deliver payments like this it puts people in the position to consume, and we’re delivering them to people who generally have been doing it a bit tough and will need to consume and we’re doing it in a concentrated period.  If you were to deliver it in a way which was spread over a long period then you wouldn’t get the same stimulatory effect anyway.  So, we did deliberately target the payments that way for social reasons and for economic reasons – a happy conjunction of circumstances where we could achieve social objectives and economic objectives at the same time.

JOURNALIST:

Mr Swan, wouldn’t the banks help stimulate the economy if they all passed on all of the interest rate cuts?

TREASURER:

We expect them to play their part in stimulating the economy, and I don’t believe that there is any real excuse for not passing on this latest RBA rate cut in full.  Now, we’ve had this debate all year.  Actually, the year began with it when I said one of the banks, when earlier in the year put up their rates and I said my assessment from the Reserve Bank at that time was that they should be passing on [any] rate cut.  There was a debate about that.  Some time ago, a couple of months ago, that wasn’t the case.  When the banks’ borrowing costs were really up, some of them did have a case at that stage for less than full pass-through.  But what I’m advised, right now, is that borrowing costs, although still a little volatile, have come down and that they should be in a position to pass on, in full, this 100 basis point cut.

JOUNALIST:

Why are they not doing it?  Are they greedy?

TREASURER:

We are in the middle of a global financial crisis and I don’t intend to get into a situation where I’m having a slanging match with anyone.  I’m going to call things as I see them.  They will make their case.  I don’t believe it’s justified on this occasion.  Someone said what about credit cards.  Well, these rate cuts should be flowing through to credit cards as well, and I would like to see some evidence of that flowing through in that area.  In terms of mortgage rates, there have been very substantial reductions, and that’s good.  So, I would like to see some progress in those areas as well.

JOURNALIST:

Have you spoken to the bank chiefs about this?  Have you spoken to Mike Smith and Gail Kelly?

TREASURER:

I will be having a discussion with them in the very near future, and I’ve had discussions with them in the past and I will have them again.

JOURNALIST:

Have you invited them to Canberra again?

TREASURER:

No, I haven’t invited them.

JOURNALIST:

Treasurer, do you think it’s reasonable that the banks, at a time like this, actually come out publicly and make their case as to why…?

TREASURER:

I do.  I do absolutely.  I’d like to see them make their case because I’m saying that I don’t think that in this circumstance there is a case.  You might recall, I think I took a fair bit of political heat a few months ago where I said I thought there was a case at that stage because that was at a very delicate time and I made the call based on my advice.  And on this occasion my advice is that they should pass them on in full.  I’m saying so, and if they think they’ve got a reason not to pass them on, well they should explain themselves not just to me, to their customers.  That’s why we put in place the bank switching package which is fully effective from early November.

JOURNALIST:

(inaudible) in terms of trade in the September quarter.  How will falling terms of trade over the remainder of the year affect the growth outlook?

TREASURER:

Well, I think, as remarked upon by one Liberal Premier on the weekend, it will have an impact on revenues that flow through to the Budget bottom line.  Changes in growth, changes in commodity prices, changes in international conditions do all of that.

JOURNALIST:

Mr Swan, do you think MPs have an obligation (inaudible)?

TREASURER:

I think MPs always have an obligation to fulfil their duties in full.