Interview with Lyndal Curtis
ABC Radio AM Program
18 August 2009
SUBJECTS: Economic Stimulus
EASTLEY:
As the Government begins negotiating to get its environmental legislation through the Parliament the economy has taken a back seat. The Prime Minister has claimed credit for keeping Australia out of recession saying without the stimulus there would have been a second quarter of negative growth. But he has indicated it's too early to begin pulling back on that spending.
The Treasurer Wayne Swan spoke to chief political correspondent Lyndal Curtis about whether the Government should be looking to wind back the stimulus as the economy picks up.
TREASURER:
Well, can I just make the point that those who don't acknowledge the impact of stimulus which has kept this country from going into recession then turn round and say it should be pulled out prematurely - they have learnt nothing from the events of the past four or five months. You see stimulus has been absolutely imperative to sustaining growth in the March quarter and it would be a mistake if we were to withdraw that stimulus prematurely. That's the point that people really need to understand. You see Malcolm Turnbull has shown monumental misjudgement when he opposed the second stimulus. The second stimulus has been absolutely critical to confidence and employment in this economy and if that were pulled out prematurely then that would have the impact of undermining the recovery.
CURTIS:
But you made much of the Government and the Reserve Bank working in concert to stimulate the economy. The Reserve Bank's already sending signals that interest rates may have to rise. Don't you similarly have to start looking at unwinding that stimulus or planning to?
TREASURER:
Well Lyndal we've put in place our medium term fiscal strategy and of course when growth returns to trend we will apply a real cap of two per cent to new spending. But the most important point to understand is this- we are not out of the woods yet. It's very important that we continue to support our economy particularly given the reductions in business investment that are flowing through the economy and the reductions in trade. They're all challenges that lie ahead but this Government is absolutely determined to implement its medium term fiscal strategy so when growth returns to trend we will apply that spending cap.
CURTIS:
But if the economy is performing better than expected, and the Treasury Secretary said that it is, don't you have to start planning to withdraw that stimulus because Government action takes much longer than a simple raise in interest rates.
TREASURER:
Well, the stimulus is being withdrawn because it is temporary. We have made that very clear. It flows through next year and into the year after.
CURTIS:
But it was based on a worse outlook than the economy has turned out to be.
TREASURER:
Well, even Lyndal if you were to take the Reserve Bank forecasts that were published a week ago, they're still forecasting below trend growth, so we shouldn't get ahead of ourselves here. The most important thing that we have to do is to support employment in this economy, is to support business and to support confidence. And if we were to prematurely withdraw stimulus we would threaten thousands of businesses and thousands of jobs.
CURTIS:
Is there any room though in your plans to start withdrawing the stimulus faster if you need to so public spending doesn't end up competing with private spending?
TREASURER:
Well, this is the crowding out thesis that is being used by all of those people who want to pull the rug out from under the recovery. This is simply the stalking horse by those who opposed the stimulus in the first place and who would have pushed Australia into recession if they had their way. We will put in place and keep in place our stimulus for as long as it is required. It is temporary in the first place. We have got in place a medium term fiscal strategy which puts a two percent real spending cap when growth returns to trend. That's the responsible thing to do in these circumstances.
CURTIS:
Will we start to see planning for that spending cap in next year's Budget because it will have to be factored in to the Forward Estimates wont it?
TREASURER:
Well as you will see in our last Budget we've taken a longer term view about the structural challenges in the Budget. As you know the previous Government spent like drunken sailors. They put in place unsustainable spending in areas such as private health insurance rebates. That's why we moved in the Budget to make that substantial structural change, so we could make room to put in place that base pension increase. We are always looking at the short term, the medium term and the long term. And the goal here is a medium term fiscal strategy which is the platform upon which we built the reform program for the future to build sturdier foundations for our economy when growth returns globally.