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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

29 September 2009

Interview with Emma Griffiths

ABC Radio AM Program

29 September 2009

SUBJECTS: Reserve Bank Governor's testimony; pension increase; Final Budget Outcome

PRESENTER:

The Government believes that the Reserve Bank Governor's testimony has completely torpedoed the Opposition's arguments about winding back the stimulus package. But Glenn Stevens has also painted a picture of recovery that will present some difficulties for the Government - it will have to deal with the inevitability of interest rate rises.

The Treasurer Wayne Swan is in our Canberra studio and he's speaking with Emma Griffiths.

GRIFFITHS:

Treasurer good morning.

TREASURER:

Good morning.

GRIFFITHS:

Was Glenn Stevens' testimony to the Senate Committee reason for the Government to celebrate?

TREASURER:

I thought his testimony was very direct, very thoughtful and I guess what it did was completely torpedo the whole campaign mounted by the Liberal Party against stimulus. And, I guess it exposed the dishonesty of their debt and interest rate campaign. But I think most importantly it confirmed for all Australians why stimulus has been important - that it kept Australia out of recession and I think it's very important that we acknowledge that.

GRIFFITHS:

It did confirm for all Australians that interest rates are going to go up and Glenn Stevens also said that the stimulus measures would be part of that, would contribute to it. So do you admit that the stimulus measures will help drive up interest rates?

TREASURER:

Quite to the contrary, Governor Stevens made it very clear - as did many other people before the inquiry - that there is no direct link between the stimulus measures and possible future interest rate rises. In fact, he pointed out that interest rates in this country are impacted upon by global factors not just decisions of the Reserve Bank.

And in the case of government borrowing, the Government borrows in a global market. He went to great lengths to make that point.

GRIFFITHS:

He may not have made the direct link but he said that stimulus does feed into demand and if demand fires up as it is, then interest rates will go up, possibly before Christmas. How are you going to defend those rate rises?

TREASURER:

Well if the Reserve is to take decisions on interest rates - which they do independently - before Christmas, that will be a matter for them. And that will reflect economic recovery; it won't reflect the impact of the stimulus. And Governor Stevens went to great lengths to make that point. And Governor Stevens went to great lengths to point out that he not only supported the stimulus, but also that an early withdrawal of the stimulus could have an adverse impact.

GRIFFITHS:

The Commonwealth Bank has raised its fixed lending rates. It's pre-empted any official move from the Reserve Bank. Is that something that borrowers just have to cop?

TREASURER:

Well it's a measure of what's going on in international markets as much as anything else. The Government has been saying for some time that interest rates globally will not go back to the very low levels that the international economy experienced prior to the global financial crisis. So all of these factors come into play here.

GRIFFITHS:

So it is something that people just have to cop. It's part of an economic recovery.

TREASURER:

Well there is a number of things going. There is a restructure of the international financial system.

GRIFFITHS:

But on the Commonwealth Bank, that is affecting domestic customers. Australians are going to pay higher interest rates. That's very much pre empting any official move in interest rates. Is there anything that the Government can say or do to stop banks acting unilaterally like that?

TREASURER:

Well the Reserve Bank sets the variable rate. The banks will set their fixed rates and adjust those in terms of global conditions. But at the moment the Reserve Bank has not moved the cash rate, and the private banks have not moved their variable rates. So the link here is between the cash rate and the variable rate. But the banks have always moved their fixed rate in response to those conditions.

GRIFFITHS:

The Reserve Bank Governor spoke of the possible need yesterday for a plan B in rolling out the stimulus to avoid overheating the economy. Is there a plan B Treasurer?

TREASURER:

Well I think that's not a correct reading of what the Reserve Bank Governor said. He acknowledged - and the Government has been very open about this - that as we move forward next year, the stimulus is gradually withdrawn.

GRIFFITHS:

The Reserve Bank Governor did say though that if you wanted to avoid over-heating in the economy then the Government should be looking at a plan B, perhaps during the budget process that is probably just kicking in right now. Is there any thought of having a contingency plan if the economy does overheat?

TREASURER:

Well, the Government always adjusts its Budget strategy for the circumstances of the time. And private sector business investment is going to remain very weak for some time. So the stimulus will be required as we go through next year. It will be a good thing if growth rates are somewhat higher than have already been forecast. But that doesn't mean to say that the stimulus, which fills that hole in private demand, is not required. But naturally as we go through to next year's Budget we will take judgements about our overall fiscal settings. The stimulus is only a part of that.

GRIFFITHS:

On budget bottom lines then, you're going to shortly bring out the final budget position for the financial year just gone. It was going to register a deficit of around $32 billion dollars. Is the new position as good as some reports have been heralding? Closer to a $10 billion dollar improvement?

TREASURER:

Well we'll have to wait until later today to see the Final Budget Outcome. But of course, stimulus has been very effective in supporting business and in supporting jobs. That will be to some extent reflected in the figures that I put into the public arena this afternoon.

GRIFFITHS:

So the Final Budget Outcome is significantly better?

TREASURER:

No the figures that are out there today I think are exaggerated and I don't think that they are the ones that you'll be seeing this afternoon.

GRIFFITHS:

On pensions Treasurer, there was news yesterday that the states are keeping for themselves up to a quarter of the recent increase in the pensions by way of public housing rents. Where does this leave what the Prime Minister has called a new era in cooperative federalism?

TREASURER:

We put in place a one-off, permanent increase in the pension and that is meant to go directly to the pockets of pensioners - not to be clawed back in some sneaky way by Nathan Rees and the state Premiers. And the Federal Government will look at all of its options to make sure that this money is delivered to the pensioners of Australia. I don't believe that the position of our Premiers on this matter is justified and the Government will take whatever action is needed to ensure that pensioners receive the money which is long overdue.