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

13 April 2011

Interview with Jim Middleton

Newsline

12 April 2011

SUBJECTS: IMF World Economic Outlook; Budget 2011; Japan natural disaster; G20 Finance Ministers Meeting; ASX-SGX decision.

MIDDLETON:

Treasurer, welcome to the program.

TREASURER:

Good to be with you.

MIDDLETON:

The IMF is more pessimistic about Australian growth prospects than domestic authorities. If the IMF is right, how much harder is that going to make it for you to restore the Budget to surplus within two years as you have promised?

TREASURER:

Well, I think we can see clearly the challenges that are faced by the Australian economy, and indeed the global economy in the short term and the long term. Domestically there are some challenges in terms of the short term, there's some short-term softness in the Australian economy, but we've got underlying strength in the medium-term and that is seen very clearly in their forecasts. In terms of short-term softness, what we've seen is the impacts particularly of the floods and cyclones, but of course, globally you've also got the impact of events in Japan and also instability in the Middle East. So certainly that has an impact on revenues in the short-term but the longer term story for Australia is still very strong and we will certainly produce an outcome which is as good, if not better, than just about every other advanced economy. So we've got this challenge, if you like, short-term softness, but long-term strength.

MIDDLETON:

And despite those challenges in your preparations to next month's Budget you're still on track to produce a surplus in 2012-13?

TREASURER:

Absolutely determined to return the Budget to surplus in 2012-13 that medium-term fiscal strategy is very important. We do have that long-term strength which will test the capacity of our economy. It is coming from a very strong investment pipeline through growth in the region, particularly in China, particularly in India. So what we have to do is prepare the country for this investment pipeline. So coming back to surplus in 2012-13 is absolutely fundamental to future economic prosperity.

MIDDLETON:

Australia is now more dependent than ever on the fortunes of the Chinese economy. Do you share the IMF's concerns about the prospects of a property and credit bust in China which would of course have a devastating effect on the Australian economy?

TREASURER:

Well, the IMF is forecasting very strong growth for China in these forecasts and China will continue to grow strongly. The Chinese authorities are dealing with some of those issues, they have been tightening monetary policy. I'm optimistic about the path of growth in China. But for Australia, Asia is not just China. I mean, there is India, and there is also the growth right throughout the region. So what Australia is experiencing is an investment boom in the region which is far bigger than just China and I don't think that is clearly understood in much of the commentary.

MIDDLETON:

Nevertheless the impact of China on the Australian economy has been nothing short of profound. If there were to be a credit or housing bust in China that would be a really significant problem for Australia?

TREASURER:

Well, I don't speculate about those things but I've been in this job now for three and a half years and for the whole of that time this sort of speculation about China has been in the press - most of it ill-informed. It is prudent, as the IMF does, to analyse the risk in the global economy and to analyse the risk when it comes to individual economies, and of course, the IMF makes the point that there was risk in the global economy, but the greater risk comes particularly from instability in Europe. Naturally, people will focus on the Chinese economy. The Chinese authorities are dealing with domestic challenges. But there's no reason to believe that the Chinese economy will not continue to grow quite strongly in the years ahead.

MIDDLETON:

You were talking about Australia's interest in Asia beyond China, one of those countries is of course Japan. I understand you will be seeing your Japanese counterpart while you're in Washington. The IMF thinks that the terrible triple tragedy in Japan will not have a major impact on its economy. That's got to be good news for Australia given that Japan remains such a significant trading partner?

TREASURER:

Well, the visit to Washington is a great opportunity to take the temperature on the global economy by meeting with counterparts like the Japanese Finance Minister. I'm pleased to see that assessment from the IMF. But in terms of Australia when you look at Japan, we are the country which is most exposed to Japan in terms of trading relations of all advanced economies, so if there's an impact from Japan it is felt here first. But of course there will be a very strong rebuild in Japan. How long that takes to come through is another question, but Australia's relationship with Japan is strong. There will be some short-term fallout here but the rebuild in Japan will also bring demand for Australian goods for that rebuild. So there are pluses and minuses.

MIDDLETON:

And do you share the IMF's confidence that the impact of these disasters won't be as serious in Japan as some commentary had originally suggested?

TREASURER:

I'm certainly on the optimistic side but as I said before if there is one country that is exposed to Japan more than many others then it is of course Australia, but that is indeed the assessment by and large of the Australian Treasury.

MIDDLETON:

The IMF is pointing to the dangers of rising fuel and food prices. How much attention do you think that will have in your meetings, the IMF, the G20, and in any event is there anything the Finance Ministers can do about it anyway?

TREASURER:

Well, Finance Ministers discussed the prices of commodities at our last meeting in Paris at the G20 meeting. We will do that again at the G20 and I'm sure we'll do it again at the IMF meetings this weekend. The fact is that our terms of trade here are high when it comes particularly from the increase in price for minerals, but of course, what is concerning global leaders now is also an increase in agricultural prices as well. What we've got to do is to make sure that the world has plenty of supply, and of course, supply is the key here. What we need to do is to make sure that there is a ready supply of minerals, and of course Australia plays its role in that supply chain, a very important role and we are a beneficiary of increased demand in Asia. But increasingly the focus will be on food as well, where Australia has a vital role to play as well.

MIDDLETON:

Trade and exchange rate policy proved highly divisive at the last G20 Meeting in Paris with China refusing to have them listed as indicators of the imbalances threatening the future of the world economy. How will we know if the G20 has made progress in resolving this dispute?

TREASURER:

Well, what humble Finance Ministers do is to pave the way for our leaders, and of course our leaders will be meeting later in the year in France. What we will do is have a further discussion about how we progress those indicators of global financial imbalances. It's not truly accurate to say that exchange rate policy was not discussed last time. Exchange rate reform along with a whole host of other structural reforms is the imperative if we are to secure balanced global growth and that goes to the heart of the framework that we will be discussing again at the G20 meeting this weekend, but I wouldn't be expecting a resolution if we have those issues, the resolution will ultimately come when the leaders meet.

MIDDLETON:

One final subject, in rejecting the Singapore Stock Exchange's proposal for taking over its Australian counterpart, you did indicate that you would be prepared to consider an alternative merger plan. What would it take to make such a deal meet Australia's foreign investment requirements?

TREASURER:

Well, when I responded to the application and gave my final decision I outlined a serious of criteria which are absolutely critical to ensure that any future deal is in Australia's national interest and that would mean giving Australia more access to global capital, it would in particular mean that that deal would have to fit into our regulatory system and that our regulatory system was appropriate. I outlined a number of other criteria. What I said very clearly was that the deal with the Singapore Stock Exchange was not in our national interest, but that didn't mean to say that we wouldn't consider a future deal if it met all the criteria that I outlined.

MIDDLETON:

Do you accept that scale is a challenge for the Australian Stock Exchange as competition emerges to its domestic monopoly and overseas competitors simply get bigger?

TREASURER:

I do accept that there may well be a case for some form of consolidation in the future. One of the problems with the Singapore deal is that Singapore was a much smaller exchange than the Australian exchange. But there may well be a case, and I don't want to speculate about it, where an offer is made which I do see, and the government does see, as necessarily being in the national interest, but it has to meet those strict criteria that I outlined.

MIDDLETON:

Is there a risk though of throwing the baby out with the bath water - that is, that while Australia's national interests may be served in the short term by rejecting this deal the very future of the Australian Stock Exchange may be threatened in the longer term?

TREASURER:

I don't accept that at all. I think if we would have approved this deal then Australia would not have got a good deal for the long term. It wasn't a ruling which was in the short term; it very much had an eye to our long-term national interest.

MIDDLETON:

Treasurer, thank you very much.

TREASURER:

Thank you.