The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

14 April 2011

Interview with Erin Burnett and Mark Haines

CNBC, New York

14 April 2011

SUBJECTS: US Debt Ceiling; Economic impact of natural disasters; Commodity prices; Australian Dollar; Australia's economic forecasts.

BURNETT:

Good morning and welcome back to the Big Board. We appreciate you taking the time. You're here for the G20 as well, and before we talk about some of those other issues, I wanted to get your point of view. You're a combination of, in the US, what would be Timothy Geithner and Joe Biden all in one person. So what do you think about this issue in the US where the United States may not raise the debt ceiling? Is that stupid or smart?

TREASURER:

Well, it's a serious issue for the US, they've got a medium-term fiscal strategy, they should be allowed to implement it and when people take action to stop that that has impacts on confidence. So it is a pretty unique political system you've got here, but that's not going to help the US if that's what they do.

BURNETT:

And I would imagine it would have repercussions everywhere. I mean, we're talking about currencies, and I mean in Australia, if about something like that were to happen, that's something where you would lose confidence in terms of -

TREASURER:

It certainly would have an affect around the world. I frankly can't understand why they would want on do that, but that's a matter for the domestic political debate and I'm not going to interfere in that.

HAINES:

It's always interesting sir, I'll say that. Is it clear yet the extent of the impact of the earthquake and tsunami in Japan? Are you getting a better picture of how the supply chain is being affected and things of that nature?

TREASURER:

Well, certainly we could lose up to three quarters of a percent in terms of growth this financial year. That's a combination of our domestic floods, our domestic cyclones and the impact of Japan. The floods impacted on coal production and of course there'll be less demand in the short term Japan for our commodities. But in the long term both in terms of the floods and in terms of Japan, there's a big rebuild to do. So we will see for Australia stronger growth coming out of Japan and reconstruction locally, but in the short term it means more weakness for our economy.

HAINES:

We have been through; we went through a period about of very strong commodities prices. I don't know whether you're old enough to remember, but it was in the late 70s, early 80s -

TREASURER:

I was around then.

HAINES:

And just as then the Aussie dollar, the Canadian dollar, resource based economies, their currency did pretty well. I get the feeling it's different this time, that didn't last very long. This looks like it will last a while.

TREASURER:

Well sure our terms of trade are hitting a 140 year high and that is on the back of high commodity prices, the iron ore and from coal, but they are going to last for some time. I think that the prices of those goods, given the growth in Asia, given the demand in Asia, given the fact there's a construction boom in Asia which will last for a long time. That will mean that the prices will be permanently higher. They may not be as high as they are now and they will come off a bit, but they will be historically higher as we go forward, much higher than they were in the past.

HAINES:

Guessing again, because since you do so much business in natural resources, that the strength of your dollar is a net positive? For the US, for example, it would be a net negative because we don't do, you know, we're dealing in manufactured goods.

TREASURER:

Certainly a strong dollar indicates a very strong economy and a strong economy in Australia relative to the rest of the developed world, and yes it does reflect commodity prices as well. Now, naturally it has impacts across the economy. For some sectors it's good, for some sectors they're put under pressure.

HAINES:

But is it a net positive?

TREASURER:

Oh look there's no doubt it's a positive for Australia, but it does have implications across a range of our sectors.

BURNETT:

Are you worried, I mean obviously you were one of the first or second to raise interest rates and went through the whole campaign, but that's on pause given a lot of what you're dealing with right now, but I'm curious about where you see interest rates going. Are you worried as a whole that you're facing just an overheating issue? I mean with housing you haven't seen a drop there.

TREASURER:

No we are not facing overheating in Australia. We are the only advanced economy that didn't go into recession, we were the strongest growing advanced economy during '09, and we're still very strong. And what that reflects is a strong monetary policy and fiscal stimulus we put in place to avoid recession. It also reflects the fact that there's a really strong investment pipeline coming in to Australia - something like $380 billion over the next few years which is coming into Australia in resource investments. So we have strong job creation, but we've also got a good balance in our economy, we've got inflation within the band. What we have to make sure that we do is we avoid the capacity constraints that come with that investment boom and that's why we're determined to bring our Budget back to surplus in 2012-13, to make room for that boom that we're experiencing particularly in commodities.

BURNETT:

Treasurer Swan, thank you very much. We appreciate it.