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

17 April 2011

Interview with Peter Van Onselen

Australian Agenda

17 April 2011

SUBJECTS: Washington G20; IMF and World Bank meetings; Budget 2011; carbon price; budget speculation; Kevin Rudd; Opposition costings and fiscal position.

VAN ONSELEN:

We're joined now out of Washington by the Deputy Prime Minister and Treasurer Wayne Swan. Mr Swan, thanks very much for your company

TREASURER:

Good morning Peter.

VAN ONSELEN:

Can I ask you, you're over there in Washington at the moment, there's been some pretty grim assessments about the state of the global economy. How are you seeing and what have you heard and what are the main threats to that for Australia domestically?

TREASURER:

Well the global economy is recovering and of course it is somewhat fragile. As you will have read, there's been instability in North Africa and the Middle East; that's impacted on oil prices for example. And of course we've had the events in Japan, we've had discussion about sovereign debt crises in Europe. All of these factors were the subject of a discussion this week as we went about assessing the risk to the global recovery, because of course recovery and growth is relatively weak in advanced economies but it's very strong in emerging economies. So we had a long discussion about the prospects for the future and what reforms are required to ensure we can continue to grow and don't necessarily have a repeat performance of the global financial crisis and global recession

KELLY:

Treasurer, what's the main takeout for the Australian budget from your talks in Washington?

TREASURER:

Well, the IMF have forecast a lower growth rate for Australia in 2011; they've downgraded the forecast over the calendar year to 3 per cent. We already know that growth will be up to three-quarters of a per cent less in Australia in the financial year 10/11 because of the impact of the floods, the impact of Cyclone Yasi and of course the impact of what has been going on in Japan. So we will see that growth has taken a short-term hit and of course that goes to our budget bottom line and revenues. But what we also see, and we can see this in the IMF analysis as well, is that the underlying fundamentals of the Australian economy are very strong, and as we go forward we will continue to grow strongly. There is an expectation, for example, that commodity prices will be higher historically as we go forward because of the shift in growth towards our region. So there are plusses and minuses. I'm very optimistic about our prospects, but in the short-term we've taken a hit to growth and we've taken a hit to budget revenues.

SHANAHAN:

Mr Swan, there have been reports of a $13 billion shortfall or downgrading in revenue, also a longer-term contraction in growth. What does this mean for the structural deficit and are you still on target to actually hit your first surplus in 2013/14?

TREASURER:

We're certainly determined to bring our budget back to surplus in 2012/13 because we have a very strong investment pipeline, the underlying fundamentals are strong, our economy will be reaching capacity. So we definitely need to bring our budget back to surplus to create the room for that investment pipeline. But of course in the short-term, we still have the hangover of the global financial crisis and the global recession when it comes to budget revenues. And of course on top of that, we've now got the hit to the bottom line that has come from the floods, Cyclone Yasi and of course events in Japan.

KELLY:

But Mr. Swan, how concerned are you about the weakness of the non-resources sectors of the Australian economy? I'm thinking of retail, manufacturing, tourism. To what extent are you concerned that these sectors simply aren't performing strongly?

TREASURER:

Well there is no doubt that we've got a patchwork economy. There's no doubt particularly that a higher dollar has an impact when it comes to our tourism industries and some of our other export industries. It certainly does weigh heavily on the economy, but the upside here is the highest terms of trade in 140 years, a really strong investment pipeline and what we've seen even in recent times is extremely strong jobs growth. Something like 300,000 jobs in Australia in the past year, 98 per cent of them full time.

But of course what we do know is that we also have a cautious consumer. This is something that you see in Australia and you also see also around the world. Consumers are weary particularly because of the stories, for example, they see in the media about the sovereign debt crisis in Europe. They see the problems in Japan. So we have a patchwork economy. Our resources sector is strong, our investment pipeline is strong, but that doesn't mean to say that every sector is going strongly, and that's why we have been absolutely insistent that we bring the budget back to surplus on one hand in a timely way, but also make sure we put the policies in place for the future for those sectors that aren't in the fast lane of the resources sector - such as giving tax cuts to small business - flowing from the Henry Report, bringing down over time our corporate tax rate. We've got to respond to this patchwork economy. We've got to respond to the strong investment pipeline. But we've also got to be aware that not everybody is sharing in it the way in which some are.

VAN ONSELEN:

Well on that issue Mr. Swan, what about the structural deficit, the underlying deficit that is still going to be in place around 2019/2020? There's a lot of talk about getting back to surplus earlier than that, but that's a surplus built on very high commodity prices isn't it? And with the threats to the global economy there's every chance that the structural deficit will present itself as a real problem going forward.

TREASURER:

Well I think you have to be weary of some of the estimates of the structural deficit. We have published in our budget papers for the first time a sensitivity analysis which goes through a whole range of scenarios. One of those scenarios is that we'll be back to surplus in 2012/13. If you change the assumptions then it may take longer. The fact is that we have put in place a medium-term fiscal strategy which imposes very strict discipline on our budget. When growth returns to trend we've got a 2 per cent real expenditure cap. That's not something you see just about anywhere else in the world. We've made a commitment to bank the upward revisions of revenue. We went through an election campaign where we offset all new spending. That is a very strong discipline and that does deal with the structural pressures in our budget.

But I'd also remind you some of the things that we have done in previous budgets, for example, lifting the pension age for the reasons that you outline. We have to be concerned about where our budget will be in the longer-term and that is why when we moved to stimulate our economy and to go into deficit, we said that when we return growth to trend we would impose our fiscal rules. That's what we are doing and we are almost unique in the developed world for that approach. And it's the sort of approach that received a lot of discussion at the meetings I've been at this weekend, at both the G20 and the IMF. The need for developed economies [inaudible] economic conditions to put in place a medium-term fiscal strategy. That's what we're doing, and we believe bringing the budget back to surplus in 2012/13 will be justified because by then we will be feeling the benefits of the full investment pipeline that we've got, the jobs that go with it, and it's important that we make budget savings in that context at that time.

SHANAHAN:

Mr Swan, you mentioned the longer- term and the importance of jobs. The carbon tax, the carbon pricing system, has come in for a lot of criticism this week from the union movement and obviously the steel industry leaders who are saying that there are going to be jobs lost. Paul Howes is saying that if there is one job lost the AWU will withdraw its support for the carbon tax. To what extent is the pressure of the carbon tax going to affect the longer- term and is the Government trying to fight too many fights at the moment.

TREASURER:

Well we could go through a number of issues there. We're determined to keep in place a strict fiscal policy, that's the basis of growth, but what we know we have to do is to prepare the economy for the future, particularly a gradual move over, if you like, into pricing carbon. And that's what we've been talking about - making the transition to lowering our carbon emissions. Just like the big reforms of the 80s and the early 90s, these big reforms are always hard fought, they're always difficult and they're always contested. But our number one priority in moving to price carbon is to make sure that we do protect the prosperity and the jobs of the future.

Making this move means that we will not be left behind. Other countries are doing a lot to reduce their carbon emissions. What we've got to do is to make the transition to prepare our economy for that future, to drive the investment, to drive the investment in energy in particular, but also in renewable energy. So this is one of those great reforms which is difficult and over which there will be a lot of debate. But it is one that we must put in place for the future prosperity and jobs of our children and our grandchildren. We're determined to do that and I'm not surprised by the vigour that we're seeing in the debate at the moment. We saw it for example when we brought down the tariff wall in the 90s, we saw it in the debate about enterprise bargaining and we'll see it in this debate. It's an important debate for Australia, people will speak their mind. What we have to do is to act responsibly.

We can't be like the Opposition who just say no to everything, don't care about the long-term, don't care about what damage they do to the budget bottom line. We have to be constructive, with our eye on the future and that's the lesson, that's the lesson that I've learnt through the G20 and the IMF - make sure you are always preparing for the future. We're in the future business, and that's what pricing carbon is all about, preparing our economy for the future.

KELLY:

But just on that point Treasurer, can you give a guarantee that not one single job will be lost as a result of Labor's carbon pricing scheme?

TREASURER:

What I can do is say that we will use every cent of the revenue raised from a price on carbon which is collected from the big polluters to give them the incentive to reduce their emissions, every cent on the one hand to assist households and also on the other to assist industry. There's no doubt that energy intensive trade exposed industries do deserve assistance and we're engaged in a discussion with that sector and other sectors. We'll continue to have those discussions as we move forward to conclude the design of the scheme.

KELLY:

But isn't the truth here that some jobs in fact will be lost, that they must be lost?

TREASURER:

Well not necessarily so. I mean what we have in Australia is we have a framework which is world-class, we have a strong economy, but we have to make that transition to a low pollution economy. It may well be that in some sectors there are particular challenges or particular problems which pre-exist this debate about the price on carbon. What we'll have to do is thoroughly assess that as we go through. I can't speculate about what's going on in every industry, but what I can say, and this is what the Government is doing, is sitting down, talking to each sector, talking to industry about their view about where we're going and what we should do. And we're in the middle of doing that now, but I'm not surprised that we're having a vigorous debate about that, that's only natural.

SHANAHAN:

Mr Swan, Greg Combet your colleague this week has announced that there will be a guarantee of at least 50 per cent of that compensation for a carbon tax going to households. Now as the compensation for households rises, isn't it the case that the compensation for industry is going to have to shrink or you are going to have to have an impact on your budget bottom line?

TREASURER:

Well we haven't finished the design of the scheme yet Dennis. Greg talked about some of the broad parameters last week and that was appropriate but we will be able to go through and make those assessments when we announce our final design. But your assumptions there don't necessarily follow. It depends upon our design across a range of areas.

VAN ONSELEN:

Mr Swan can I ask you, there are reports in the Sunday News Ltd papers about means testing of the childcare rebate or indeed [inaudible] so that it's based around income in some way. Can you give us some lead on that? Is that something that you are looking at?

TREASURER:

Well I'm sure there will be lots of stories speculating about what's going to be in the budget over the next couple of weeks. I'm not going to comment one way or another about that sort of speculation. We will be announcing all of our measures and our plans on budget night and I'm not going to enter into that sort of speculation. I'm not in the rule in or rule out business on any of these measures.

KELLY:

Your Queensland colleague , Bill Ludwig, has complained about Kevin Rudd's loyalty, saying that Kevin Rudd puts himself first, second, third and fourth. To what extent do you think that there is a problem with Kevin Rudd's high profile?

TREASURER:

I think Kevin Rudd is doing a great job as Foreign Minister. I don't see it as a problem, I see it as a plus for the nation. Now from time to time people will have views about other people, it's a free world and they may express them. What I can say about Kevin is that he's doing a good job, a terrific job as Foreign Minister and making an enormous contribution and when you move around the international forums you see the evidence of that, and that's what I've seen here this weekend.

VAN ONSELEN:

Mr Swan one final question: I know you've got a plane to catch, we don't want you to miss it, but I just want to ask you, a lot has been made since the last election about Opposition costings and the blowout from the Treasury assessment of their costings. I'm just wondering, isn't this a problem on all sides, isn't this the reality of budget forecasting - that it is slippery at the best times and that's why any discussion about getting back to surplus in the next couple of years is quite hypothetical?

TREASURER:

Not at all. Our analysis of Treasury costings of Opposition proposals and approaches shows that they cannot produce a surplus in any year over the forward estimates. And this was the crew that were failed in the last election campaign by the Treasury and the Department of Finance and shown to have an $11 billion black hole. On top of that, they are blocking savings of something like $5 billion and they've attempted to stop or frustrate other measures to the tune of $8 billion. The problem with the Opposition is that they won't come clean on what they're doing. They run around the place claiming they're against deficits but every step they take is to make them bigger.

VAN ONSELEN:

Alright Mr Swan we appreciate your company on Australian Sunday Agenda. Thanks very much for joining us.

TREASURER:

Good to be with you.