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

27 April 2011

Press Conference

Canberra

27 April 2011

SUBJECTS: Consumer Price Index; Budget; Family Trusts; Carbon Price

TREASURER:

Well, I think today's figures show an unsurprising spike in inflation caused by the summer floods and, of course Cyclone Yasi. The figures show that CPI inflation increased to 1.6 per cent in the March quarter, and 3.3 per cent over the year. This is up from 0.4 per cent in the December quarter and 2.7 per cent over the year to December 2010.

Now I think we were always going to see this increase in headline inflation in this quarter, given the recent natural disasters which have wiped out very big parts of the Eastern Australian food bowl.

I think it's been obvious to anyone who has been out shopping, when they've been putting the fruit and veggie in the shopping trolley, that there has been a tremendous impact from these natural disasters on prices at the checkout and, of course today's figures confirm that.

Fruit and vegetable prices rose by 15 per cent in the first three months of 2011, contributing around 0.4 percentage points to the quarterly CPI increase. For example, banana prices rose 100 per cent in the March quarter compared to the previous quarter with some people currently paying around $13 a kilo at the supermarket checkout. But it's not just been bananas, it's been a whole range of veg as well; cauliflowers, broccoli, lettuce, pumpkins and potatoes have all seen very substantial price increases. And of course this has been really tough on many family budgets. We can take some comfort, however, that in coming quarters we will see some of these price increases unwind as crops re-grow and production returns.

Now, encouragingly, today's result also shows that underlying inflation remains low - at 2.3 per cent through the year. This is up only slightly from the 2.2 per cent that we saw in the December quarter and does sit around its lowest level in ten years. Underlying inflation demonstrates that when you do strip out the spike that's been caused by the disasters, it is still around its lowest level in a decade, but despite this it does mean that many Australians are doing it tough because in addition to the spike in fruit and veggie prices, we've also had a spike in global oil prices, which are feeding into higher fuel prices at the petrol pump. Fuel prices rose 8.8 per cent in the quarter contributing around 0.3 percentage points to the quarterly CPI increase.

Now of course we mustn't forget that Australians are pretty resilient and, of course our economic fundamentals are strong. This summer's disasters have not knocked our economy off course. We've got strong job creation. We've got low unemployment. We've got solid public finances and a huge pipeline of investment that's flowing from record high export prices. Now of course in the years ahead these conditions are going to stretch the economy's capacity and they will test the capacity of our workforce. So this year's Budget will focus on expanding the capacity of our workforce and our economy whilst at the same time sticking to our strict fiscal rules.

Taking the necessary decisions to get the Budget back to surplus in 2012-13, as planned, will ensure that we don't compound inevitable price pressures that will emerge when the mining investment boom hits top gear and, of course critical here is lifting our productivity and our capacity across the board, continuing investment in infrastructure and, of course our people.

We need to ensure that have the skilled workers we need and we also need to ensure that we provide all Australians with the capacity to get the skills that the economy requires and that means harnessing the talents of every Australian and eliminating barriers to participation. So getting the foundations right in the year ahead is absolutely critical so we can maximise all of the opportunities that will flow from Mining Boom Mark II.

JOURNALIST:

Treasurer, you've just said how tough families are doing it, filling up their shopping trolley with the weekly fruit and veg but you've made no secret that your Budget is also going to be harsh. Is that fair to the ordinary Australian? Wouldn't that ordinary Australian feel what the hell are they, what sort of joy are they getting out this Government?

TREASURER:

Well, I think what we've got here is a complex story and our task is to go through that bit by bit and piece by piece. There's been a very substantial impact of the natural disasters and I've explained at some length how that has impacted not just on prices at the supermarket, but also how it has impacted particularly on Government revenues. That's a short-term impact. We do know that as production resumes and supply increases, some of these price increases will unwind but what we have to be able to do in the medium term and the long term is contain price pressures in our economy.

We do have strong fundamentals, strong employment growth, capacity constraints in our economy and a very, very big investment pipeline coming down the track. So what that means is that we have to make sure that we bring our Budget back to surplus so we don't compound those price increases in the future. We have to make sure that we expand the capacity of our economy to avoid some of the capacity constraints which also feed inflation into the future. So we've got to deal with the short term and we're doing that, and we've got to deal with the medium term and the long term and we do that to make sure that all Australians have the best possible living standards and we do everything we possibly can to ease price pressures in an economy which is at full capacity.

JOURNALIST:

Treasurer, you talk about easing the price pressures. Do you agree that the price war in supermarkets for milk, bread and eggs does cushion families in these figures because those products have all fallen in price sharply? Do you support that price war continuing?

TREASURER:

Well, I certainly support vigorous price competition at the checkout. I have done this all of my life and I've always kept a very close eye on what's going on at the supermarket because when you're a Treasurer, you've got to have an eye on the supermarket, not just on the boardrooms. You've got to have an eye about what's happening at the kitchen table.

So, no doubt some of this vigorous competition when it comes, particularly to items like milk, is welcomed by millions of consumers but, of course when it comes particularly to milk we also have to be very careful that we don't get a situation where the supply of milk is choked off either. But yes, I welcome vigorous competition, vigorous competition at the supermarket level. It's good to see it happening between some of the major supermarkets. It's not been yet at the extent that we would have liked it at the various stages in the past, that's good to see but we do need to just keep an eye on what this may mean at the farm gate, if in fact we find that the behaviour is predatory or collusive.

JOURNALIST:

Treasurer, in the past 12 months Sydneysiders have been hit by higher than average price rises particularly (inaudible) with fruit and vegetables up too in Sydney. Do you agree that households couldn't cope with an interest rate rise at the moment?

TREASURER:

Well, certainly on the question of interest rates, they are decisions for the independent Reserve Bank, but I will just draw your attention to some remarks made by the Governor when he was talking about temporary spikes in prices and he made the point that when there are temporary spikes they tend to look through those temporary spikes and they tend to look at what the longer-term outlook is and, as I said to you before, the Government wants to make sure in the medium term and the longer term that we are doing everything we possibly can to ensure we deal with the capacity constraints in the economy so there are not excessive price pressures in our economy.

JOURNALIST:

Just a separate topic, what do you make of the AWU's call to exempt steel from the carbon tax?

TREASURER:

Well, I think their concerned about the employment of members as any union would be concerned but I would say to them is what I'd say to unions and employers and the public in general that we've got to put in place a price on carbon to get the investment which will drive renewable energy in this country and which will give all of our industries the chance to compete in the future and the steel industry is part of all of that.

JOURNALIST:

On family trusts, (Inaudible) of a system of family trusts income distributions to children if there is a time to review the current regime?

TREASURER:

Well, I've seen that story in the papers today and I don't intend to comment on Budget speculation. The issue of family trusts was dealt with extensively in the Henry report but what they didn't deal with was the issues that were dealt with in the paper today which related to the use of the low income tax offset by wealthy people, but I'm not going to speculate about that in the context of a forthcoming Budget.

JOURNALIST:

Treasurer, will the carbon tax wipe Whyalla off the face of the earth?

TREASURER:

I don't believe that pricing carbon will necessarily do that to any of our industries because we are determined to ensure that those trade-exposed industries that are energy intensive receive the essential support and protection.

JOURNALIST:

Are you surprised at the extreme language from the AWU State Secretary in South Australia?

TREASURER:

I'm not surprised that union officials representing their members will be vigorously involved in a very big debate like this. I'm not surprised by that at all and I don't know that anyone else would be surprised about that.

JOURNALIST:

Just on the substance of the steel, the point that the AWU is making about steel. What is your view? Does it deserve more special treatment than (inaudible)?

TREASURER:

Minister Combet has made it very clear that we are genuine in our discussions that we are having with the various trade-exposed sectors and we're doing that in good faith. After all what goes to the very core of this Government's ambition for our country is jobs, and more jobs, and better quality jobs. And what we have managed to do in the face of a global recession and a global financial crisis is produce an outcome in terms of jobs that is the envy of the world. And we will ensure as we go through this whole debate and policy formulation process for a price on carbon that jobs remain to the fore. That's what drives us. That's what drives us in terms of pricing carbon, to make sure that we can get the transition in our economy to a lower pollution future and that that keeps our relative competitiveness in a completely different and changing world.

JOURNALIST:

But is the AWU position ridiculous that no job should be lost? Isn't that a nonsense position?

TREASURER:

I'm not going to be out there giving a character reference to union leaders and/or business leaders who want to vigorously engage in the debate about pricing carbon. What I'll say to them is that we come to the table genuine in our desire to talk to industry, particularly the energy-intensive trade-exposed industries, about how we assist them to make the transition which must be made, must be made in this country.

Anyone who goes out there and claims that this transition shouldn't be made and isn't going to happen is letting the Australian workforce down and the Australian nation down. I believe the union leadership understands that we do have to price carbon, that yes, we'll have a vigorous debate about it with not just unions but also the business community and so on, and we'll get the settings right.

JOURNALIST:

But Mr Swan, should we interpret your comments on jobs being fundamentally important, the preservation of jobs, as meaning support for the AWU's call for -

TREASURER:

No, you can interpret them as I've just said them. The fact is that if we're going to keep our economy prosperous we have to make the transition to a lower carbon economy. Everybody accepts that and in making that transition there will be transitional issues, and there will be issues to deal with particular sectors for which we'll work with workers, unions and employers, and that's what we're doing. For anyone to say that this transition doesn't have to happen or can be put in the too hard basket or should be delayed, what they're really saying is that they've given up on jobs.

JOURNALIST:

Can I just go back to trusts? These new figures from the tax office show that quite a few people are allocating investment earnings for up to 200,000 children via trusts to reduce their taxes. Do you think that's acceptable and are these people avoiding tax?

TREASURER:

What I always will judge these issues by is what is best for lower and middle income earning Australian families and if others are using artificial means to avoid their tax then we should do something about that.

JOURNALIST:

Where do you draw the line with trusts? Bill Shorten said about a week ago that trusts were a legitimate, not a form of tax evasion.

TREASURER:

Far be it for me to try and interpret the story this morning, but the story this morning isn't a story about trusts and engaging in appropriate behaviour. It is actually a story about the use of a low income tax offset by people who are using trusts and there is a very big distinction between the two and there is no conflict with what I'm saying with what Bill Shorten had to say at all.

JOURNALIST:

Can I take you back to inflation? If you take fruit and veg prices out of it and if you take petrol out of it, just mathematically you have hardly any inflation pressure at least on these figures. Is that how you see it? That taking away the impact of the floods and taking away petrol prices, we in fact don't have much inflation pressure.

TREASURER:

Well, I mean you can do the figures, but fuel prices are -

JOURNALIST:

I'm looking for your, as I said, that is what the figures show. I'm looking for your interpretation.

TREASURER:

And you'll get both, how about that? If you're looking at fuel that's 0.3 [percentage points] of the 1.6 [per cent]. Food is 0.5 [percentage points]. That takes you to 0.8 [percentage points]. You've also got seasonal increases when it comes I think to health and education, so they're probably a bit higher than normal. So what that does paint is an overall picture where underlying inflation is under control, certainly. There is no doubt about that and I think I said that in my introductory remarks. But what I also said was that there are emerging inflationary pressures in our economy if we don't get the settings right, the settings to cope with and to ride the maximum opportunity from Mining Boom Mark II. That's why I said that this is a complex story and our task is to explain it.

Short-term weakness, short-term impacts from the natural disasters in terms of prices on the one hand for families in the street, those going out and buying the fruit and veg. On the other hand, a weaker economy in the short term and that is being felt by many small businesses and it's certainly felt through a reduction in Government revenue. That on the one hand in the short term and then in the medium and long term an economy coming back to capacity with unemployment with a four in front of it, with a really big investment pipeline and then overlayed there a very high Australian dollar. This has different impacts on different groups of people in different industries in different parts of the country. It's quite a complex story.

So many people out there who are doing it tough would be a bit incredulous, if you like, at people talking about us being in the middle of a boom when they're in fact experiencing price pressures, fruit and veg and, of course they may be operating a small business which has been hit because for example, consumption is a little lower than it's been historically. Or they may be impacted by the Australian dollar. So there are differing impacts on differing groups of people in different places, at different times, in what is this patchwork economy that we live in.

And the whole task - and this is the point I made at great length in a speech in Brisbane the other day - is to explain these complex interactions with the Australian people. Some people have said that I went out the other day and said that I didn't think the boom was important. The whole first half of the speech I made the other day was that this boom can bring tremendous opportunities, it's an investment pipeline that will bring significant wealth and job creation to our country but what we've got to do is understand how different Mining Boom Mark II is from Mining Boom Mark I, and if you understand that difference you then understand what the policy priorities need to be.