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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

1 August 2011

Interview with David Speers

SKY News Channel

1 August 2011

SUBJECTS: U.S. debt ceiling negotiations; global economic outlook; consumer prices; interest rates; tax reform

SPEERS:

Treasurer, welcome.  It hasn't gone to a vote in Congress yet but are you relieved a deal appears to have been struck to avoid the US going into default?

TREASURER:

Well, it's an important first step.  It has yet to pass the Congress so I don't think they'll be popping the champagne corks in Washington just yet.  But yes, look it is welcome.  We certainly hope it does pass the Congress.  It's very important because in the pathway ahead there is still a long and painful adjustment for the United States. But jumping across this hurdle is an important first step.

SPEERS:

Do you get the sense they are ready for that long and painful process you talk about, to cut spending?

TREASURER:

Well, I certainly hope that they are.  I think the Administration has the determination but they have a very difficult situation in the Congress.  They have a political gridlock in the United States.  They don't have the advantage that we have here where we have a strong government that is passing its legislation, getting its Budget through.  That's not happening in the United States and that's part of the problem because that's what impacts on certainty.

SPEERS:

This deal, if it does get through Congress, seems to put a lot of the hard decisions of cutting spending to a special congressional committee over the coming months.  What confidence do you have that they'll be able to do a deal when under this enormous pressure over the last week or two, congressional leaders haven't been able to?

TREASURER:

Well, that's why this is such an important first step but we've got to go to the next step and that's just as important.  We've got to see a pathway for fiscal consolidation in the United States and we need that for global certainty.  We need that for global growth.  A lot of people are going to be watching.

SPEERS:

How much has this crisis shaken confidence in the US?

TREASURER:

Well, I think it's the combination of what's been going on in Europe as well as what's going on in the United States.  It's certainly a factor in global uncertainty.  I think everybody would have preferred if it didn't get to this stage but what people will be looking for now is progress beyond this initiative - that long-term fiscal consolidation.  Now naturally the US economy is still weak.  It doesn't have to happen in the near term.  What people want to see is that long-term pathway.

SPEERS:

They're not out of the woods yet, the US.  Clearly there are still problems in Europe as well, Japan too.  How worried should we be about potential for another global financial crisis caused by a country defaulting on its debt?

TREASURER:

Well, first of all I think we can have great confidence that we live in a region of the world which is strong. And we can have great confidence in the fact that our economy is strong, and I think we can have confidence in the fact that we have the proven ability to deal with global uncertainty.  So there's a lot going for Australia but we're not immune from these events internationally, but our region itself remains strong.  Growth in the region is strong, commodity prices are still strong, investment pipeline into Australia is still strong, and we have a strong political situation in this country where a Government has passed its Budget and we are putting in place the biggest fiscal consolidation in our history.  All of those things really count.

SPEERS:

Can I turn to the domestic economy.  The Reserve Bank tomorrow makes its decision on interest rates.  Annual inflation has now risen to 3.6 per cent - that is well outside the Reserve Bank's target zone.  It can't ignore the inflation figure, can it?

TREASURER:

Well, I don't speculate about decisions of the Board but let me make this point about inflation: when there was a higher number, a slightly higher number, and that was made up two thirds of fruit and fuel, so there are temporary factors here.  The Reserve Bank will take those factors into account, just as it will take into account the factors that are going on internationally, when it takes its decision independently of the Government.  But they've made the point that our Budget policy is very strict.  It's the sort of Budget policy you need for our circumstances and they've made that point on many occasions as well.

SPEERS:

But inflation does appear to be a problem across the board beyond just bananas.  Food generally is going up 6.1 per cent annually, electricity 10.7 per cent, petrol 11.3 per cent.

TREASURER:

Which is why our Budget position and the biggest fiscal consolidation in history is so important.  We are not going to add to any of the inflationary pressures in the economy and that's why our investment in skills, and education, and infrastructure and so on - capacity building in the economy - is also so important. 

SPEERS:

But is the inflation genie out of the bottle?

TREASURER:

Well, what we've seen is some very significant temporary factors.  We're going to take those into account.  The Reserve Bank keeps an eye on underlying inflation.  The most important thing is to make sure we get the decision right for the future, but that's a decision they take independently of the Government.

SPEERS:

Just finally, the Tax Forum later this year.  You've said the GST is off the table, so too is the carbon tax and the mining tax.  You've also said you're not interested in the congestion tax idea.  What will you be open to?

TREASURER:

There's an enormous amount on the table.  There was over a thousand pages in terms of the original tax review and we've done a lot already, but we're not going to press the pause button on important reforms that we have consulted widely on.

SPEERS:

So which ones jump out for you that you'll be looking at?

TREASURER:

Well, we're going to go through the full gamut - business taxation, personal taxation, state taxation - there's a whole grouping of areas of tax which the review talked about which deserve consideration.  There's a hell of a lot on the agenda and if people want to talk about those matters they can talk about them but I have the responsibility to indicate to people what the Government's bottom line is and we've said from the very beginning that we wouldn't be touching the base or the rate of the GST. And everybody knows we've been consulting on resource rent taxation and doing it for well over 12 months.  So I think a lot of those points that people are making miss the overall point which is there's a broad area for tax reform.  We want to have a decent conversation with the community and that's what we'll do.

SPEERS:

Treasurer, Wayne Swan, thank you.

TREASURER:

Thank you.