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

2 August 2011

Press Conference

Sydney

2 August 2011

SUBJECTS: Reserve Bank decision; global economic outlook; Australian economy; health reform

TREASURER:

I'll just say a few words about the Reserve Bank decision today and I'll say a few words about the international economic outlook and events in the United States.

I think it's pretty fair to say that today's decision by the independent Reserve Bank is welcome relief for families and businesses that are doing it tough. It means that a family with a $300,000 mortgage are still paying $4,500 dollars a year less than they were prior to the global financial crisis but of course if you're struggling with cost of living pressures every dollar counts. And for the Government's part what we are putting in place is the fastest fiscal consolidation on record to make sure that we don't add to any inflationary pressures in our economy and of course we are investing directly in productivity enhancing infrastructure, education and skills. These are all very important. And I would also make the point that the RBA has very strongly said that our government fiscal policy is tight and that's very important to consider in the environment that we are in. So we are making the historic investments in infrastructure and investing in productivity enhancing reforms which ensure long-term sustainable growth in our country.

Now I wanted to make a few remarks about the global economy. There's been a lot happening out there. Certainly we've seen a very important first step in the United States today, but I think the United States has still got a long way to go before they get their budget in order. We've also seen global uncertainty and instability in Europe in recent times. What these all demonstrate is that in both Europe and in the United States there's a very painful period of adjustment ahead when it comes to getting their budgets in order and reducing public debt. But all of this is a very stark reminder of just how healthy the Australian Government budget is compared to other developed economies.

Our net debt will peak at less than one tenth of major advanced economies, and we've put in place a very effective fiscal policy. When we moved to stimulate our economy in the face of the global recession, we also put in place an exit strategy at the same time. And we are implementing that exit strategy and bringing our budget back to surplus in 2012-13 unlike virtually any other major developed economy. So our Government has put in place the appropriate fiscal settings in a way in which very few other advanced economies have responded. So we're bringing our budget back to surplus, but at the same time we are finding the room within our budget to invest in the productivity enhancing reforms – most particularly in skills and education, workforce participation, and infrastructure.

So when you look at the Australian economy, our economic fundamentals are strong. We have low unemployment. If you compare our unemployment to the unemployment in the United States, it is almost twice the level of Australia. We have strong financial institutions. We have world-class regulators. And of course we are ideally located in the strongest growing region of the world, and we've seen the shift in economic power from West to East which also serves to assist our economy.

We also have a well-functioning parliament and a strong government that has got its budget through in record time, and we also have a government that has a proven track record of dealing with global economic instability. But we also recognise that not everybody in the Australian economy is in the fast lane. There are still many households out there and businesses who are doing it tough in what for many is a patchwork economy. What we will do as a government is get on with the job of governing, putting in place the essential reforms to ensure strong economic growth as well as spreading opportunity right around our country. Over to you.

JOURNALIST:

(Inaudible) statement from Glenn Stevens that they're keen to fire an interest rates trigger. It's just some of those events overseas have held them back.

TRESURER:

I don't accept that characterisation at all. As you know, these decisions are taken by the independent Reserve Bank. What I see in the statement today is an assessment of the global economy and an assessment of the Australian economy. The Reserve Bank will take its decisions on a month by month basis but I don't accept that you can reach an automatic conclusion from today's statement.

JOURNALIST:

In the statement the investment in resources is picking up but cautious spending by households is having a dampening effect. Why do you think households are being so cautious and not spending money?

TRESURER:

Well, I've spoken about the cautious consumer for many months now and I first made a significant speech about this back in April and I made a number of points and I think they're really important to understand. First and foremost we are still living with the aftershocks, if you like, of the global financial crisis and the global recession. That had a dramatic impact and an impact on both income and wealth in the Australian economy. The share market, for example, is not back to where it was prior to the global financial crisis. Many people with retirement savings are still not back to where they were prior to the global financial crisis.

We've also seen the impact, I think, on domestic confidence of international uncertainty. This has been broadcast into our economy month after month after month, and we've had a diet of this broadcast into our economy from both Europe and the United States over the last three or four days. And on top of that, you've also got the high Australian dollar bearing down on many of our industries, particularly our tourism industry and our manufacturing industry that are exporting.

So there are a variety of factors which are impacting upon consumer sentiment and producing the outcome of a cautious consumer and on top of that you've got this entirely negative and destructive campaign of talking our economy down by Tony Abbott and his Tea Party Liberals. That's what's been going on in the Australian economy in recent times. Those things have combined, but the advent of the cautious consumer has been with us for some time.

We saw the savings rate in Australia tick up during the global financial crisis. We saw it tick up again at the end of last year and we've seen it tick up through this year. What that means is that Australians are saving more and spending less. There are a variety of influences on that outcome and I think I've accurately just described all of those influences.

JOURNALIST:

Treasurer, in the statement from the Reserve Bank, it says the flood recovery and the resources sector recovery won't happen until next year. So is that reason for the Reserve Bank (inaudible)?

TREASURER:

No, I think what is evident is that the floods, the natural disasters, the floods in Queensland, Cyclone Yasi, the bushfires in [Western Australia], the combination of that with what occurred in New Zealand and Japan, did have a dramatic impact on our economy and we saw that in the March quarter National Accounts – another factor feeding into the cautious consumer, if you like. So there's been a whole range of factors impacting upon confidence, and impacting upon growth from the higher dollar, the natural disasters, and of course the hangover effects of the global financial crisis and the global recession exacerbated by this new bout of political and economic instability in Europe and the United States.

I think Australians can take great confidence from the fact that here in Australia we have a government which has pushed through its budget in record time. We have a government in Australia which has a proven track record of dealing with global instability. All of those things mean our fundamentals are strong and we stand in stark contrast to the events that are happening in Europe. Our public debt is low and our budget is in good nick compared to those other countries.

JOURNALIST:

In that long list you didn't mention the fact that consumers are expecting to pay a carbon tax to start on July 1 next year. Is it fair to say that it has had no effect?

TREASURER:

I think we've had a very negative debate in Australia led by the Liberal Party, which has talked down our economy day in day out. But let's be frank about this, the carbon price doesn't start for another year but what I am dealing with is what is happening right now. You've had the Liberal Party talking our economy down, out there with their wrecking ball smashing confidence, going around and making all sorts of extraordinary and untrue statements about the economic impact of a carbon price.

But you also have all of those other factors I spoke about before: the impact of the natural disasters, the impact of a higher dollar. There are a lot of people out there that are doing it pretty tough because of the higher dollar. A lot of tourist operators who I've talked to in Cairns in the past month or so, a lot of people in the manufacturing industry that I've spoken to in the last couple of days. We do have a patchwork economy and that's why when we brought down the budget in May this year we talked about the need to spread opportunity right around our economy. That our budget had to deal with not only the fact that we've got a big investment pipeline and a resources boom but we had to make sure that we spread the opportunities from that to every corner of our economy, our patchwork economy, because not everyone in our economy is in the fast lane of the resources boom.

JOURNALIST:

Treasurer on the hospital reform, as Treasurer how concerned are you that $16 billion had to be spent to bring the states on board to end the 15-month impasse with Western Australia?

TREASURER:

Well I don't accept that characterisation at all because it is entirely affordable. It recognises the fact that we have to have in place long-term agreements but it also recognises the fact that we have got to get value for money. And what's been put in place with this agreement is a way in which to ensure that we do get value for money. I think this is a groundbreaking agreement for Australia, the issue of intergovernmental relationships in health is one that has bedevilled our social policy and budget policy for a long time. This will inject certainty, value for money outcomes, a way to measure it. And I think that is something we can all be pretty proud of and it is a very substantial reform for Australia. Thanks very much.